<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 2000.
REGISTRATION NO. 333-94777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EPRISE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 04-3179480
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1671 WORCESTER ROAD
FRAMINGHAM, MA 01701
(508) 872-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOSEPH A. FORGIONE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EPRISE CORPORATION
1671 WORCESTER ROAD
FRAMINGHAM, MA 01701
(508) 872-0200
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
DENNIS W. TOWNLEY, ESQ. EDWIN L. MILLER, JR., ESQ.
ANDREA M. TEICHMAN, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
HILL & BARLOW, A PROFESSIONAL CORPORATION 125 HIGH STREET
ONE INTERNATIONAL PLACE BOSTON, MA 02110
BOSTON, MA 02110-2607 (617) 248-7000
(617) 428-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________________
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________
If this form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001........................ 4,600,000 shares $14.00 $64,400,000 $17,001.60
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 600,000 shares that the underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(3) $12,144 of this amount has been previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 23, 2000
[EPRISE CORPORATION LOGO]
- --------------------------------------------------------------------------------
4,000,000 Shares
Common Stock
- --------------------------------------------------------------------------------
This is the initial public offering of Eprise Corporation, and we are offering
4,000,000 shares of our common stock. The initial public offering price is
expected to be between $12.00 and $14.00 per share.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "EPRS."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND EPRISE
PUBLIC COMMISSIONS CORPORATION
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to 600,000 additional
shares to cover any over-allotments.
DEUTSCHE BANC ALEX. BROWN
DAIN RAUSCHER WESSELS
WIT SOUNDVIEW
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
INSIDE FRONT COVER
The inside front cover of the prospectus depicts the following:
The upper left-hand corner displays the Eprise logo with the words "Eprise
Corporation" underneath.
The title bar at the top of the page states: "The Eprise Solution."
In the center of the page, there is a diagram with three sections. The
left-hand section contains four captions stating, in descending order,
"Corporate Info," "Product Info," "Sales Tools" and "Support Info." Each caption
is accompanied by a related illustration. The center section of the diagram
shows a transparent cylinder labeled "Web Server," which contains another
cylinder labeled "Eprise Participant Server(TM)" and displays a drawing of the
Eprise Participant Server product box. The internal cylinder also contains the
caption "Corporate Look and Feel." The right-hand section of the diagram
contains a drawing of two computer screens. The upper screen is labeled "Sales
Rep's View" and contains the illustrations from the left-hand section of the
diagram representing Corporate Info, Product Info and Sales Tools. The lower
screen is labeled "Customer's View" and contains the illustrations representing
Product Info, Corporate Info and Support Info.
Beneath the diagram, there is a caption that reads:
"EPRISE PARTICIPANT SERVER permits a business to manage its Web site content by:
- distributing responsibility for contribution and management of different
types of corporate content;
- maintaining a central repository where business managers can easily
organize, retrieve and re-use the business's Web site content; and
- delivering content to targeted Web site audiences."
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before buying shares in this offering. You should read the entire
prospectus carefully.
EPRISE CORPORATION
Eprise provides software products and services that enable businesses to
manage the information contained on their Web sites. Eprise Participant Server,
our core product, provides a comprehensive, out-of-the-box Web content
management solution that enables an enterprise to distribute Web content
management and content approval rights broadly within the organization with
minimal involvement by technical personnel. Customers can quickly deploy Eprise
Participant Server and use it to keep their Web sites up to date without the
need for substantial technical assistance or customization. We believe that
these features make Eprise Participant Server the most cost-effective Web
content management solution currently available.
Creating dynamic, up-to-date Web site content has become an increasingly
complex and critically important business process. As businesses develop and
expand their use of the Internet for business communications and electronic
commerce, the number of Web sites and the amount of Web content continue to grow
worldwide at an unprecedented pace. This has created a strong demand for Web
content management software, resulting in increased capital expenditures on Web
content management solutions. IDC estimates that the market for Web development
life-cycle management software, which includes Web content management software,
will grow from $76.4 million in 1998 to $1.6 billion in 2003.
The Eprise Participant Server product line has been designed to meet all of
the important needs for Web content management software. It permits an
enterprise to delegate to appropriate individuals within the organization the
right to create and manage Web content. It also permits the enterprise to target
the content that is seen by each category of Web site user, such as employees,
customers and business partners. At the same time, business rules can be created
to ensure that the overall Web site content is carefully controlled and the Web
site design has a consistent look and feel.
Eprise Participant Server is based on widely accepted, non-proprietary
industry standards so that it can easily be integrated with other Internet
infrastructure software, such as databases, back office systems, and e-commerce
and application servers. It employs a technical architecture that is highly
scalable so that it can manage the Web site content of even the largest of
enterprises. Customers can also use readily available software development tools
to adapt and customize Eprise Participant Server to meet their specific business
needs.
Eprise also offers a variety of optional professional services to
complement Eprise Participant Server. Through our Eprise Advantage Program, an
Eprise professional evaluates and designs a Web content management plan for each
customer. During and after the implementation phase, our professional services
team and alliance partners are available to provide advice and technical
assistance, including building unique applications for the customer's business.
We also provide customer training, maintenance and support.
We principally market our products domestically through our direct sales
force, and we intend to increase our global presence. We target enterprise level
accounts and dot-com companies for which the use of the Internet is a
fundamental part of their strategy. To extend our market reach, we also have
business relationships with a number of systems integrators and Web developers.
In addition, we are making substantial investments in research and development
in order to continue to expand and enhance Eprise Participant Server and to
develop new products.
1
<PAGE> 5
To date, we have licensed Eprise Participant Server to more than 40
customers, including Bausch & Lomb, Eastman Chemical, EMC, Hartford Financial,
Hewlett-Packard, Lincoln Financial Group, Novell, Sharp Electronics and
SmartMoney.com.
We were incorporated in Delaware in September 1992. Our principal executive
offices are located at 1671 Worcester Road, Framingham, Massachusetts 01701, and
our telephone number is (508) 872-0200. Our World Wide Web address is
www.eprise.com. The information on our Web site is not part of this prospectus.
-------------------------
"Eprise" is a registered trademark of Eprise Corporation. "E-business
Experts," "Eprise Advantage Program," "Eprise Participant Server," "Eprise Web
Catalyst," "Eprise Integration Agent," and the Eprise logo are trademarks of
Eprise Corporation. All other trademarks, service marks or trade names referred
to in this prospectus are the property of their respective owners.
2
<PAGE> 6
THE OFFERING
Common stock offered by Eprise..... 4,000,000 shares
Common stock to be outstanding
after the offering................. 22,943,440 shares
Use of proceeds.................... Working capital and general corporate
purposes, including expansion of sales,
distribution and marketing activities;
development of technology; capital
expenditures; funding of future operating
losses; and repayment of debt
Proposed Nasdaq National Market
symbol........................... EPRS
Common stock to be outstanding after this offering is based on shares
outstanding as of December 31, 1999. It excludes:
- 2,225,264 shares of common stock issuable upon exercise of options
outstanding at a weighted average exercise price of $0.71 per share, all
of which options are exercisable, subject to repurchase restrictions on
the option shares, and
- 432,151 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $2.78 per share, all of which warrants
are exercisable.
Except as presented in the financial statements or as otherwise specified
in this prospectus, all information in this prospectus:
- assumes no exercise of the underwriters' over-allotment option;
- does not reflect the exercise by Deutsche Bank Securities, Inc. of a
portion of its warrant for 125,357 shares of common stock effective upon
the closing of the offering;
- reflects a 1-for-2.55 reverse split of our common stock; and
- reflects the automatic conversion of all outstanding shares of preferred
stock into a total of 16,105,845 shares of common stock upon the closing
of this offering.
3
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary financial information below sets forth a summary of the results
of our operations and summary information about our assets, liabilities and
capital. In 1997, Eprise changed its fiscal year end from August 31 to December
31. The unaudited statement of operations for the twelve months ended December
31, 1997 has been computed by summing the results of operations for the four
fiscal quarters in the period ended December 31, 1997. The data for pro forma
net loss per share treats our outstanding preferred stock as though it were
common stock from the date of original issuance. You should read this
information along with our discussion in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our financial statements
and notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
FOUR MONTHS OR YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, ------------------------------
1997 1997 1997 1998 1999
---------- ------------ ------- ------- ----------
(RESTATED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................... $1,420 $ 303 $ 1,222 $ 807 $ 3,659
Gross profit................................. 902 18 643 347 2,534
Total operating expenses..................... 1,481 1,082 2,048 5,744 9,422
Operating loss............................... (579) (1,064) (1,405) (5,397) (6,888)
Net loss..................................... $ (733) $(1,164) $(1,615) $(5,261) $(6,600)
====== ======= ======= ======= =======
Loss per share............................... $(0.35) $ (0.54) $ (0.76) $ (2.40) $(11.42)
====== ======= ======= ======= =======
Weighted average common shares outstanding... 2,073 2,156 2,118 2,200 2,473
====== ======= ======= ======= =======
Pro forma loss per share..................... $ (0.50)
=======
Pro forma weighted average common shares
outstanding................................ 13,274
=======
</TABLE>
The following table presents a summary of our balance sheet at December 31,
1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding shares
of our preferred stock into a total of 16,105,845 shares of common stock,
which will occur upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of 4,000,000 shares
of common stock in this offering at an assumed initial public offering
price of $13.00 per share after deducting the estimated underwriting
discounts and commissions and offering expenses and the application of
the estimated net proceeds from this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(RESTATED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 22,455 $22,455 $69,790
Working capital............................................. 22,977 22,977 70,312
Total assets................................................ 25,534 25,534 72,869
Total liabilities........................................... 1,977 1,977 1,812
Redeemable preferred stock.................................. 35,316 -- --
Total stockholders' equity (deficiency)..................... (11,758) 23,558 71,058
</TABLE>
4
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below together with the other information about Eprise in
this prospectus before deciding to invest in shares of our common stock. If one
or more of the following risks actually occurs, our business, results of
operations and financial condition could be materially adversely affected, the
trading price of our common stock could decline, and you might lose all or part
of your investment. See "Special Note Regarding Forward-Looking Statements."
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, AND MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN
PROFITABILITY.
We incurred net losses of $5.3 million for the year ended December 31, 1998
and $6.6 million for the year ended December 31, 1999. As of December 31, 1999,
we had an accumulated deficit of $36.0 million. We have not yet achieved
profitability and we expect to incur net losses for the foreseeable future. To
date, we have funded our operations from the sale of equity securities and have
not generated cash from operations. We expect to continue to incur significant
research and development, selling and marketing, and general and administrative
expenses and, as a result, we will need to generate significant revenues to
achieve and maintain profitability. Although our revenues have grown
significantly in recent quarters, we cannot be certain that we can sustain these
growth rates or that we will achieve sufficient revenues for profitability. If
we do achieve profitability, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis in the future. See
"Summary Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the financial statements and
notes to those statements found elsewhere in this prospectus.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
Eprise was founded in 1992 as a provider of online interactive games. We
made the transition to our current business in 1997 and, as a result, have a
limited operating history. We are still in the early stages of our development,
which makes the evaluation of our business operations and our prospects
difficult. We shipped our first commercial Web content management software
product in February 1998. Since that time, we have derived substantially all of
our revenues from licensing our Eprise Participant Server product and related
services. As a result of our limited operating history, we cannot forecast
operating expenses based on our historical results. Our ability to forecast
accurately our quarterly revenue is limited because our software products have a
long sales cycle, making it difficult to predict the quarter in which sales
revenue will be recognized. We would expect our business, operating results and
financial condition to be materially adversely affected if our revenues do not
meet our projections, and that net losses in a given quarter could be even
greater than expected.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND YOU SHOULD NOT
RELY ON THEM TO PREDICT OUR FUTURE PERFORMANCE.
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:
- demand for our products and services;
- the timing of sales of our products and services;
- the timing of customer orders and product implementation;
- unexpected delays in introducing new products and services;
5
<PAGE> 9
- increased expenses, whether related to selling and marketing, research
and development or general and administrative;
- changes in the rapidly evolving market for Web content management
solutions;
- the mix of product license and service revenue; and
- the timing and size of sales derived through our strategic partners.
Accordingly, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful. Investors should not rely on
the results of one quarter as an indication of our future performance.
We plan to increase our operating expenditures to expand our sales and
marketing operations, develop new distribution channels, fund greater levels of
research and development, broaden professional services and support and improve
operational and financial systems. If our revenues do not increase along with
these expenses, our business, operating results or financial condition could be
materially adversely affected and net losses in a given quarter could be greater
than expected. Although we have limited historical financial data, we believe
that our quarterly operating results may experience seasonal fluctuations due to
clients' fiscal year budgeting cycles and purchasing patterns.
ONLY A LIMITED NUMBER OF CUSTOMERS HAVE LICENSED OUR PRODUCT, AND OUR WEB
CONTENT MANAGEMENT SOLUTION MAY NEVER ACHIEVE BROAD MARKET ACCEPTANCE.
We first introduced Eprise Participant Server in February 1998 and
delivered a second major release in April 1999. To date, only a limited number
of customers have licensed Eprise Participant Server, and an even smaller number
are operating Web sites using the most recent version. Therefore, we have not
demonstrated broad market acceptance of Eprise Participant Server. If our
product does not gain broad market acceptance, or if it fails to meet customer
expectations, our business would be harmed.
A LARGE PORTION OF OUR REVENUES ARE CURRENTLY DERIVED FROM A LIMITED NUMBER OF
CUSTOMERS.
Although we believe that our customer concentration will decrease as we
continue to build our client base, we expect that a small number of customers
will continue to account for a substantial portion of revenues in the near term.
As a result, our inability to secure major customers during a given period or
the loss of existing customers could have a material adverse effect on our
business, financial condition or results of operations. American Express
accounted for 58% of our revenues for the year ended December 31, 1998. Two of
our customers accounted for an aggregate of 23% of our revenues for the year
ended December 31, 1999.
IF WE DO NOT SUCCESSFULLY EXPAND OUR DIRECT SALES AND SERVICES ORGANIZATIONS, WE
MAY NOT BE ABLE TO INCREASE OUR SALES OR SUPPORT OUR CUSTOMERS.
In the fiscal year ended December 31, 1998, we licensed substantially all
of our products through our direct sales organization. As of February 25, 2000,
we had 20 direct sales representatives. Our future success depends on
substantially increasing the size and scope of our direct sales force, both
domestically and internationally. There is intense competition for personnel,
and we cannot guarantee that we will be able to attract, assimilate or retain
additional qualified sales personnel on a timely basis. Moreover, we believe
that as our sales increase, and given the large-scale deployment required by our
customers, we will need to hire and retain a number of highly trained customer
service and support personnel. As of February 25, 2000, our customer service and
support organization included 18 individuals. We cannot guarantee that we will
be able to increase the size of our customer service and support organization on
a timely basis to provide the high quality of support required by our customers.
6
<PAGE> 10
Failure to add additional sales and customer service representatives would have
a material adverse effect on our business, operating results and financial
condition.
IF WE DO NOT SUCCESSFULLY MAINTAIN AND EXPAND OUR RELATIONSHIPS WITH INDIRECT
SALES CHANNELS, OUR SALES COULD DECLINE OR GROW MORE SLOWLY THAN EXPECTED.
To offer products and services to a larger customer base, our direct sales
force must establish and expand relationships with alliance partners, including
systems integrators, consulting firms, Web developers and application service
providers who build customer solutions based on Eprise Participant Server. We
must also build relationships, which we refer to as original equipment
manufacturer or OEM relationships, with companies offering complementary
products that can package our software along with their products. We are
currently investing, and we intend to continue to invest, significant resources
to develop these relationships. If our efforts are unsuccessful, our sales
growth would be adversely affected. We cannot guarantee that we will be able to
market our products effectively through our established partners. Further, these
third parties are under no obligation to recommend or support our products.
These companies could recommend or give higher priority to the products of other
companies or to their own products. A significant shift by these companies
toward favoring competing products could negatively affect our license and
service revenues. We cannot guarantee that we will be able to attract additional
distribution partners for desired distribution arrangements. The loss of
distribution partners or failure to establish new relationships could materially
adversely affect our business, operating results and financial condition.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY TO REMAIN COMPETITIVE AND CONTINUE TO
EXPAND OUR OPERATIONS.
We have expanded our operations rapidly since inception. We intend to
expand in the foreseeable future to pursue existing and potential opportunities.
This rapid growth places a significant demand on management, administrative and
operations resources. Our ability to compete effectively and to manage our
anticipated future growth requires us to continue to improve our financial and
management controls, reporting systems and procedures on a timely basis. We
recently hired a significant number of employees, and must continue to add
personnel to maintain our ability to grow in the future. We cannot guarantee
that we will be able to do so successfully. Failure to manage our growth
effectively could have a material adverse effect upon our business, operating
results and financial condition.
WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR MARKET.
Qualified personnel are in great demand throughout the computer software,
hardware and networking industries. The demand for qualified personnel is
particularly acute in the New England area because of the large number of
software and other high technology companies and the low unemployment rate in
the region. Our success depends in large part upon our ability to attract,
train, motivate and retain highly-skilled employees, particularly sales and
marketing personnel, software engineers, and technical support personnel. We
have had difficulty hiring these highly-skilled employees in the past. If we are
unable to attract and retain the highly-skilled technical personnel that are
integral to our sales, marketing, product development and customer support
teams, the rate at which we can generate sales and develop new products or
product enhancements may be limited. This inability could have a material
adverse effect on our business, operating results and financial condition.
COMPETITION COULD REDUCE OUR REVENUES AND MARKET SHARE, AND PREVENT US FROM
EXPANDING IN THE FUTURE.
The market for Web content management software and services is rapidly
evolving and highly competitive and there are a number of products that compete
directly with our software
7
<PAGE> 11
solutions. Our clients' requirements and the technology available to satisfy
those requirements continually change. Some of our current and potential
competitors have significantly greater financial, marketing, technical and other
competitive resources than we do. This may enable them to adapt more quickly to
new or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products. In
addition, other companies could develop new products or incorporate additional
functionality into their existing products that could directly compete with our
products. Barriers to entering the software market are relatively low.
Furthermore, cooperative relationships among our competitors could increase
their ability to address the Web site content management needs of our
prospective customers, and they could rapidly acquire significant market share.
We cannot guarantee that we will compete successfully against existing or new
competitors. Further, competitive pressures may require us to lower the prices
of our software and services. Failure to compete successfully would have a
material adverse effect on our business, operating results and financial
condition.
IF WE ARE UNABLE TO ENHANCE AND EXPAND OUR PRODUCT LINE TO MEET THE RAPID
CHANGES IN THE MARKET FOR WEB CONTENT MANAGEMENT TECHNOLOGY, OUR BUSINESS WILL
BE UNABLE TO GROW.
To succeed, we will need to enhance our current Eprise Participant Server
product and develop new products on a timely basis to keep pace with
developments related to Internet technology and to satisfy the increasingly
sophisticated requirements of our customers. The market for our products is
marked by rapid technological change, frequent new product introductions and
Internet-related technology enhancements, uncertain product life cycles, changes
in client demands and evolving industry standards. We cannot be certain that we
will successfully develop and market new products or new product enhancements
compliant with present or emerging Internet technology standards. New products
based on new technologies or new industry standards can rapidly render existing
products obsolete and unmarketable. Internet commerce technology is complex and
new products and product enhancements can require long development and testing
periods. Any delays in developing, testing and releasing enhanced or new
products could harm our business. New products or upgrades may not be released
according to schedule or may contain defects when released. Either situation
could result in adverse publicity, loss of sales, delay in market acceptance of
our products or customer claims against us, any of which could harm our
business. If we do not develop, license or acquire new software products, or
deliver enhancements to existing products on a timely and cost-effective basis,
our business will be harmed.
WE HAVE RELIED ON AND EXPECT TO CONTINUE TO RELY ON SALES OF OUR EPRISE
PARTICIPANT SERVER LINE FOR OUR REVENUES.
Since 1998, we have derived substantially all of our revenues from licenses
of, and services related to, Eprise Participant Server. We expect that revenues
from this product will continue to account for a significant portion of our
revenues for the foreseeable future. A decline in the price of Eprise
Participant Server or our inability to increase license sales of Eprise
Participant Server would seriously harm our business and operating results. In
addition, our future financial performance will depend upon the successful
development, introduction and customer acceptance of enhanced versions of Eprise
Participant Server and future products. Failure to deliver the enhancements or
products that customers want could have a material adverse effect on our
business, operating results and financial condition.
OUR LENGTHY SALES CYCLES REQUIRE EXPENDITURE OF RESOURCES THAT WILL NOT
NECESSARILY RESULT IN A SALE.
We typically experience long sales cycles. These sales cycles generally
vary by customer from three to six months. Because the licensing of our products
generally involves a significant capital expenditure by the customer, our sales
process is subject to lengthy approval processes
8
<PAGE> 12
and delays. We often devote significant time and resources to a prospective
customer, including costs associated with multiple site visits, product
demonstrations and feasibility studies, without any assurance that the
prospective customer will decide to license our products.
YEAR 2000 PROBLEMS MAY CAUSE PRODUCT ERRORS OR FAILURES THAT COULD DIVERT
PERSONNEL AND FINANCIAL RESOURCES.
We have designed Eprise Participant Server and its add-on modules to be
Year 2000 compliant and have not been advised of any Year 2000 issues related to
those products. One prototype product (a precursor of Eprise Participant
Server), which was licensed to one customer and may currently be in use, may not
be Year 2000 compliant and may need to be upgraded or its use discontinued. We
have not been advised of any Year 2000 problems by this customer to date.
Further, although we have not been made aware of any Year 2000 problem relating
to the hardware and software used by our customers in connection with our
products to date, these problems may exist. Should any of these problems
develop, they may have a material adverse effect on our business, operating
results and financial condition.
In addition, we utilize software, computer technology and other services
internally developed and provided by third party vendors that may have Year 2000
issues. Although we have not experienced any of these problems to date, the
failure of our internal computing systems or of systems provided by third party
vendors to be Year 2000 compliant could materially adversely affect our
business.
IF OUR PRODUCTS FAIL TO REMAIN COMPATIBLE WITH MAJOR COMMERCIAL OPERATING
PLATFORMS, OUR SALES WOULD DECREASE.
Our products currently operate on the Microsoft Windows NT and Sun Solaris
operating systems. In addition, our products are required to interoperate with
Web servers, browsers and database servers. We must, therefore, continually
modify and enhance our products to keep pace with changes in these operating
systems and servers. If our products are not compatible with new operating
systems, Web servers, browsers or database servers that achieve sufficient
market penetration, our business will be harmed. In addition, uncertainties
related to the timing and nature of new product announcements, or introductions
or modifications by vendors of operating systems or browsers, could also harm
our business.
POTENTIAL DEFECTS IN OUR PRODUCTS COULD CAUSE SALES TO DECREASE AND COULD
SUBJECT US TO FUTURE WARRANTY CLAIMS.
Our products are complex and might contain undetected software errors or
failures when new versions are released. We cannot guarantee that, despite
testing by us and by current and prospective customers, we will not find errors
in existing products, new products or product enhancements after commercial
release. These errors may result in loss or delay of market acceptance, which
could have a material adverse effect upon our business, operating results and
financial condition.
IF WE LOSE ANY KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, WE MAY BE UNABLE TO CONTINUE EXPANDING OUR BUSINESS AND PRODUCT LINE.
The loss of the services of one or more of our key personnel could have a
material adverse effect on our business, operating results and financial
condition. We do not maintain key person life insurance on any executive
officers other than our Chief Executive Officer and Chief Technology Officer. We
cannot guarantee that we will be able to retain our key personnel. Our future
success also depends on our continuing ability to attract, assimilate and retain
highly qualified sales, technical and managerial personnel. Competition for
these individuals is intense, and there can be no assurance that we can attract,
assimilate or retain them in the future.
9
<PAGE> 13
WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND
OTHERS COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS AND
INFORMATION.
Our software is proprietary and is protected by trade secret, copyright and
trademark laws, license agreements, confidentiality agreements with employees
and nondisclosure and other contractual requirements imposed on our customers,
consulting partners and others. We cannot guarantee that these protections will
adequately protect our proprietary rights or that our competitors will not
independently develop products that are substantially equivalent or superior to
our products. In addition, the laws of countries in which our products may be
licensed in the future may not protect our products and intellectual property
rights to the same extent as the laws of the United States. Although we believe
that our products, trademarks and other proprietary rights do not infringe upon
the proprietary rights of third parties, we cannot guarantee that third parties
will not assert infringement claims against us. The cost of pursuing, enforcing
or defending infringement claims can be substantial and can also require
significant management attention.
RISKS RELATED TO THE INTERNET INDUSTRY
IF THE USE OF THE INTERNET DOES NOT EXPAND, THE DEMAND FOR OUR PRODUCTS MAY
STAGNATE OR DECLINE.
Our future success depends heavily on the Internet being accepted and
widely used. If Internet use does not continue to grow or grows more slowly than
expected, our business, operating results and financial condition would be
materially adversely affected. Consumers and businesses may reject the Internet
as a viable communications medium for a number of reasons, including potentially
inadequate network infrastructure, security concerns, slow development of
enabling technologies or insufficient commercial support. The Internet
infrastructure may not be able to support the demands placed on it by increased
Internet usage and bandwidth requirements. In addition, delays in the
development or adoption of new standards and protocols required to handle an
increased level of Internet activity or increased government regulation could
cause the Internet to lose its viability as a commercial medium. Even if the
required infrastructure, standards, protocols or complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
WE CANNOT BE SURE THAT A SUSTAINABLE MARKET FOR OUR PRODUCTS WILL DEVELOP.
The market for Web content management software and services is new and
rapidly evolving, and the size and potential growth of this new market and the
direction of its development are uncertain. We have licensed our products to a
small number of customers. We expect that we will continue to need intensive
marketing and sales efforts to educate prospective clients about the uses and
benefits of our products and services. Enterprises that have invested
substantial resources in other methods of conducting business over the Internet
may be reluctant to adopt a new approach that may replace, limit or compete with
their existing systems. Any of these factors could inhibit the growth and market
acceptance of our products and services. Accordingly, we cannot be certain that
a viable market for our products will emerge, or if it does emerge, that it will
be sustainable.
IF THE INTERNET OR E-COMMERCE BECOMES SUBJECT TO GOVERNMENTAL REGULATION OR
OTHER FUTURE LAWS, USE OF AND DEMAND FOR OUR PRODUCTS COULD DECLINE.
We are not currently required to comply with direct regulation by any
domestic or foreign governmental agency, other than regulations applicable to
businesses generally and any laws or regulations directly applicable to the
Internet. However, due to the increasing popularity of the Internet, it is
possible that laws may be adopted regarding the Internet, any of which could
materially harm our business. For example, because our products can be used for
the
10
<PAGE> 14
solicitation of personal data from individual consumers, our business could be
limited by laws regulating the solicitation, collection or processing of this
data. The Telecommunications Act of 1996 prohibits the transmission of some
types of information and content over the Internet. Legislation imposing
potential liability for information collected or disseminated through our
products could adversely affect our business. In addition, the increased
attention focused upon liability issues as a result of the Telecommunications
Act could limit the growth of Internet commerce, which could decrease demand for
our products.
Export regulations, either in their current form or as may be subsequently
enacted, may limit our ability to distribute our software outside the United
States. The unlawful export of our software could also harm our business.
Although we take precautions against unlawful export of our software, the global
nature of the Internet makes if difficult to effectively control the
distribution of software.
Furthermore, the growth and development of the Internet may lead to more
stringent consumer protection laws that may impose additional burdens on
companies conducting business online. The adoption of any additional laws may
decrease Internet use or impede the growth of Internet use, which may lead to a
decrease in the demand for our products and services or an increase in the cost
of doing business. Further, the imposition of new sales or other taxes could
limit the growth of Internet commerce generally and, as a result, the demand for
our products. Although recent federal legislation limits the imposition of state
and local taxes on Internet-related sales, there is a possibility that Congress
may not renew this legislation, in which case state and local governments would
be free to impose taxes on goods and services purchased on the Internet.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.
The market for securities of most high technology companies has been highly
volatile. It is likely that the market price of our common stock will fluctuate
widely in the future. Factors affecting the trading price of our common stock
are likely to include:
- responses to quarter-to-quarter variations in our results of operations;
- the announcement of new products or product enhancements by us or our
competitors;
- technological innovation by us or our competitors;
- general market conditions or market conditions specific to particular
industries; and
- changes in earnings estimates by analysts.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD AFFECT THE MARKET PRICE OF
OUR COMMON STOCK OR OUR ABILITY TO SELL OUR BUSINESS.
Our amended and restated certificate of incorporation and by-laws contain
provisions that could make it more difficult for a third party to acquire us or
effect a change of control in our management, even if doing so would be
beneficial to our stockholders. In addition, the provisions of Delaware law and
our stock incentive plans relating to an acquisition or change in control of
Eprise may also have the effect of discouraging, delaying or preventing a sale.
See "Description of Capital Stock."
11
<PAGE> 15
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE, OR ANY, RETURN.
The net proceeds of this offering are allocated generally for working
capital and general corporate purposes. Thus, our management has broad
discretion over how these proceeds are used and could spend the proceeds in ways
with which you may not agree. We cannot assure you that the proceeds will be
invested in a way that yields a favorable, or any, return for us.
SHARES OF OUR COMMON STOCK ELIGIBLE FOR SALE AFTER THIS OFFERING MAY ADVERSELY
AFFECT OUR STOCK PRICE.
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their stock for the first time.
More than 11,800,000 shares, or almost three times the number of shares sold in
this offering, assuming no exercise of the underwriters' over-allotment option,
will become eligible for sale in the public market at various dates beginning
180 days after the date of this prospectus. Sales of a substantial number of
shares of common stock in the public market, or the threat that substantial
sales might occur, could cause the market price of our stock to decrease
significantly. These factors could also make it difficult for us to raise
additional capital by selling stock. See "Shares Eligible for Future Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The expected offering price of our common stock is substantially higher
than the book value per share. As a result, investors purchasing our common
stock in the offering will incur immediate and substantial dilution. In
addition, we have issued options and warrants to acquire common stock at prices
significantly below the expected offering price. To the extent these outstanding
options and warrants are exercised, there will be further dilution. See
"Dilution."
12
<PAGE> 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance and are identified by terminology such as "may,"
"will," "could," "should," "expects," "plans," "intends," "seeks,"
"anticipates," "believes," "estimates," "potential," or "continue" or the
negative of such terms or other comparable terminology. These statements are
only predictions. You should not place undue reliance on these forward-looking
statements. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various important factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statement to actual results.
USE OF PROCEEDS
We anticipate that our net proceeds from the sale of 4,000,000 shares of
common stock in this offering will be approximately $47.5 million, at an assumed
initial public offering price of $13.00 per share and after deducting the
estimated underwriting discounts and commissions and offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that the
net proceeds will be approximately $54.6 million.
The principal purposes of this offering are to obtain additional capital,
create a public market for our common stock and facilitate our future access to
the public capital markets.
We anticipate that we will use substantially all of the net proceeds for
working capital and other general corporate purposes, including:
- expansion of sales, distribution and marketing activities;
- development of technology;
- capital expenditures;
- funding of future operating losses; and
- repayment of a term note outstanding to Silicon Valley Bank in the amount
of approximately $165,000.
We have not allocated any specific portion of the net proceeds to any
particular purposes, and our management will have the ability to allocate the
proceeds at its discretion. A portion of the net proceeds may be used for the
acquisition of businesses, products and technologies that are complementary to
our own, although we have no current plans, agreements or commitments with
respect to any such transaction and are not in any negotiations with respect to
any such transaction. Pending these uses, the net proceeds will be invested in
government securities and other short-term, investment-grade, interest-bearing
instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. Future dividends, if any, will be determined by the board of
directors. Our current loan agreement prohibits the payment of any dividends on
our capital stock.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual, pro forma and pro forma as adjusted basis. The "actual" column
reflects our capitalization as of December 31, 1999 on a historical basis,
without any adjustments to reflect subsequent events or anticipated events. The
"pro forma" column reflects our capitalization as of December 31, 1999 with
adjustments for the following:
- the filing prior to the closing of this offering of a Certificate of
Amendment to our Fourth Amended and Restated Certificate of Incorporation
authorizing 90,000,000 shares of common stock and 10,000,000 shares of
undesignated preferred stock.
- the automatic conversion of all of the shares of Series A, Series B and
Series C preferred stock into an aggregate of 16,105,845 shares of common
stock upon the closing of this offering.
The "pro forma as adjusted" column reflects our capitalization as of
December 31, 1999 with the preceding "pro forma" adjustments plus:
- the receipt of the estimated net proceeds and the anticipated use of such
proceeds from our sale of 4,000,000 shares of common stock at an assumed
initial public offering price of $13.00 per share.
None of the columns set forth below reflects as of December 31, 1999:
- the potential issuance of 600,000 shares of common stock issuable under
the overallotment option granted to the underwriters of this offering.
- outstanding warrants to purchase 432,151 shares of common stock at a
weighted average exercise price of $2.78 per share (assuming conversion
of the Series A Preferred Stock warrants to common stock warrants).
- outstanding options to purchase 2,225,264 shares of common stock at a
weighted average exercise price of $0.71 per share.
The information shown in the table below is qualified by, and should be
read in conjunction with, our more detailed financial statements and the related
notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------
ACTUAL PRO FORMA
(RESTATED) PRO FORMA AS ADJUSTED
---------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of equipment line of credit................. $ 86 $ 86 $ --
======== ======== ========
Long-term equipment line of credit, less current portion.... 79 79 --
======== ======== ========
Redeemable preferred stock:
Series A redeemable convertible preferred stock, $0.01 par
value, 10,842,920 shares authorized, 10,515,925 shares
issued and outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro forma as
adjusted............................................... 5,192 -- --
Series B redeemable convertible preferred stock, $0.01 par
value, 14,320,446 shares authorized, issued and
outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted....... 8,569 -- --
Series C redeemable convertible preferred stock, $0.01 par
value, 16,500,000 shares authorized, 16,233,766 issued
and outstanding, actual; no shares authorized, issued
and outstanding, pro forma and pro forma as adjusted... 21,555 -- --
-------- -------- --------
Total redeemable preferred stock............................ 35,316 -- --
-------- -------- --------
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------
ACTUAL PRO FORMA
(RESTATED) PRO FORMA AS ADJUSTED
---------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Stockholders equity (deficit):
Preferred stock, $0.01 par value; 41,663,366 shares
authorized, 41,070,137 shares issued and outstanding,
actual; 10,000,000 shares authorized, no shares issued
and outstanding, pro forma and pro forma as adjusted... -- -- --
Common Stock, $0.001 par value; 58,500,000 shares
authorized, 2,837,595 shares issued and outstanding,
actual; 58,500,000 shares authorized, 18,943,440 shares
issued and outstanding, pro forma; 90,000,000 shares
authorized, 22,943,440 shares issued and outstanding,
pro forma as adjusted.................................. 3 19 23
Additional paid-in capital................................ 24,333 59,633 107,129
Accumulated deficit....................................... (36,025) (36,025) (36,025)
Notes receivable from officers............................ (69) (69) (69)
-------- -------- --------
Total stockholders' equity (deficit)................... (11,758) 23,558 71,058
-------- -------- --------
Total capitalization.............................. $ 23,723 $ 23,723 $ 71,058
======== ======== ========
</TABLE>
15
<PAGE> 19
DILUTION
The pro forma net tangible book value of Eprise as of December 31, 1999 was
approximately $23.6 million, or $1.24 per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the pro forma shares of common stock
outstanding as of December 31, 1999. Pro forma net tangible book value gives
effect to the conversion to common, as of December 31, 1999, of all outstanding
shares of preferred stock. After giving effect to the issuance and sale of the
4,000,000 shares of common stock offered by this prospectus at an assumed
initial public offering price of $13.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses, the pro forma net
tangible book value of Eprise as of December 31, 1999 would have been $71.1
million, or $3.10 per share. This represents an immediate increase in pro forma
net tangible book value of $1.86 per share to existing stockholders and an
immediate dilution of $6.55 per share to new investors. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Pro forma net tangible book value per share at December
31, 1999............................................... $ 1.24
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.86
-------
Pro forma net tangible book value per share after
offering.................................................. 3.10
------
Dilution per share to new investors......................... $ 9.90
======
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1999, the differences between the number of shares of common stock purchased
from Eprise, the aggregate cash consideration paid and the average price per
share paid by existing stockholders and new investors purchasing shares of
common stock in this offering before deducting estimated underwriting discounts
and commission and offering expenses payable by Eprise:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNTS PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 18,943,440 82.6% $38,998,840 42.9% $ 2.06
New investors................. 4,000,000 17.4 52,000,000 57.1 13.00
---------- ----- ----------- ----- ------
Total....................... 22,943,440 100.0% $90,998,840 100.0% $ 3.97
========== ===== =========== ===== ======
</TABLE>
The discussion and tables above assume no exercise of any stock options or
warrants outstanding as of December 31, 1999. As of December 31, 1999, there
were options outstanding to purchase a total of 2,225,264 shares of common stock
with a weighted average exercise price of $0.71 per share and warrants
outstanding to purchase 303,918 shares of common stock at a weighted average
exercise price of $3.42 per share and 326,995 shares of Series A preferred stock
(convertible into 128,233 shares of common stock) at an exercise price of
$0.49695 per share. To the extent that any of these options or warrants are
exercised, there will be further dilution to new investors.
16
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1997, 1998
and 1999 and for the year ended August 31, 1997, the four months ended December
31, 1997 and the years ended December 31, 1998 and 1999 have been derived from
our audited financial statements, included elsewhere in this prospectus.
Selected financial data as of August 31, 1997 have been derived from our audited
financial statements, which are not included in this prospectus. The selected
financial data as of August 31,1995 and 1996 and for the years ended August 31,
1995 and 1996 have been derived from our unaudited financial statements, which
in the opinion of management include all adjustments necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. In 1997, Eprise changed its fiscal year end from August
31 to December 31. The unaudited statement of operations for the 12 months ended
December 31, 1997 has been derived by summing the results of operations for the
four fiscal quarters in the period ended December 31, 1997. The information set
forth below should be read along with our "Management's Discussions and Analysis
of Financial Condition and Results of Operations" and our financial statements
and notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOUR TWELVE
MONTHS MONTHS YEARS ENDED
YEARS ENDED AUGUST 31, ENDED ENDED DECEMBER 31,
------------------------ DEC. 31, DEC. 31, ---------------------
1995 1996 1997 1997 1997 1998 1999
------ ------ ------ -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (RESTATED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses..................................... $ -- $ -- $ 33 $ 65 $ 65 $ 345 $ 2,355
Services.............................................. 1,104 1,192 1,387 238 1,157 462 1,304
------ ------ ------ ------- ------- ------- -------
Total revenues...................................... 1,104 1,192 1,420 303 1,222 807 3,659
Cost of revenues........................................ 458 567 518 285 579 460 1,125
------ ------ ------ ------- ------- ------- -------
Gross profit............................................ 646 625 902 18 643 347 2,534
Operating expenses:
Research and development.............................. -- 131 180 327 459 2,149 2,360
Selling and marketing................................. -- 291 800 392 879 2,349 5,056
General and administrative............................ 1,014 332 501 363 710 1,246 2,006
------ ------ ------ ------- ------- ------- -------
Total operating expenses............................ 1,014 754 1,481 1,082 2,048 5,744 9,422
------ ------ ------ ------- ------- ------- -------
Operating loss.......................................... (368) (129) (579) (1,064) (1,405) (5,397) (6,888)
Other income (expense), net............................. (18) (26) (154) (100) (210) 136 288
------ ------ ------ ------- ------- ------- -------
Net loss................................................ $ (386) $ (155) $ (733) $(1,164) $(1,615) $(5,261) $(6,600)
====== ====== ====== ======= ======= ======= =======
Loss per share.......................................... $(0.20) $(0.08) $(0.35) $ (0.54) $ (0.76) $ (2.40) $(11.42)
====== ====== ====== ======= ======= ======= =======
Weighted average common shares outstanding.............. 1,822 2,064 2,073 2,156 2,118 2,200 2,473
====== ====== ====== ======= ======= ======= =======
Pro forma loss per share................................ $ (0.50)
=======
Pro forma weighted average common shares outstanding.... 13,274
=======
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1997 1998 1999
---------- ---------- ---------- ------------ ------------ -------------
(IN THOUSANDS) (RESTATED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 26 $ -- $ 105 $ 3,136 $ 6,357 $ 22,455
Working capital (deficit).................... (341) (508) (1,358) 2,389 5,829 22,977
Total assets................................. 320 408 335 3,647 7,075 25,534
Long-term debt............................... 202 144 -- -- 158 79
Redeemable preferred stock................... -- -- -- 5,004 13,740 35,316
Total stockholders' deficiency............... (370) (521) (1,220) (2,327) (7,583) (11,758)
</TABLE>
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and related notes which appear elsewhere in this prospectus.
GENERAL
Eprise, originally named Inner Circle Technologies and then NovaLink, was
founded in 1992 as a provider of online interactive games. Between 1994 and
1997, our principal business shifted to creating and hosting Web sites for
corporate clients. During this period, we encountered recurring problems arising
out of the inadequacy of software tools that were commercially available to
build and maintain Web sites. Realizing that there was an opportunity to
streamline and automate these processes, we began to develop a software product
called Eprise Participant Server to facilitate the construction and updating of
Web sites. We shipped our first commercial product in early 1998. Eprise now
markets and sells version 2.5 of Eprise Participant Server.
We have completed three rounds of venture capital financing since December
1997, for over $38.0 million in gross proceeds, from investors including Prism
Venture Partners, Alliance Technology Ventures and Brookside Capital Partners.
OVERVIEW
We changed our fiscal year end from August 31 to December 31 in 1997. Our
financial information for the last eight months of the fiscal year ended August
31, 1997 and the four months ended December 31, 1997 contained in this
prospectus has been combined in order to present a comparable accounting period
for 1997 to the audited year ended December 31, 1998. Future references to the
year 1997 or 1998 mean the twelve months ended December 31 unless otherwise
indicated.
We generate revenues from two principal sources: (1) license fees for our
software products and (2) professional services and technical support revenues
derived from consulting, implementation, training and maintenance services
related to our software products. In the year ended December 31, 1999, two
customers accounted for 23% of our total revenues. In the year ended December
31, 1998, one customer accounted for 58% of our total revenues.
As our revenue generated from license sales has increased, our gross profit
margins have improved. License revenue represented 73% of total revenue in the
fourth quarter of 1999. License sales produce significantly higher margins than
service sales due to nominal costs associated with licenses and their delivery.
Software licenses. Customers typically pay an up-front, one-time fee for a
perpetual non-exclusive license of our software. Generally, the amount of the
fee is based on the number of licensed servers. To date, software license
revenues have principally come from direct sales to customers. The sales cycle
for our products is typically three to six months. Although we have limited
historical financial data, we believe that our quarterly operating results may
experience seasonal fluctuations due to clients' fiscal year budgeting cycles
and purchasing patterns. Because of our server-based licensing, we experience
significant variation in the size of our licensing transactions.
We generally recognize license fee revenues upon delivery of the product.
If the product is subject to acceptance and/or return and refund, we defer
revenues until acceptance has occurred or the refund period has expired.
18
<PAGE> 22
Services. Services revenues consist principally of revenues derived from
professional services associated with the implementation and integration of our
software products, training of customers' employees and ongoing customer
support, which primarily includes customer technical support services and
product enhancements. We deliver professional services on either a fixed price
basis or a time and materials basis. We generally complete implementation and
training services within three to six months following license contract signing.
We recognize revenues from professional services as such services are
performed. We recognize maintenance revenues, which are invoiced annually in
advance, ratably over the term of the maintenance agreement, which is generally
12 months. Our maintenance revenues currently account for less than 10% of total
revenues. As part of these agreements, we provide product enhancements and
technical support services to customers for an annual fee, which typically
amounts to 20% of the license fee. While a 60-day warranty is included in the
software license, maintenance agreements typically are entered into as of the
date of the software license. Maintenance agreements are renewable at the
discretion of the customer. As of December 31, 1999, there have been 31
customers who have entered into maintenance agreements with Eprise. Of the 31
contracts, to date two have expired, and have not currently been renewed. The
remaining contracts have not yet come up for renewal.
Backlog. Delivery lead times for our products are very short and,
consequently, substantially all of our license fee revenues in each quarter
result from orders received in that quarter. Accordingly, we generally only
maintain a backlog for our professional services and maintenance activities, and
we believe that our backlog at any point in time is not a reliable indicator of
future revenues and earnings.
Cost of revenues. The costs associated with software licenses, including
CDs and packaging, arise primarily from the production of software products, and
have not been significant in any period presented, nor are they expected to be
significant in the foreseeable future. Cost of services revenues consists
primarily of salaries and related personnel costs and other allocated expenses
of our consulting, support and training organizations, as well as costs related
to servicing our legacy products.
Research and development. We maintain a product development staff to
enhance our existing products and to develop new products. Software costs are
expensed as incurred until technological feasibility of the software is
determined, after which any additional costs are capitalized. To date, we have
expensed all software development costs because development costs incurred
subsequent to the establishment of technological feasibility have been minimal.
Selling and marketing. We license our products primarily through our
direct sales force. Selling and marketing expenses consist primarily of costs
associated with personnel, sales commissions, office facilities, travel and
promotional events such as trade shows, seminars and technical conferences,
advertising and public relations programs.
General and administrative. General and administrative expenses include
salaries and related personnel expenses and other costs of the finance, human
resources, information technology and administrative functions at Eprise.
Restatement. As discussed in Note 10 to the Consolidated Financial
Statements, the 1999 Consolidated Financial Statements have been restated.
Subsequent to the issuance of the Company's 1999 consolidated financial
statements, management determined that the Company had incorrectly accounted for
the issuance of the Series C preferred stock in 1999. Because of the proximity
of the issuance of the Series C to the commencement of the Company's proposed
stock offering, the Company has concluded that a beneficial conversion feature
was present in the preferred stock on the date of issuance. For purposes of
evaluating this beneficial conversion feature, the Company considers that the
19
<PAGE> 23
mid-point value implied in the preliminary range of prices for the proposed
stock offering ($9.00) represents the fair value of the common stock on the date
the Series C was issued.
In accordance with Emerging Issues Task Force Abstract No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," the proceeds from the Series C
financing were allocated between the conversion feature and the preferred stock;
because the fair value of the common stock ($9.00) was significantly in excess
of the conversion price implicit in the Series C stock ($3.93), the entire
amount of net proceeds ($21,555,501) were allocated to the conversion feature.
Because the preferred stock is immediately convertible into common stock, an
immediate dividend or accretion of $21,555,501 was recorded from common
stockholders' equity to the carrying value of the Series C preferred stock.
In addition, the Company had originally estimated that for grants of stock
options in September and October 1999, the fair value of the underlying common
stock was $3.93 per share. The Company has concluded that this estimate does not
fully reflect the fair value of the common stock at such times. The Company has
concluded that $9.00 more accurately represents the fair value of common stock
during the period these grants were made and has adjusted its estimates of
compensation cost related to those option grants accordingly.
See Note 10 to Notes to the Consolidated Financial Statements.
20
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth our operating results for the periods
indicated as a percentage of revenues.
<TABLE>
<CAPTION>
FOUR TWELVE
YEARS ENDED MONTHS MONTHS YEARS ENDED
AUGUST 31, ENDED ENDED DEC. 31,
------------ DEC. 31, DEC. 31, ----------------
1996 1997 1997 1997 1998 1999
---- ---- -------- -------- -------- ----
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses............................ --% 2% 21% 5% 43% 64%
Services..................................... 100 98 79 95 57 36
--- --- ---- ---- ---- ----
Total revenues........................ 100 100 100 100 100 100
--- --- ---- ---- ---- ----
Cost of revenues............................... 48 37 94 47 57 31
--- --- ---- ---- ---- ----
Gross profit................................... 52 63 68 53 43 69
Operating expenses:
Research and development..................... 11 13 108 38 266 65
Selling and marketing........................ 24 56 129 72 291 138
General and administrative................... 28 35 120 58 154 55
--- --- ---- ---- ---- ----
Total operating expenses.............. 63 104 357 168 711 258
--- --- ---- ---- ---- ----
Operating loss................................. (11) (41) (351) (115) (668) (188)
Other income (expense), net.................... (2) (11) (33) (17) 17 8
--- --- ---- ---- ---- ----
Net loss....................................... (13)% (52)% (384)% (132)% (651)% (180)%
=== === ==== ==== ==== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Software licenses. Revenues from software licenses increased by 582.6% to
approximately $2.4 million for the year ended December 31, 1999 compared to
$345,000 for the year ended December 31, 1998. The increase in revenues from
software licenses was primarily due to the release of version 2.0 of Eprise
Participant Server in April 1999 and the resulting increases in license
deliveries during 1999. All license revenues for the year ended December 31,
1999 were attributable to new customers compared to 30% attributable to new
customers for the year ended December 31, 1998.
Services. Revenues from services increased by 182.3% to approximately $1.3
million for the year ended December 31, 1999 compared to $462,000 for the year
ended December 31, 1998. Approximately 88% of the increase in revenues from
services is attributable to consulting, 9% to training, and 3% to implementation
revenue generated by new software license sales. Approximately 58% of services
revenues for the year ended December 31, 1999 were attributable to new customers
compared to 51% for the year ended December 31, 1998.
Cost of revenues. Cost of revenues, which primarily relate to services
because costs of licenses are insignificant, increased by 144.6% to
approximately $1.1 million for the year ended December 31, 1999 compared to
$460,000 for the year ended December 31, 1998. However, as a percentage of total
revenues, cost of revenues decreased to 31% for the year ended December 31, 1999
from 57% for the year December 31, 1998. This was primarily due to a larger
percentage of total revenues being derived from software license fees (which
have significantly higher gross profit margins) in the year ended December 31,
1999 compared to the year ended December 31, 1998, more efficient implementation
of our products and better utilization of service personnel.
Research and development. Research and development expenses increased by
9.8% to approximately $2.4 million for the year ended December 31, 1999 compared
to approximately $2.1 million for the year ended December 31, 1998. The increase
was primarily attributable to
21
<PAGE> 25
employee-related expenses incurred in the year ended December 31, 1999 for the
continued development of Version 2.0 of Eprise Participant Server and future
product releases.
Selling and marketing. Selling and marketing expenses increased by 115.2%
to approximately $5.1 million for the year ended December 31, 1999 compared to
approximately $2.3 million for the year ended December 31, 1998. Approximately
72% of the increase in selling and marketing expenses was attributable to an
increase in the number of sales and sales support personnel as we expanded our
direct sales force. In addition, approximately 19% of the increase was
attributable to significant cost increases in marketing programs and public
relations activities as we expanded our presence in the market and further
developed our brand.
General and administrative. General and administrative expenses increased
by 61.0% to approximately $2.0 million for the year ended December 31, 1999
compared to $1.2 million for the year ended December 31, 1998. The increase in
general and administrative expenses primarily reflects personnel increases and
the related costs associated with supporting our recent and anticipated revenue
growth.
Compensation cost for stock options. Options were granted during 1999 at
exercise prices which were the best estimate of our board of directors as to the
fair value of the underlying common stock on the date of grant. However,
subsequent to the grant date, management concluded that for grants after the
release of the new version of Eprise Participant Server, these estimates may not
have fully reflected the impact of this release. Management has determined that
for grants made from May to August 1999, $3.93 is a more reliable estimate of
the fair value of the common stock during this period. For grants subsequent to
August 1999, management has determined that the mid-point of the preliminary
price range for our anticipated public offering represents the best estimate of
the fair value of the common stock during this period. For grants during 1999,
compensation cost aggregated approximately $6.8 million, which will be amortized
to expense over the four year vesting period of the option grants. For the year
ended December 31, 1999, compensation expense recorded related to these grants
aggregated $524,000.
Other income (expense). Other income and expense consisted primarily of
interest income on invested cash balances and interest expense on borrowings.
The increase in other income between the two periods was the result of higher
cash balances generated from our second round of venture capital financing in
August 1998 and our private placement financing in November 1999.
Income taxes. During the years ended December 31, 1999 and 1998, we
reported losses for both financial and income tax purposes. No provision or
benefit for income taxes was recorded in either period. At December 31, 1999, we
had net operating loss carry forwards for federal and state income tax purposes
aggregating $13.5 million available to offset future taxable income. These loss
carry forwards expire in varying amounts through 2014. At December 31, 1999, we
had federal and state tax credits aggregating $319,000 available to reduce
future taxes payable, expiring through 2014. Because of changes in ownership
that have occurred, including the proposed offering, our ability to fully
utilize these carry forwards is likely to be limited.
SUPPLEMENTAL DISCUSSION OF YEAR ENDED DECEMBER 31, 1998 AND TWELVE MONTHS ENDED
DECEMBER 31, 1997
Software licenses. Revenues from software licenses increased by 430.8% to
$345,000 for the year ended December 31, 1998 compared to $65,000 for the twelve
months ended December 31, 1997. The increase in revenues from software licenses
was primarily due to the first commercial release of Eprise Participant Server
in February 1998 and an increase in the number of licenses delivered. Revenues
from software license fees for the twelve months ended
22
<PAGE> 26
December 31, 1997 resulted from a limited number of license sales of a
preliminary version of the product.
Approximately 30% of license revenues for the year ended December 31, 1998
were attributable to new customers compared to 100% for the year ended December
31, 1997.
Services. Revenues from services decreased by 60.1% to $462,000 for the
year ended December 31, 1998 compared to approximately $1.2 million for the
twelve months ended December 31, 1997. The decrease in revenues from services
was attributable to the fact that prior to the first commercial release of
Eprise Participant Server in February 1998, we derived the majority of our
revenues from Web site development; supporting and operating, or hosting,
customer Web sites; and online interactive games. During these periods, these
revenues decreased as we focused on development and marketing of Eprise
Participant Server.
Cost of revenues. Cost of revenues, which primarily relate to services
because costs of licenses are not significant, decreased by 20.6% to $460,000
for the year ended December 31, 1998 compared to $579,000 for the twelve months
ended December 31, 1997. Cost of services revenues for the twelve months ended
December 31, 1997 included data communication costs associated with our hosting
of customers' Web sites. The decrease in services revenues between the two
periods was due to a decrease in services revenues associated with Web site
hosting and development.
Research and development. Research and development expenses increased by
368.2% to approximately $2.1 million for the year ended December 31, 1998
compared to $459,000 for the twelve months ended December 31, 1997.
Approximately 80% of the increase was due to increased payroll and related
expenses associated with the expansion of our product development staff, which
was required for the continued development of Eprise Participant Server. In
addition, approximately 19% of the increase was due to consulting and contract
programmer expenses incurred in the year ended December 31, 1998 to supplement
our product development staff in the development of version 2.0 of Eprise
Participant Server.
Selling and marketing. Selling and marketing expenses increased by 167.2%
to approximately $2.3 million for the year ended December 31, 1998 compared to
$879,000 for the twelve months ended December 31, 1997. Approximately 75% of the
increase in selling and marketing expenses was due to an increase in the number
of sales and sales support personnel as we developed and expanded our direct
sales force in 1998. Additionally, with the first commercial release of Eprise
Participant Server in February 1998, approximately 25% of the increase was due
to marketing expenses incurred for market awareness programs associated with the
product launch.
General and administrative. General and administrative expenses increased
by 75.5% to approximately $1.2 million for the year ended December 31, 1998
compared to $710,000 for the twelve months ended December 31, 1997.
Approximately 60% of the increase in general and administrative expenses was due
to costs associated with the recruitment and hiring of our Chief Executive
Officer and other executive management staff in 1998 following the first round
of venture financing and approximately 40% of the increase was due to costs
associated with the move to our new facilities in October 1997.
Other income (expense). Other income, consisting of interest income,
increased to $164,000 for the year ended December 31, 1998 compared to $6,000
for the twelve months ended December 31, 1997. The increase in interest income
resulted from interest earned on invested cash balances generated from our first
round of venture capital financing in December 1997. Other expense, consisting
of interest expense, decreased to $28,000 for the year ended December 31, 1998
compared to $216,000 for the year ended December 31, 1997. The majority of
interest expense incurred in 1997 was associated with borrowings from a
financial institution under an accounts receivable factoring arrangement.
23
<PAGE> 27
Income taxes. During the year ended December 31, 1998 and the twelve
months ended 1997, we reported losses for both financial and income tax
purposes. No provision or benefit for income taxes was recorded in either year.
FOUR MONTHS ENDED DECEMBER 31, 1997
Software licenses. Revenues from software licenses for the four months
ended December 31, 1997 were $65,000. The increase in software license revenues
compared to the full year ended August 31, 1997, was primarily attributable to
the release of the preliminary version of Eprise Participant Server and the
initial deliveries of the product to customers.
Services. Revenues from services totaled $238,000 for the four months
ended December 31, 1997. These revenues primarily related to consulting services
provided for initial installations of Eprise Participant Server and, on a
monthly basis, were reduced from levels realized in the year ended August 31,
1997. This decrease in revenues was attributable to the fact that prior to the
release of Eprise Participant Server, we derived a majority of our revenues from
Web site development, Web site hosting and online interactive games.
Cost of revenues. Costs of revenues, which primarily relate to services
because costs of licenses are not significant, totaled $285,000 for the four
months ended December 31, 1997. As a percentage of revenues, cost of services
revenues was 94.1%, compared to 36.5% in the year ended August 31, 1997. The
increase in cost of services and other revenues as a percentage of revenues is
attributable to the decrease in revenues discussed above, as we began to exit
our original lines of business.
Research and development. Research and development expenses totaled
$327,000 for the four months ended December 31, 1997. As a percentage of
revenues, research and development expenses were 107.9%, compared to 12.7% for
the year ended August 31, 1997. This increase in research and development
expenses as a percentage of revenues is attributable primarily to increased
salaries, benefits, and recruiting expenses associated with an increase in
product development personnel during the four months ended December 31, 1997.
Selling and marketing. Selling and marketing expenses totaled $392,000 for
the four months ended December 31, 1997. Spending in this category, on a monthly
basis compared to monthly spending during the year ended August 31, 1997, rose
due to an increase in the number of sales and sales support personnel during the
period.
General and administrative. General and administrative expenses totaled
$363,000 for the four months ended December 31, 1997. Spending in this category,
on a monthly basis compared to monthly spending during the year ended August 31,
1997, rose due to an increase in the number of personnel during the period to
support our anticipated growth.
Other income (expense). Other expense for the four months ended December
31, 1997 totalled $99,000 and consisted principally of interest expense related
to outstanding borrowings during the period under an accounts receivable
factoring arrangement.
Income taxes. During the four months ended December 31, 1997, we reported
a loss for both financial and income tax purposes. No provision or benefit for
income taxes was recorded during the period.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED AUGUST 31, 1997
Software licenses. Revenues from software licenses were $345,000 for the
year ended December 31, 1998 compared to $33,000 for the year ended August 31,
1997. The increased revenues from software licenses were the result of the first
commercial release of Eprise Participant Server in February 1998. In the year
ended August 31, 1997, revenues from software licenses were derived from the
sale of a preliminary version of Eprise Participant
24
<PAGE> 28
Server. Eprise derived the majority of its revenues during the year ended August
31, 1997 from Web site development, Web site hosting and online interactive
games.
Services. Revenues from services decreased by 66.7% to $462,000 for the
year ended December 31, 1998 compared to approximately $1.4 million for the year
ended August 31, 1997. The decrease in revenues from services was attributable
to the fact that for the year ended August 31, 1997, prior to the release of
Eprise Participant Server, Eprise derived the majority of its revenues from Web
site development, Web site hosting and online interactive games.
Cost of revenues. Cost of revenues, which primarily relate to services as
costs of licenses are not significant, decreased by 11.2% to $460,000 for the
year ended December 31, 1998 compared to $518,000 for the year ended August 31,
1997. The decrease in cost of revenues was primarily due to the significant
reduction of data communications expenses associated with the operation of
online interactive games and Web site hosting.
Research and development. Research and development expenses increased by
1,093.9% to approximately $2.1 million for the year ended December 31, 1998
compared to $180,000 for the year ended August 31, 1997. Approximately 73% of
the increase was due to increased salaries, benefits and recruiting expenses
associated with an increase in the number of research and development personnel.
In addition, approximately 16% of the increase was due to consulting and
contract programmer expenses incurred in the year ended December 31, 1998 to
supplement our research and development staff in the development of version 2.0
of Eprise Participant Server.
Selling and marketing. Selling and marketing expenses increased by 193.6%
to approximately $2.3 million for the year ended December 31, 1998 compared to
$800,000 for the year ended August 31, 1997. Approximately 40% of the increase
in selling and marketing expenses was due to the hiring of sales and sales
support personnel as Eprise developed and expanded its direct sales force in
1998. Additionally, with the first commercial release of Eprise Participant
Server in February 1998, approximately 60% of the increase was due to increased
marketing expenses for market awareness programs associated with the product
launch.
General and administrative. General and administrative expenses increased
by 148.7% to approximately $1.2 million for the year ended December 31, 1998
compared to $501,000 for the year ended August 31, 1997. Approximately 88% of
the increase in general and administrative expenses was due to costs associated
with the recruitment and hiring of our Chief Executive Officer and other
executive management staff in 1998 following the first round of venture
financing and approximately 12% of the increase was due to costs associated with
our move to new facilities in October 1997.
Other income (expense). Interest income increased to $164,000 for the year
ended December 31, 1998 compared to $3,000 for the year ended August 31, 1997.
The increase in interest income resulted from interest earned on invested cash
balances generated from our two rounds of venture capital financing in December
1997 and August 1998. Interest expense decreased to $28,000 for the year ended
December 31, 1998 compared to $157,000 for the year ended August 31, 1997. The
majority of interest expense incurred in 1997 was associated with borrowings
from a financial institution under an accounts receivable factoring arrangement.
Income taxes. During the years ended December 31, 1998 and August 31,
1997, we reported losses for both financial and income tax purposes. No
provision for or benefit from income taxes was recorded in either year.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited results of operations for each
of our last eight quarters up to and including the quarter ended December 31,
1999, and also presents such
25
<PAGE> 29
information as a percentage of our total revenue for the periods indicated. The
unaudited results of operations have been prepared on substantially the same
basis as the audited statements of operations contained in this prospectus and
include all adjustments, consisting of normal recurring accruals, that we
consider necessary to present this information fairly when read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
prospectus. The operating results in any quarter are not necessarily indicative
of the results that may be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Software licenses.. $ 76 $ 101 $ -- $ 168 $ 108 $ 223 $ 524 $ 1,500
Services........... 95 148 104 115 53 305 399 547
------- ------- ------- ------- ------- ------- ------- -------
Total
revenues..... 171 249 104 283 161 528 923 2,047
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues..... 149 94 101 116 126 161 415 423
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 22 155 3 167 35 367 508 1,624
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development...... 421 473 624 631 568 545 558 689
Selling and
marketing........ 571 605 550 623 765 1,099 1,203 1,989
General and
administrative... 249 301 344 352 364 410 444 788
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses..... 1,241 1,379 1,518 1,606 1,697 2,054 2,205 3,466
------- ------- ------- ------- ------- ------- ------- -------
Operating loss....... (1,219) (1,224) (1,515) (1,439) (1,662) (1,687) (1,697) (1,842)
Other income
(expense), net..... 19 7 28 82 55 33 18 182
------- ------- ------- ------- ------- ------- ------- -------
Net loss............. $(1,200) $(1,217) $(1,487) $(1,357) $(1,607) $(1,654) $(1,679) $(1,660)
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENT OF TOTAL
REVENUES:
Revenues:
Software licenses.. 44% 41% --% 59% 67% 42% 57% 73%
Services........... 56 59 100 41 33 58 43 27
------- ------- ------- ------- ------- ------- ------- -------
Total
revenues..... 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues..... 87 38 97 41 78 30 45 21
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 13 62 3 59 22 70 55 79
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development...... 247 190 600 223 353 103 60 34
Selling and
marketing........ 333 243 529 220 475 208 130 97
General and
administrative... 146 121 331 124 226 79 48 38
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses..... 726 554 1,460 567 1,054 390 238 169
------- ------- ------- ------- ------- ------- ------- -------
Operating loss....... (713) (492) (1,457) (508) (1,032) (320) (183) (90)
Other income
(expense), net..... 11 3 27 29 34 6 2 8
------- ------- ------- ------- ------- ------- ------- -------
Net loss............. (702)% (489)% (1,430)% (479)% (998)% (314)% (181)% (82)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Our quarterly operating results have varied in the past and may vary
significantly in the future depending on many factors including, among others:
- demand for our products and services;
26
<PAGE> 30
- the timing of sales of our products and services;
- the timing of customer orders and product implementation;
- unexpected delays in introducing new products and services;
- increased expenses, whether related to selling and marketing, product
development or general administration;
- changes in the rapidly evolving market for Web content management
solutions;
- the mix of product license and service revenue; and
- the timing and size of sales derived through our strategic partners.
Furthermore, we believe that the purchase of our products is relatively
discretionary and generally involves a significant commitment of capital. As a
result, purchases of our products may be deferred or canceled in the event of a
downturn in any potential customer's business or the economy in general.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through 1997, we primarily financed our operations and
met our capital expenditure requirements through funds generated from
operations, funds borrowed from several stockholders and a director, and funds
borrowed from Silicon Valley Bank. Since December 1997, we have raised over
$38.0 million in venture capital and private placement funding in order to
expand the product development and sales and marketing efforts of the business.
At December 31, 1999, our primary source of liquidity consisted of cash
totaling approximately $22.5 million as well as accounts receivable of
approximately $2.0 million. Accounts receivable increased by approximately $1.9
million in 1999, primarily as a result of our increase in revenues during the
fourth quarter of 1999. We expect that as we continue to expand our revenue
base, our accounts receivable will increase proportionally. On November 8, 1999,
we raised cash proceeds of approximately $23.4 million, after expenses, from the
sale of an aggregate of 16,233,766 shares of Series C preferred stock. In
addition, we have a borrowing agreement with Silicon Valley Bank that provides
us with a working capital revolving line of credit and a capital equipment line
of credit. The working capital line of credit, which expires on March 26, 2000,
provides for borrowings up to a maximum amount equal to the lesser of $1.0
million or a percentage of eligible accounts receivable. Borrowings under the
line are subject to financial performance covenants, bear interest at a rate per
annum equal to the bank's prime rate plus 1%, and are collateralized by all of
our tangible assets. There have been no borrowings to date under the working
capital line of credit and as of December 31, 1999 there was $1.0 million
available under the line. As of December 31, 1999, the equipment line of credit
had expired and is subject to renewal, and there were no borrowings outstanding
under the equipment line of credit. At December 31, 1999, there was a term note
outstanding relating to a previous equipment line of credit with Silicon Valley
Bank totaling $164,675. At December 31, 1998, we were not in compliance with
maximum net loss covenants contained in the line of credit agreements. The bank
waived the events of noncompliance, and the covenants were amended. At December
31, 1999, we were in compliance with all of the terms of our line of credit
agreements.
Our operating activities have used cash in the current fiscal year and each
of the last two fiscal years. During the calendar years 1999, 1998 and 1997,
cash used in operating activities of approximately $6.9 million, $5.3 million
and $1.4 million, respectively, resulted from net losses of approximately $6.4
million, $5.3 million and $1.6 million, respectively. For the year ended
December 31, 1999, the cash operating loss was primarily a result of payroll and
related expenditures, as well as marketing programs representing approximately
15% of revenues, and research and development representing approximately 10% of
revenues (excluding payroll and
27
<PAGE> 31
related expenditures). For the year ended December 31, 1998, the cash operating
loss was primarily a result of payroll and related expenditures, as well as
marketing programs representing approximately 8% of revenues, and research and
development representing approximately 10% of revenues (excluding payroll and
related expenditures). We expect the trend in cash operating losses to continue
at a rate equal to or greater than the current rate as we increase and expand
our distribution capability and continue our product development.
Cash used in investing activities was approximately $366,000, $350,000 and
$212,000 in the calendar years 1999, 1998 and 1997, respectively. The cash used
in investing activities was primarily used for purchases of computer systems and
software for internal development used to support our growth, as well as
furniture and equipment to accommodate the increased number of personnel.
Cash provided by financing activities amounted to approximately $23.4
million, $8.8 million and $4.7 million in the calendar years 1999, 1998 and
1997, respectively. In November 1999, approximately $23.4 million was provided
from the sale of Series C preferred stock to approximately 200 venture capital
investors and other qualified investors who were existing stockholders of Eprise
or clients of our private placement agent. In 1998, approximately $8.5 million
was provided from the sale of Series B Preferred Stock to seven institutional
venture capital investors and their affiliates and one accredited individual. In
calendar year 1997, approximately $4.9 million was provided from the sale of,
and conversion of a note payable into, Series A preferred stock issued to three
institutional venture capital investors and one accredited individual.
We currently anticipate that the net proceeds from the issuance of Series C
preferred stock on November 8, 1999, and the net proceeds from this offering,
together with our current cash and equivalents and line of credit, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. However, we may need to raise
additional funds in future periods through public or private financings, or
other arrangements. Any additional financings, if needed, might not be available
on reasonable terms or at all. Failure to raise capital when needed could harm
our business, financial condition and results of operations. If additional funds
are raised through the issuance of equity securities, additional dilution could
result. In addition, any equity securities issued might have rights, preferences
or privileges senior to our common stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
released Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 to provide guidance related to determination of the allocation
of revenues in multiple element contracts under certain circumstances. SOP 98-9
will be effective for transactions entered into in our fiscal year beginning
January 1, 2000. Eprise does not expect that adoption of SOP 98-9 will have a
material impact on financial position or the results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
fiscal years beginning after June 15, 2000. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for based on the use of the derivative and
whether it qualifies for hedge accounting. Management is currently assessing the
impact of SFAS No. 133 on our financial statements. Eprise will adopt this
accounting standard on January 1, 2001, as required.
28
<PAGE> 32
YEAR 2000 ISSUES
We have designed Eprise Participant Server and its add-on modules to be
Year 2000 compliant, and, as a result, to date we have not experienced Year 2000
problems related to these products. We licensed a precursor of Eprise
Participant Server that may not be Year 2000 compliant to one customer, but have
not been advised of any Year 2000 problems by such customer to date.
The majority of the computer programs and hardware we currently use in our
own internal operations did not require replacement or modification as a result
of the Year 2000 issue.
We believe that our significant vendors and service providers are Year 2000
compliant and have not, to date, been made aware that any of our significant
vendors or service providers have suffered Year 2000 disruptions in their
systems.
Accordingly, we do not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any Year 2000
problems.
29
<PAGE> 33
BUSINESS
Eprise provides software products and services that enable businesses to
maintain, update, expand and otherwise manage the information contained on their
Web sites. Our core product, Eprise Participant Server, enables a business
organization to distribute this Web content management function among the
appropriate individuals within the enterprise who are charged with particular
aspects of the Web business. These individuals need no knowledge of programming
languages or other technical skills to use Eprise Participant Server, thereby
minimizing a customer's reliance on information technology professionals and
consultants. Eprise Participant Server ensures, however, that changes to Web
content are carefully managed through rules contained in the software which
govern Web content access and approval rights. Eprise Participant Server permits
an enterprise to have Web site content which is dynamic, up to the minute and
responsive to the needs of customers, business partners, employees and others
who visit the enterprise's Web site. Our product can be easily integrated with a
customer's existing Web site infrastructure and it can be extended to provide
enhanced, customized functionality. We believe that Eprise Participant Server's
comprehensive, out-of-the-box functionality makes it the most cost-effective Web
content management solution currently available.
INDUSTRY BACKGROUND
The Internet has evolved into a critical sales, service and communications
channel for businesses. This development has permanently altered the way
organizations manage relationships, not just with customers, but also with
suppliers, business partners, employees and others interested in the business
enterprise. Business organizations worldwide have realized that an effective Web
site can help the organization to achieve higher revenues as well as to build
and strengthen relationships with its many constituencies. IDC estimates that
the number of business Web pages will increase from 2.2 billion in 1999 to 16.5
billion in 2003.
Effective Web sites must communicate business information to one or more
target audiences. In order to do this, many enterprises maintain:
- an intranet site, which is used for internal communications with and
among employees and which may contain information about corporate
policies and employee benefits, other non-public announcements, and
internal product and sales support.
- an extranet site, which is used for restricted external communications
with business partners and which may contain information about products
and pricing, distribution channels, contract terms and conditions and
promotional material.
- an Internet site, which is used for communications with customers and the
general public and which often contains information about products,
customer service and support, company contacts, and investor and
financial information.
Because Web sites provide critical business information, they must be
carefully managed and kept up to date. Given the large amount of information
that can be made available on an organization's Web sites, and the number of
people who may be responsible for delivering and maintaining that information, a
business must determine who will contribute and manage what content, and how and
to whom that content will be presented. This means that software which manages
Web site content must:
- distribute Web site content contribution, editing and approval functions
to the most appropriate individuals in the organization to enable them to
modify content quickly and easily without the assistance of technical
personnel;
- organize and store content so that it is presented consistently
throughout the Web site, and so that it can be easily formatted,
retrieved, re-used and revised over time;
30
<PAGE> 34
- target content to the intended audience that is consistent with the
organization's business strategy and marketing messages; and
- permit integration with existing Web site content and software, without
the need for complex conversions or extensive programming.
Businesses have found it difficult and expensive to build in-house systems
or to customize commercially available software to manage their Web site
content. Businesses first attempted to manage the content of their Web sites
through in-house software development efforts. These efforts often failed
because the organization did not have sufficient resources and internal
technical personnel. These difficulties led to the development of commercially
available software that businesses could use to manage their Web site content
without substantial commitment of internal technical personnel. Many of these
solutions required a high degree of costly and time-consuming customization in
connection with both implementation and ongoing Web site management and
enhancement. Customized software solutions have also made businesses dependent
upon proprietary technology, which is difficult to integrate with other existing
and future business applications.
Because of these difficulties, business organizations require a new
approach to Web content management. This new approach requires software that is
as fully functional as possible upon installation, without requiring extensive
customization or consulting services. The software should be easy for
non-technical personnel to use, should be easy to integrate with the user's
existing databases, information systems and other technology and it should
permit a business to manage the content of its Web site on a decentralized basis
so that the appropriate individuals within the organization are responsible for
managing the content. Finally, the software should permit the business
organization to deliver timely, targeted information to its various audiences.
OUR SOLUTION
Eprise Participant Server provides a solution that addresses all of the
requirements for effective Web content management software.
Comprehensive, Out-of-the-Box Functionality. We believe that Eprise
Participant Server is the most complete out-of-the-box content management
software solution available today, with built-in functionality that results in
low implementation and customization costs.
Rapid Deployment. Typically, a customer can quickly install Eprise
Participant Server and begin using it commercially within a week. Because our
software is intuitive and easy to use, there is no need for technical scripting
or programming. This means that business people can begin contributing to and
modifying content on the Web site immediately after deployment, dramatically
reducing the time to market of the enterprise's Web initiatives.
Easy Integration with Existing Web Site Infrastructure and
Technology. Eprise Participant Server uses widely accepted, non-proprietary
industry standards to communicate with other Internet infrastructure software.
This permits a customer to easily integrate Eprise Participant Server with its
back-office systems, databases, e-commerce and application servers and existing
Web content. In addition, customers can use readily available software
development tools to adapt and customize Eprise Participant Server to address
their specific needs. Our architecture also permits a software developer to
enhance the functionality of our product to address a customer's specific
requirements.
Distribution of Content Management Responsibility. Eprise Participant
Server distributes Web site content creation, editing and approval
responsibilities throughout an organization, enabling the appropriate
individuals to implement and manage the Web site, in most cases without
assistance from a Webmaster or other technical personnel. At the same time,
Eprise Participant Server enables an organization to establish rules to control
those aspects of the Web site which
31
<PAGE> 35
are most appropriately managed by the Webmaster, such as rules to provide a
consistent look and feel. As a result of this distribution of responsibility, a
customer using our solution can successfully provide more timely and targeted
information that is consistent with the organization's business objectives.
Delivery of Information Targeted to Particular Audiences. Through the
creation of unique business rules and individually assigned roles, Eprise
Participant Server makes it easy for the appropriate people within an enterprise
to create targeted, up-to-date content for the specific audiences that the
enterprise is trying to reach. Similarly, by assigning roles to Web site users
within and outside the enterprise, such as "employee," "manager" or "business
partner," and allowing those persons to select user preferences relevant to
their role or the available content, an enterprise can ensure that each member
of its audience is receiving the most relevant content.
Because Eprise Participant Server has all of this functionality, we believe
that it is the most cost-effective Web content management solution currently
available. Using Eprise Participant Server, a customer can create and maintain a
dynamic Web site that can be seamlessly integrated with other aspects of its
business with minimal reliance on internal or external information technology
professionals.
OUR STRATEGY
Our objective is to become the leading provider of Web content management
solutions. To achieve this goal we are pursuing the following strategies:
Expand Product Offerings. Using customer feedback and market research, we
intend to expand our research and development in order to provide new releases
of Eprise Participant Server and to add new products that respond to our
customers' requirements. We intend through future releases of Eprise Participant
Server and new products to provide for further integration with our customers'
other software products, and to extend the content management capabilities of
our products.
Expand Direct Sales. Our direct sales force consists of teams of account
executives and systems engineers. Each of these teams is assigned to a territory
where it calls on enterprise accounts and dot-com companies that need content
management software to support their Internet infrastructure requirements. We
intend to substantially increase the number of our sales personnel in order to
achieve greater geographical coverage and increased market penetration.
Expand Alliances. We will continue to form and develop alliances with
large systems integrators, Web developers, interactive agencies, application
service providers and original equipment manufacturers. These alliances enable
us to expand our sales and marketing activities, giving us greater marketing
presence and sales coverage. In addition, we intend to continue forming
alliances with other Internet software companies with complementary products and
technologies so that together we may deliver to our respective customers more
comprehensive and better integrated solutions.
Expand Sales Rapidly in Global Markets. We intend to rapidly expand our
international sales presence to take advantage of the growing global demand for
Web content management solutions. We will support this effort with a combination
of direct sales and support personnel, indirect sales channels and alliance
partnerships. We have formed a key alliance with a Japanese integrator to
co-develop and distribute a Japanese language version of Eprise Participant
Server. Additionally, we are establishing a direct sales presence and forming
alliances in the European market.
Leverage Existing and New Customer Relationships. We are targeting
potential customers with multiple Web sites. We intend to develop and strengthen
our relationships with these customers with the expectation that we can generate
substantial additional revenues beyond
32
<PAGE> 36
the initial license and service fees, as well as shorten the sales cycle on
future licenses for the same account. In addition, we expect to build on our
relationships with existing and future "marquee" customers to expand the
market's awareness of our product.
PRODUCTS
The Eprise product line consists of Eprise Participant Server, which is our
Web content management software, and a series of add-on products for Eprise
Participant Server. The following table highlights the key functionality and
features of Eprise Participant Server.
Eprise Participant Server Functionality and Features
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRODUCT FUNCTIONALITY FEATURES
- ------------------------------------------------------------------------------------------------------
<S> <C>
Content Management - Enterprise-wide distributed content contribution and
editing
- Categorization and organization of content
- Ability to store and retrieve previous versions of
content
- Ability to track access and editing history
- Re-useable page components (i.e., headers, footnotes) and
templates
- ------------------------------------------------------------------------------------------------------
User Management - Ability to assign roles to view and manage content
- Authentication of user identity using a variety of
industry standards
- Ability of Web site visitors to select content
preferences
- ------------------------------------------------------------------------------------------------------
Business Rule Management - Ability to provide for multiple levels of content
approval
- Ability to create rules governing an individual's rights
to view, modify or manage content
- Ability to target content to appropriate audiences
- ------------------------------------------------------------------------------------------------------
</TABLE>
Eprise Participant Server provides all of the functionality shown in the
above chart directly to non-technical business people within an enterprise, in
most cases without intervention by information technology personnel.
33
<PAGE> 37
Eprise also offers a variety of add-on products to maximize the effective
use of Eprise Participant Server by the broadest range of users. The current
add-on products offered by Eprise are shown in the following table.
Eprise Add-On Products
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRODUCT FEATURES
- ------------------------------------------------------------------------------------------------------
<S> <C>
Integration Agents - Facilitates communication and exchange of information and
services between Eprise Participant Server and e-commerce
and applications servers
for ASP - Supports products based on Microsoft Active Server Pages
including Site Server Commerce
for Cold Fusion - Supports Allaire Cold Fusion Application Servers
for Java technologies - Supports Java Server Pages applications and other
applications servers that utilize Java technologies
- ------------------------------------------------------------------------------------------------------
Full Text Options - Allows a searchable full-text index to be created for
content managed in Eprise Participant Server
- Provides permission system for search requests and
displaying search results
for Windows NT - Uses Microsoft Index Server that ships with Windows NT
4.0
for Solaris - Uses technology from Verity, a leading full-text search
provider for the Unix platform
- ------------------------------------------------------------------------------------------------------
Web Catalyst - Automatically incorporates existing Web site content into
Eprise Participant Server
- ------------------------------------------------------------------------------------------------------
</TABLE>
We typically charge for Eprise Participant Server and add-on product
licenses based on the number of servers the customer will need to support its
Web sites, but occasionally we will provide our customers with the option to
license our products on an enterprise, divisional, or site license basis. As a
result, as the customer's Web sites prosper and site visits and transaction
volume grow, the client will need to purchase more licenses for the additional
servers deployed.
TECHNOLOGY
Eprise Participant Server incorporates a number of important technological
and design features. Its open architecture is based on the programming language
XML and supports other programming standards such as COM and Java through our
optional add-ons. The user interface for Eprise products is delivered through a
Web browser and is based upon standard Web programming languages such as HTML,
DHTML, Java and JavaScript. Eprise Participant Server is also portable, allowing
customers to use different database products for their information repository,
such as Microsoft SQL Server or Oracle, as well as different operating systems
and Web servers such as Windows NT and Solaris.
Eprise Participant Server's architecture is highly scalable because it uses
technology that allows dynamically rendered content to be stored in memory to
improve transactional performance and speed, as well as a two-tier architecture
that permits multiple Eprise servers to be "clustered" to share a database
server.
34
<PAGE> 38
Eprise Participant Server is also extensible, allowing a business to create
customized Web pages for specialized business process automation. Eprise
Participant Server's business rule management can incorporate information
provided by other corporate systems, such as directories. Using widely available
Web software development tools, a customer can easily integrate Eprise
Participant Server with other systems, such as application and e-commerce
servers, sales and service systems and back-office systems.
SERVICES
While the effective use of Eprise Participant Server requires little or no
customization, we do offer a variety of optional services to our customers.
Eprise Advantage Program. Through our Eprise Advantage Program, available
for a standard fee, an Eprise professional will evaluate a customer's Internet
initiatives in conjunction with its overall business strategy. Based on this
evaluation, we will deliver a discovery and design analysis providing
recommendations on how Eprise Participant Server can best be used to implement
the customer's business goals, either through the customer's own technology
department, Eprise professional services or third party service providers.
Professional Services. If a customer wishes to work with Eprise in the
implementation phase of a project, including projects arising out of Eprise
Advantage Program recommendations, our professional services team will provide
development services ranging from graphics design to building applications using
complex database and development tools, either on a fixed fee or a time and
materials basis.
Customer Training. Our professional services team provides customer
training, either as a component of our Eprise Advantage Program or as a
stand-alone service offering for a fixed fee.
Maintenance and Support. We provide technical support and maintenance
services through annual maintenance agreements with our customers. These
services include delivery of software product bug fixes, enhancements and new
versions of Eprise Participant Server. We deliver support and maintenance
services primarily through telephone and e-mail communications. We also address
customer questions involving product operation, installation and application
development.
CUSTOMERS
We target enterprise-level accounts and dot-com companies who
- understand the critical importance of communicating with their
distribution channels and customers through their Web sites,
- have a significant amount of information to impart which requires
frequent updating,
- must address the informational needs of a number of different audiences
from their sites, and
- require rapid design of, and updates to, their sites.
To date, we have licensed Eprise Participant Server to over 40 clients in a
broad spectrum of industries, including the financial services, technology and
manufacturing industries. For the year ended December 31, 1999, American Express
accounted for 13% of revenues and Teijin Systems Technology Ltd. accounted for
10% of revenues for such period.
35
<PAGE> 39
The following is a partial list of clients that have licensed our products
and that we believe are representative of our overall client base.
Allstate Insurance
American Express
Asset International
Bausch & Lomb
BP Amoco
Briggs & Stratton
CAP Ventures
ChemPoint.com
Eastman Chemical
EMC Corp.
Financial Executives Institute
The Hartford
Hewlett-Packard
Homeruns.com
Laidlaw
Lincoln Financial Group
Martin Professional A/S
(Denmark)
MicroTouch Systems Inc.
Novell
Racing Rhino.com
Republican National Committee
Sabre
Sharp Electronics
SmartMoney.com
SPX Corporation
Teijin Systems Technology
(Japan)
VIS Corporation
CASE STUDIES
Our customers have a wide variety of business objectives and Web site
strategies that we believe our product can address.
EMC CORPORATION, a supplier of intelligent enterprise storage and retrieval
technology, was seeking to reduce the time and cost associated with maintaining
its "build-it-yourself" Web site, while preserving its existing Web content.
EMC's Web site provides a critically important internal communications vehicle
for its geographically dispersed personnel. Using Eprise Participant Server, the
company has developed an intranet that provides employees with a wealth of
competitive data. The information is organized in three secure levels, and is
made available to employees depending upon their role in the organization. This
intranet is helping to maximize the productivity of marketing, corporate
executives, field operations, and other departments throughout EMC.
SHARP ELECTRONICS CORPORATION is the U.S. sales and marketing subsidiary of
Sharp Corporation, a Japanese manufacturer of consumer electronics, business
products and electronic components. Sharp has traditionally sold products to end
users through existing distribution networks. However, it recently established a
new division, the Document and Network Systems Group, that focuses on selling
Network Laser Systems to businesses through value-added resellers, or VARs, and
equipment dealers.
Because the Document and Network Systems Group required a more
sophisticated sales channel than that used by other Sharp product groups, Sharp
believed that new and more sophisticated communications tools would be
necessary. Sharp elected to develop a complete e-business system to support its
VAR and equipment dealer relationships, including a Web site that would be the
focal point for product marketing, sales and support and communication between
Sharp and its VARs and equipment dealers. In consultation with Andersen
Consulting, Sharp elected to deploy a Microsoft-centric environment that uses
Windows NT, SQL Server, IIS, and Site Server Commerce. To round out the
solution, Sharp and Andersen Consulting chose Eprise Participant Server to
provide dynamic Web content management.
36
<PAGE> 40
With Eprise Participant Server, the content on Sharp's new Web site is
targeted to various tiers of resellers and provides timely, up-to-date
information which is easily added to the site by Sharp's business professionals.
Sharp has realized the following competitive advantages by using our product to
develop its sales channels:
- real-time delivery of product information, such as price lists, technical
notes, bulletins, frequently asked questions, or FAQs, and service
documentation, to resellers and equipment dealers;
- effective, targeted communications with business partners and consumers;
- ability of non-technical business professionals to quickly add and update
content on the Web site to improve customer service and satisfaction; and
- enhanced ability to attract sales channel partners.
SALES, MARKETING AND BUSINESS DEVELOPMENT
We license our product through both our direct sales force and indirect
sales channels. As of February 25, 2000, our sales, marketing and business
development organization consisted of 54 individuals, 52 of whom were based in
North America, including 22 direct sales representatives, who are supported by
11 sales support personnel, and 10 marketing personnel.
Direct Sales. To date, we have sold our products primarily through our
direct sales force. We currently have nationwide sales coverage, organized
principally by geographic regions. We intend to increase our direct sales force
in the U.S. and overseas. We are focusing our sales efforts on well-defined
market segments where the need for our solution is greatest and where technology
innovation is the norm, such as the financial services, technology and
manufacturing industries. We target enterprise-level accounts and dot-com
companies for whom the Internet is a fundamental part of their corporate
strategy.
Marketing. We support our sales efforts through various marketing efforts
to generate brand awareness and to qualify leads for the sales organization. We
intend to significantly increase both expenditures and personnel to support our
marketing efforts.
Business Development. It is the goal of our business development staff to
extend our market reach and increase our sales opportunities through the
establishment of relationships with systems integrators, Web developers and
application service providers who build customer solutions based on Eprise
Participant Server. In many cases, these business partners will recommend a Web
content management solution to their customers as part of the e-business
application that they deliver. We anticipate that these business partners will
reduce our current three- to six-month sales cycle while adding value to the
planning and deployment phase of projects that require an Eprise solution. Our
current business partner arrangements include lead sharing, product training,
joint marketing and access to engineering resources. These relationships are
important to our strategy because of our business partners' technical knowledge
and extensive customer relationships across many industries. We intend to devote
significant resources to developing these relationships further.
We also have formal contractual relationships under our "E-business
Experts" program with a number of systems integrators and Web developers. Under
this program, we provide our E-business Experts with a license to use Eprise
Participant Server along with in-depth professional training in order to enable
the E-business Experts, in turn, to design and build for their customers content
management solutions based on the use of Eprise Participant Server.
37
<PAGE> 41
The following is a partial list of our current E-business Experts
alliances:
<TABLE>
<S> <C>
Agency.com PixelDance Communications
Lante Corporation Power 2000
Mitchell Systems Corporation Primix Solutions
MultiMedia Management AS Telesoft Corporation
(Sweden) The New Media Group
Northwoods Software TUSC Computer Systems
Development, Inc. Pty. Ltd. (Australia)
OPN Systems Wing.net
</TABLE>
Additionally, we are working with key large systems companies such as
Microsoft to coordinate product and marketing activities. We are a Microsoft
Certified Solutions Provider and a member of the Hewlett-Packard Covision
Program, the Sun Developer Connection Program and the Allaire Alliance Program.
These relationships afford us greater worldwide marketing and sales reach.
Global Expansion. We currently sell our products primarily in the United
States, but are taking steps to rapidly expand our global sales efforts to
domestically based global companies and companies based outside the United
States. We intend to do this with a combination of direct sales and support
personnel, indirect sales channels and partnerships. We have formed an alliance
with a Japanese integrator, Teijin Systems Technology Ltd., to co-develop and
distribute Japanese-language versions of our products. Additionally, we are in
the process of establishing a presence and forming partnerships in the European
market.
RESEARCH AND DEVELOPMENT
We have invested significantly in research and development to enhance our
current products and develop new products. Our research and development expenses
were $459,000 for the twelve months ended December 31, 1997, approximately $2.1
million for the year ended December 31, 1998 and approximately $2.4 million for
the year ended December 31, 1999. We expect that we will increase the dollar
amount of our research and development expenditures substantially in the future.
As of February 25, 2000, 26 employees were engaged in research and development
activities and we plan to continue to hire additional engineers to further our
research and development activities.
Our research team, led by the Chief Technology Officer, identifies market
opportunities and develops prototypes for new product features, product updates,
add-ons and new products. This team is responsible for defining and guiding our
product strategy and vision, and maintaining our reputation as an innovator in
content management solutions. Our development team, led by the Vice President of
Software Development, designs, develops and enhances new and existing products.
This team is responsible for product development, quality and assurance testing,
product documentation, product release and maintenance, and overall execution of
our product development strategy. We intend to continue to expand and enhance
the capabilities of Eprise Participant Server, as well as develop and extend our
content management product offerings, to provide our customers with complete
flexibility in choosing the most desirable environment for creating and managing
content.
COMPETITION
The market for Web content management solutions is intensely competitive,
subject to rapid technological changes and significantly affected by new product
introductions and other
38
<PAGE> 42
market activities of industry participants. Many of our competitors currently
have a greater market share than Eprise. We have four primary sources of
competition:
- in-house development efforts by potential clients and partners;
- specialized application servers such as Vignette;
- legacy document management systems such as Documentum; and
- file-based content management systems such as Interwoven.
In addition, we currently partner with a number of companies that provide
complementary products such as Web tools and application servers. Any of these
companies might introduce competitive product offerings in the future.
We believe that the primary factors upon which we compete favorably are the
out-of-the-box functionality and rapid deployment capability of Eprise
Participant Server and Eprise Participant Server's ease of integration with our
customers' existing and future application server products. Other areas in which
we compete favorably include the ability to distribute content management
responsibilities within an organization, the ability to deliver information
targeted to specific audiences, and the cost-effectiveness of our product.
Despite these competitive advantages, we also face competitive
disadvantages because many of our competitors have longer operating histories
and significantly greater financial, technical, marketing and other resources
than we. As a result, they may be able to undertake more extensive promotional
efforts, adopt more aggressive pricing strategies, and offer more attractive
terms to purchasers than we.
We expect competition to persist and intensify in the future. Competition
could materially and adversely affect our ability to obtain revenues from
license fees from new or existing customers and service fees from existing
customers. Further, competitive pressure may force us to reduce the price of our
products. In either case, our operating results and financial condition would be
materially and adversely affected.
PROPRIETARY RIGHTS AND LICENSING
Our success depends upon our ability to maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of others.
We rely on a combination of trademark, trade secret and copyright law, and
contractual restrictions, to protect the proprietary aspects of our technology.
We seek to protect the source code for our software, documentation and other
written materials under trade secret and copyright laws. These legal protections
provide limited protection for our technology. Our license agreements prohibit
our customers from using our software other than for internal business purposes.
We also seek to protect our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source code.
Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments and
enhancements to existing products are at least as important to establishing and
maintaining a technology leadership position. Eprise also licenses third party
software from RogueWave and Verity that is incorporated into Eprise Participant
Server and an add-on product, respectively. We believe these licenses are not
material to our business and the technology could be replaced, if necessary or
appropriate, by commercially available third party software or internally
developed technology without material disruption to our business or operations.
See "Risk Factors -- We have a limited ability to protect our intellectual
property rights, and others could infringe on or misappropriate our proprietary
rights and information."
39
<PAGE> 43
EMPLOYEES
As of February 25, 2000, we had a total of 118 employees, including 54 in
sales and marketing, 26 in research and development, 25 in professional services
and support and 13 in information technology, administration and finance. None
of our employees is represented by a collective bargaining agreement, nor have
we experienced any work stoppage. We consider our relations with our employees
to be good.
FACILITIES
Our principal office occupies approximately 12,400 square feet in
Framingham, Massachusetts, under a lease that expires in September 2000. Annual
lease payments on the Framingham facility are approximately $198,600. We have
entered into a lease agreement for approximately 78,000 square feet of new
office space in Framingham, Massachusetts commencing on October 1, 2000. Initial
annual lease payments on the new Framingham facility will be approximately $2.1
million, with periodic increases over the ten-year term of the lease. In
addition, we lease sales and service offices in Oakbrook, Illinois; Dallas,
Texas; San Jose, California; Denver, Colorado; and Reading, U.K., as well as
additional office space in Framingham, Massachusetts. Eprise does not own any
real property.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
40
<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph A. Forgione(1).................. 45 President, Chief Executive Officer and Director
Jonathan B. Radoff..................... 27 Founder, Chief Technology Officer and Director
Milton A. Alpern....................... 48 Vice President, Finance and Chief Financial Officer
Henry Barnes........................... 36 Vice President, Marketing
Thomas Feldman......................... 41 Vice President, Business Development
Joseph Fiorentino...................... 43 Vice President, Sales
Robert Strong.......................... 56 Vice President, Software Development
Edson D. de Castro(2).................. 61 Director and Chairman
Deborah M. Besemer(2).................. 45 Director
Robert C. Fleming(1)................... 43 Director
Alain J. Hanover(1)(2)................. 51 Director
Nicholas A. Papantonis................. 65 Director
Joseph J. Tischler..................... 51 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Joseph A. Forgione has been President and Chief Executive Officer, and a
Director of Eprise since November 1997. Prior to joining Eprise, Mr. Forgione
held several senior positions at Lotus Corporation from 1993 to 1997, including
most recently Vice President of Business Development and Planning for the
Internet Applications Division. Mr. Forgione also co-founded and served as a
Senior Vice President of HyperDesk, an object-oriented development tools
company, from 1990 to 1993. Prior to founding HyperDesk, Mr. Forgione held
senior management positions at Data General Corporation. Mr. Forgione holds a
B.S.E.E. degree from the Massachusetts Institute of Technology (MIT) and a
Master of Science in Management from the Sloan School of Management at MIT.
Jonathan B. Radoff is the founder of Eprise, and served as its Chairman,
President and Chief Executive Officer from 1992 until 1997. In November 1997,
Mr. Radoff assumed the position of Chief Technology Officer. Prior to founding
Eprise, Mr. Radoff was the President of Inner Circle Software, a developer of
online interactive software products for Atari and Amiga computers. Mr. Radoff
is a member of the Association of Computer Machinery (ACM) and a trustee of the
Massachusetts Software Council.
Milton A. Alpern joined Eprise in April 1998 as Chief Financial Officer.
Prior to joining Eprise, Mr. Alpern served as Vice President of Finance at
National Transaction Network, Inc. from 1992 to 1998, where he helped establish
that company as a leading publicly-held provider of software solutions to the
electronic payments industry. He also has served as Vice President of Finance at
Henco Software, Inc., a venture-funded producer of information management
software products, from 1987 to 1992. He received his B.S. degree in Accounting
from Montclair State University.
Henry Barnes joined Eprise as Director of Marketing in 1997 and became Vice
President, Marketing in March 1998. Prior to joining Eprise, Mr. Barnes served
as director of product marketing from 1995 to 1997 at ESS Software. He also has
held managerial positions at Edify
41
<PAGE> 45
Corporation, a self-service tools and applications company. He holds a B.S.
degree in Computer Science from Tulane University and is a member of the
American Marketing Association.
Thomas Feldman joined Eprise in November 1999 as Vice President, Business
Development. Prior to joining Eprise, Mr. Feldman served from September 1998 to
October 1999 as Vice President, Marketing and Business Development for Prodigy
Communications Corporation, an Internet service provider. Prior to that, Mr.
Feldman worked at Simon & Schuster from 1994 to 1997 as Vice President and
General Manager of RedRocket.com, an online retailer of educational toys and
games. He has also held management positions with Staples and PepsiCo. Mr.
Feldman holds a B.A. degree from Ohio Wesleyan University and a Masters of
Management degree from the Kellogg School of Management at Northwestern
University.
Joseph Fiorentino joined Eprise in April 1999 as Vice President, Sales.
Prior to joining Eprise, Mr. Fiorentino served as Vice President of Sales for
American Internet Corporation, a developer of Internet Protocol address
management software, from December 1997 to December 1998. Mr. Fiorentino also
served as Vice President of Sales for OrderTrust, an e-commerce start-up
company, from March 1996 to November 1997 and as Director of North American
Sales at FTP Software Inc., from April 1994 to March 1996. Mr. Fiorentino holds
a B.A. degree from Merrimack College.
Robert Strong joined Eprise in December 1998 as Vice President, Software
Development. Prior to joining Eprise, Mr. Strong served as Director of Software
Development for FTP Software Inc. from 1996 to 1998. Before that, he served from
1993 to 1996 as Vice President of Research and Development for HyperDesk (which
was acquired by FTP Software in 1996). Mr. Strong also has held senior
management positions at the technology firms Ontologic, Inc., Softbridge
Microsystems and Xyvision. He holds a B.E.E. degree from Villanova University
and a Ph.D. in Communications from MIT, and is a member of the ACM, the IEEE,
the IEEE Computer Society and the Scientific Research Society of North America.
Edson D. de Castro joined our board of directors in May 1998 and was
elected as chairman in October 1999. He served as Chief Executive Officer of
Xenometrix Inc., a biotechnology company, from July 1995 until January 1997. Mr.
de Castro served as Chief Executive Officer of Data General Corporation from
September 1968 to December 1990, and has worked as a consultant in the
technology industry since January 1991. Mr. de Castro currently sits on the
boards of seven other companies, including Healthgate Data Corporation.
Deborah M. Besemer joined our board of directors in October 1999. Ms.
Besemer has been President and Chief Executive Officer of HireSystems, Inc., a
software and services company for hiring management personnel, since June 1999.
Prior to that, Ms. Besemer was President and Chief Operating Officer at
SystemSoft from November 1997 to August 1998. Ms. Besemer worked from 1986 to
1997 at Lotus Corporation, most recently as Executive Vice President of
Worldwide Field Operations. She is a trustee of the Massachusetts Software
Council.
Robert C. Fleming joined our board of directors in December 1997. Mr.
Fleming is general partner of Prism Venture Partners. Prior to co-founding Prism
in November 1995, Mr. Fleming was a general partner at Norwest Venture Capital
from July 1993 to May 1995. Mr. Fleming currently serves on the boards of
directors of a number of venture-backed companies.
Alain J. Hanover joined our board of directors in March 1998. Mr. Hanover
is a co-founder, and has been President and Chief Executive Officer, of InCert
Software Corp., a company that develops program failure detection and prevention
software, since October 1997. Mr. Hanover was co-founder, President, Chief
Executive Officer and Chairman of Viewlogic Systems, Inc. from 1984 to 1997. He
sits on the boards of directors of three other companies, including Applix, Inc.
42
<PAGE> 46
Nicholas A. Papantonis joined our board of directors in August 1998. Mr.
Papantonis has been a venture partner with Alliance Technology Ventures of
Atlanta since 1995 and heads that firm's Boston office. He has been a general
partner of Aspen Venture Partners, a Boston-based venture capital partnership,
since 1989, where he has focused on telecommunications investments. In 1970, Mr.
Papantonis joined Infinet Inc., a venture-backed start-up telecommunications
company in Boston, and served as its Chief Executive Officer from 1984 until
1988.
Joseph J. Tischler joined our board of directors in December 1997. Since
January 1995, Mr. Tischler has been an investment manager of The Still River
Management Company and a general partner and founder of The Still River Fund, a
venture capital fund. Mr. Tischler has more than 20 years experience in
marketing and retail store management, including strategic planning and senior
operating positions with divisions of Federated Department Stores and the Batus
Retail Group. Mr. Tischler currently sits on the boards of three other
companies.
ELECTION OF OFFICERS AND DIRECTORS
Our executive officers are elected by the board of directors and serve
until their successors are duly elected and qualified. There are no family
relationships among any of our executive officers or directors.
Our board of directors consists of eight members. Currently, each director
is elected pursuant to our Second Amended and Restated Stockholders Agreement
among Eprise, our preferred stockholders, Messrs. Forgione and Radoff and Angela
Bull. This agreement will automatically terminate upon the closing of this
offering. Our Fourth Amended and Restated Certificate of Incorporation, to be
filed prior to the effectiveness of the registration statement of which this
prospectus forms a part, will provide for classification of our board into three
classes, with the members of the respective classes serving for staggered
three-year terms. The first class consists of Mr. Fleming, Mr. Papantonis and
Mr. Tischler, the second of Ms. Besemer, Mr. de Castro and Mr. Hanover and the
third of Mr. Forgione and Mr. Radoff, with the initial terms of the directors
comprising each class expiring upon the election and qualification of directors
at the annual meetings of stockholders held following the fiscal years ending
December 31, 2000, 2001 and 2002, respectively. At each annual meeting of
stockholders, the number of directors will be fixed and directors will be
re-elected or elected for full three-year terms.
BOARD COMMITTEES
Our audit committee reviews our external and internal auditing procedures,
reviews with our independent auditors the scope and results of their audit for
the year, and also reviews with our management the plan, scope and results of
Eprise's operations. After the closing of this offering, it will also review all
quarterly and year-end financial statements before such financial information is
included in our quarterly and annual filings with the Commission. The members of
our audit committee are Mr. de Castro, Ms. Besemer and Mr. Hanover.
Our compensation committee's functions are to determine the salaries and
other forms of compensation of officers of Eprise and to review general policy
matters relating to compensation and benefits of Eprise's employees. The
compensation committee is also charged with granting stock options and
restricted stock to officers, key employees and consultants, and addressing
stock option and restricted stock matters generally. The members of our
compensation committee are Mr. Forgione, Mr. Fleming and Mr. Hanover. Mr.
Forgione does not participate in any decisions with respect to his own
compensation or, to the extent mandated by applicable securities laws and
Internal Revenue Code regulations, in any compensation decisions relating to
other executive officers.
43
<PAGE> 47
No member of the audit committee or the compensation committee is a past or
current officer or employee of Eprise, except as noted with respect to Mr.
Forgione's service on the compensation committee.
DIRECTOR COMPENSATION
The directors of Eprise are not compensated in cash for their service as
directors. Directors who are not employees of Eprise are eligible to participate
in our 2000 Non-Employee Director Stock Option Plan, described below under
"Stock Option Plans." To date, Messrs. de Castro and Hanover each have received
options to purchase 39,215 shares of common stock upon joining the board, and
Ms. Besemer has received options to purchase 15,686 shares of common stock upon
joining the board and 3,921 shares of common stock in January 2000. In addition,
Mr. de Castro received an option to purchase 19,607 shares of common stock in
connection with his election as chairman of the board. All of these grants were
made under the Company's 1997 Stock Option Plan. Directors who are employees of
Eprise are not paid any fees or additional compensation for service as members
of the board of directors or any committee of the board. We maintain directors'
and officers' liability insurance and our by-laws provide for mandatory
indemnification of directors and officers to the fullest extent permitted by
Delaware law. In addition, our charter limits the liability of directors to
Eprise or its stockholders for breaches of the directors' fiduciary duties to
the fullest extent permitted by Delaware law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In December 1997, the board of directors established a compensation
committee with sole responsibility for determining the compensation of officers
of Eprise, the members of which were Messrs. Fleming, Forgione and Hanover.
Prior to that, all compensation decisions were made by the full board. Mr.
Forgione does not participate in board or compensation committee deliberations
with respect to his compensation. No interlocking relationship exists between
our board or compensation committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past. Mr. Forgione and an affiliate of Mr. Fleming have engaged
in transactions with Eprise as described in "Certain Transactions -- Board
Member Participation in Financings" and "-- Officer Loans," respectively.
44
<PAGE> 48
EXECUTIVE COMPENSATION
The following table provides information regarding all compensation
received by our Chief Executive Officer and the other four most highly
compensated executive officers of Eprise whose total salary and bonus for the
fiscal year ended December 31, 1999 exceeded $100,000 for services rendered in
all capacities during 1999. We will use the term "named executive officers" to
refer collectively to these individuals later in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#)
--------------------------- ---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Joseph A. Forgione............................. 1999 $225,869 $48,021 90,584
President and Chief Executive Officer
Joseph Fiorentino.............................. 1999 86,539 80,833(3) 329,411
Vice President, Sales(2)
Jonathan B. Radoff............................. 1999 141,509 25,567 --
Chief Technology Officer
Robert Strong.................................. 1999 141,509 23,126 188,234
Vice President, Software Development
Milton A. Alpern............................... 1999 122,376 32,156 39,215
Vice President, Finance and Chief Financial
Officer
</TABLE>
- -------------------------
(1) The bonus figures listed above represent bonuses paid in July 1999 and
January 2000 for services performed in 1999.
(2) Mr. Fiorentino commenced employment with Eprise in April 1999.
(3) Represents amounts paid to Mr. Fiorentino as sales commissions.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Forgione has entered into an employment agreement with Eprise dated
November 4, 1997, which provides, among other things, for salary and bonus
payments and stock option grants in specified amounts. The agreement also
provides that Mr. Forgione will receive up to 12 months' severance if his
employment is terminated without "cause" (defined as having engaged in gross
negligence relative to Eprise's affairs or having been convicted of a felony)
and that Mr. Forgione's stock options will become fully vested upon a change of
control of Eprise. In addition, Mr. Forgione has agreed not to solicit Eprise's
employees or customers, or to compete with its business, for a period of one
year following the termination of his employment. Either party can terminate the
agreement at any time, with or without cause. As a condition of his employment
agreement, Mr. Forgione also has signed Eprise's standard form of non-disclosure
and assignment of inventions agreement.
Mr. Radoff has entered into an employment agreement with Eprise dated
December 17, 1997, which provides, among other things, for salary payments of a
specified minimum amount and 12 months' severance if Mr. Radoff's employment is
terminated without "cause" (defined as having engaged in gross negligence
relative to Eprise's affairs or having been convicted of a felony). Mr. Radoff
has agreed not to solicit Eprise's employees or customers, or to compete with
its business, for a period of one year following the termination of his
employment, and has agreed that all works created by him during the term of his
employment shall be deemed works made for hire. The agreement provides that Mr.
Radoff can be terminated only upon the vote of at least five-sevenths of the
board of directors.
45
<PAGE> 49
All employee stock option grants, including those granted to the named
executive officers, provide for partial acceleration of vesting (and partial
termination of Eprise's right to repurchase the underlying shares) upon a change
of control of Eprise. Grants to the named executive officers also provide for
additional vesting (and additional lapsing of Eprise's right to repurchase the
underlying shares) upon material, adverse changes in the employee's
responsibilities, compensation and/or job location occurring within one year of
the change of control.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted to each of the named executive officers in fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERMS(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL 1999(1) PRICE($/SH)(2) DATE 5%($) 10%($)
---- ---------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Forgione(4).. 90,584 6.7% $ 0.64 9/17/09 $1,825,347 $2,900,398
Jonathan B. Radoff..... -- -- -- -- -- --
Joseph Fiorentino...... 250,980 18.7 0.46 5/12/09 5,130,490 8,152,129
78,431 5.8 0.64 9/15/09 1,580,453 2,511,272
Robert Strong.......... 141,176 10.5 0.31 1/14/09 2,921,104 4,641,508
47,058 3.5 0.64 9/15/09 948,260 1,506,744
Milton A. Alpern....... 39,215 2.9 0.64 9/15/09 790,217 1,255,620
</TABLE>
- -------------------------
(1) Based on an aggregate of 1,345,682 options granted by us during the fiscal
year ended December 31, 1999 to our employees, including the named executive
officers.
(2) The options in this table were granted under our 1997 stock plan, have
10-year terms and are exercisable in full as of the date of this prospectus.
We have the right to repurchase the shares issued upon exercise of these
options at the original exercise price paid for such shares upon termination
of the optionee's employment. Except as indicated in footnote (4) below,
this right lapses over a four-year period in equal annual installments
beginning on the first anniversary of the date of grant, except that upon a
change of control this right will lapse as to the next regularly scheduled
installment, and will further lapse as to 50% (100% in the case of Mr.
Fiorentino) of any remaining unvested shares upon termination of the
optionee's employment or materially adverse changes in the optionee's
employment responsibilities, compensation and/or job location within one
year after the change of control. All options are incentive stock options,
except for 29,134 options held by Mr. Forgione, and all were granted at the
fair market value of our common stock on the date of grant.
(3) In accordance with SEC rules, we have based our calculation of the potential
realizable value on the term of the option at its time of grant, and we have
assumed that:
- The estimated fair market value on the date of grant, based on an assumed
initial public offering price of $13.00 per share, appreciates at the
indicated annual rate compounded annually for the entire term of the
option; and
- The option is exercised and sold on the last day of its term for the
appreciated stock price.
46
<PAGE> 50
These amounts are based on 5% and 10% assumed rates of appreciation and do
not represent our estimate of future stock prices. Actual gains, if any, on
stock option exercises will be dependent on the future performance of the
common stock.
(4) Any shares purchased by Mr. Forgione pursuant to exercise of his option vest
ratably over a 48-month period from the date of grant, and vest in full upon
a change of control.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the exercise of stock
options by the named executive officers during fiscal 1999 and the value of
unexercised options at 1999 fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS HELD AT VALUE OF UNEXERCISED
DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1999(#)(2) DECEMBER 31, 1999($)(3)
ACQUIRED VALUE ----------------------- -----------------------
NAME ON EXERCISE(#) REALIZED($)(1) VESTED UNVESTED VESTED UNVESTED
---- -------------- -------------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Forgione... 285,385 $135,940 18,220 498,746 $ 230,465 $6,318,530
Joseph Fiorentino.... -- -- -- 329,411 -- 4,117,143
Jonathan B. Radoff... -- -- 98,039 98,039 1,247,007 1,247,007
Robert Strong........ 35,294 127,800 -- 152,940 -- 1,925,821
Milton A. Alpern..... 12,254 4,688 12,253 112,744 155,540 1,420,048
</TABLE>
- -------------------------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) All such options are currently exercisable; however, a portion of the shares
underlying the exercisable options of each of the named executive officers
are subject to our repurchase as of December 31, 1999. The heading "Vested"
refers to shares no longer subject to repurchase and the heading "Unvested"
refers to shares subject to repurchase as of December 31, 1999, in each case
assuming exercise of the underlying option.
(3) Based on the assumed initial public offering price of $13.00 per share,
minus the per share exercise price, multiplied by the number of shares
issuable upon exercise of the option.
STOCK OPTION PLANS
Eprise's 1994 and 1997 stock plans provide for the granting of either
incentive stock options or non-qualified options to purchase shares of our
common stock in order to provide incentives to our employees, consultants and
directors. In addition, the 1994 plan provides for the issuance of purchase
authorizations and stock awards. The stock plans authorize the grant of up to
4,144,281 shares in the aggregate, which number will increase automatically on
each of January 1, 2001 and January 1, 2002 by a number of shares equal to the
lesser of (i) 5% of the number of shares of Eprise common stock issued and
outstanding, including treasury shares, as of the close of business on December
31 of the prior year or (ii) 1,372,549 shares. As of January 1, 2000, there were
697,053 shares outstanding pursuant to option exercises, 2,225,264 options
outstanding and 1,221,964 options available for grant under both plans.
The 1994 and 1997 stock plans are administered by our board of directors
and the compensation committee, each of which has the authority to select the
persons to whom options are granted and determine the terms of each option,
including the number of shares of common stock underlying each option. Our plans
allow participants to purchase common stock of Eprise at prices set by the board
of directors, but in the case of incentive stock options and
47
<PAGE> 51
options granted under the 2000 Non-Employee Director Stock Option Plan described
below, not less than fair market value on the date the option is granted.
The maximum term for options granted under the 1994 and 1997 stock plans is
ten years. Options generally expire three months after termination of the
optionee's service to Eprise. Unless otherwise specified, outstanding options
are exercisable immediately upon grant, but we have the right to repurchase the
shares issued upon exercise of the option at the option exercise price if the
employee's employment is terminated for any reason. Generally, the repurchase
right lapses over a four-year period in equal annual installments beginning on
the first anniversary of the date of grant. In the event of a "change in
control" transaction, our board of directors is authorized to take one or more
of the following actions:
- provide that outstanding options be assumed or substituted for by the
acquiror;
- provide that all unexercised options terminate immediately prior to the
event unless exercised within a time period specified in a written notice
to the option holder;
- in the event of a merger in which the holders of common stock would
receive a cash payment for each share surrendered, provide for a cash
payment to each option holder equal to the amount by which the amount
paid to common stockholders exceeds the option's exercise price,
multiplied by the total number of shares for which the option is then
exercisable; in exchange for this payment, the options would be
terminated; or
- provide that any or all outstanding options become fully exercisable and
Eprise's repurchase right with respect to the shares issuable upon
exercise of these options terminate.
In any event, the shares underlying outstanding options that would have become
vested on the next scheduled vesting date will become vested upon the change in
control.
Our board and stockholders have approved the 2000 Non-Employee Director
Stock Option Plan, to take effect upon the effectiveness of this offering. The
director plan provides for the grant of options to purchase a maximum of 274,510
shares of our common stock to non-employee directors of Eprise. The director
plan will be administered by a committee appointed by the board of directors. In
the event the board does not appoint such a committee, the board shall have all
power and authority to administer the director plan. Under the director plan,
each director who is not also an employee or officer of Eprise and who is not a
director at the time of this offering shall automatically be granted, on the
date such person is first elected to the board of directors, an option to
purchase 15,686 shares of common stock. In addition, each continuing
non-employee director will automatically receive an option to purchase 7,843
shares of common stock upon the effectiveness of the registration statement of
which this prospectus forms a part and thereafter immediately following each
annual meeting of our stockholders commencing in 2001. Each option is
immediately exercisable, subject to our right to repurchase the option shares if
the director ceases to be a member of the board (other than due to death or
disability). The repurchase right lapses over a three-year period in the case of
option grants to new directors and on the first anniversary of the date of grant
in the case of annual option grants. Upon a change in control, our repurchase
rights will lapse as to all shares subject to director options. All options
granted under the director plan will have an exercise price equal to the fair
market value of the common stock on the date of grant. The term of each option
will be ten years from the date of grant. No options have been granted to date
under the director plan.
Payment of the exercise price of an option granted under any of our stock
plans may be made in cash or by check or, if permitted by the applicable grant
(as determined by the compensation committee or board of directors), in shares
of common stock or by recourse promissory note, or by a combination of any of
the above methods, consistent with Section 422 of the Internal Revenue Code and
Rule 16b-3 under the Exchange Act. Unless otherwise specified in a nonqualified
stock option grant, options are not transferable (although, once the option is
exercised, the underlying stock may be) except by will or the laws of
48
<PAGE> 52
descent and distribution. Each of the board of directors and the compensation
committee may, in its sole discretion, amend, modify or terminate our stock
plans, so long as such amendment, modification or termination would not
materially and adversely affect any participant. Amendment, modification or
termination of individual grants requires the consent of the participant
affected. Each of the board of directors and the compensation committee may
also, in its sole discretion, accelerate the date or dates on which all or any
particular option or options granted under our stock plans may be exercised.
STOCK LOAN PROGRAM
On July 14, 1999, the board of directors approved a stock loan program, as
subsequently amended, whereby our executive officers may borrow from Eprise an
amount equal to the purchase price of common stock purchased pursuant to stock
options, solely for the purpose of acquiring such stock. All shares purchased
with such loans are pledged to Eprise as collateral for repayment of the loans.
The loans are recourse to the borrower, bear interest at a variable rate which
is one-half of one percent above Eprise's cost of funds, payable quarterly in
arrears, and are payable as to principal no later than five years after the date
of the loan. As of the date of this prospectus, Eprise has loans outstanding to
the named executive officers in the following aggregate principal amounts,
secured by the number of shares listed: Mr. Forgione, $151,301, secured by
564,900 shares; Mr. Alpern, $52,500, secured by 137,254 shares; Mr. Fiorentino,
$165,200, secured by 329,411 shares; and Mr. Strong, $10,800, secured by 35,294
shares.
2000 EMPLOYEE STOCK PURCHASE PLAN
The board and stockholders have approved the Eprise Corporation 2000
Employee Stock Purchase Plan, and have authorized the reservation of a total of
588,235 shares of common stock for issuance under this plan. On each January 1
commencing January 1, 2001, the aggregate number of shares reserved for issuance
under our 2000 Employee Stock Purchase Plan will be increased automatically by a
number of shares equal to the lesser of (i) 1% of our outstanding shares on the
preceding December 31 or (ii) 294,118 shares. Our compensation committee will
administer the plan, which will become effective on the first day on which price
quotations are available for our common stock on the Nasdaq National Market.
Employees generally will be eligible to participate in the plan if they are
employed at least three months before the beginning of the applicable offering
period and they are customarily employed by Eprise, or any of our subsidiaries
that we designate, for more than 20 hours per week and more than five months in
a calendar year. Employees are not eligible to participate in the plan if they
hold 5% or more of our outstanding stock, or would become 5% stockholders as a
result of their participation in this plan.
Under the plan, eligible employees will be able to acquire shares of our
common stock through payroll deductions. Eligible employees may select payroll
deductions between $150 and 10% of their cash compensation and are subject to
maximum purchase limitations under the Internal Revenue Code. Participation in
this plan will end automatically upon termination of employment for any reason.
Each offering period under the plan will be for six months. The first offering
period is expected to begin on the first business day on which price quotations
for our common stock are available on the Nasdaq National Market. The first
offering period may be more or less than six months long. Offering periods
thereafter will begin on September 1 and March 1. The purchase price for common
stock purchased under the plan will be 85% of the lesser of fair market value of
our common stock on the first day of the applicable offering period or the last
day of such offering period. In the case of the first offering period, the
purchase price for common stock purchased under the plan will be 85% of the
price offered to the public in the offering. The compensation committee will
have the power to change the duration of offering periods.
49
<PAGE> 53
The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. The plan will terminate in 2010,
unless it is terminated earlier pursuant to its terms.
401(k) PLAN
Eprise has established a 401(k) plan for the benefit of eligible employees
and their beneficiaries. Almost all employees are eligible to participate in the
plan and are fully vested as to their own contributions. Eprise matches 50% of
employee contributions, up to 5% of each employee's annual salary. Our
contributions are subject to a six-year vesting schedule.
LIMITATIONS ON LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS.
As permitted by the Delaware General Corporation Law, as amended, Eprise's
Amended and Restated Certificate of Incorporation provides that Eprise's
directors shall not be liable to Eprise or its stockholders for monetary damages
for breach of fiduciary duty as a director to the fullest extent permitted by
the Delaware corporation law as it now exists or as it may be amended. As of the
date of this prospectus, the Delaware corporation law permits limitations on
liability for a director's breach of fiduciary duty other than liability
- for any breach of the director's duty of loyalty to Eprise or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation law;
- under Section 174 of the Delaware corporation law; or
- for any transaction from which the director derived an improper personal
benefit.
In addition, Eprise's bylaws provide that Eprise shall indemnify all directors,
officers, employees and agents of Eprise for acts performed on behalf of Eprise
in such capacity to the fullest extent permitted by law.
50
<PAGE> 54
CERTAIN TRANSACTIONS
OFFICER LOANS
On August 1, 1999, Eprise loaned Mr. Forgione an amount required to fund
his partial exercise of options granted under Eprise's 1997 Stock Option Plan.
The loan matures on July 31, 2004. On October 29, 1999, Mr. Forgione borrowed
$41,146 from Eprise to fund his partial exercise of options granted under
Eprise's 1997 Stock Option Plan. This loan matures on October 28, 2004. On
January 3, 2000, the following officers borrowed the following amounts from
Eprise to fund their exercise of options granted under our 1997 Stock Option
Plan: Mr. Forgione, $80,155; Mr. Fiorentino, $165,200; and Mr. Feldman,
$152,075. As collateral for the loans and pursuant to pledge agreements dated as
of the respective dates of the loans, each such officer has pledged the shares
of common stock purchased with the loans to Eprise. The loans bear interest at a
variable rate which is 0.5% above Eprise's cost of funds, payable monthly in
arrears. As of January 31, 2000, total loan amounts outstanding to Messrs.
Feldman, Fiorentino and Forgione were $153,183, $166,404 and $149,283,
respectively.
EMPLOYMENT OF FAMILY MEMBER
One member of Mr. Radoff's family is employed by Eprise in a managerial,
non-executive position. Eprise believes that the compensation paid by Eprise to
this family member is on terms no less favorable to Eprise than could be
obtained from unrelated third parties.
BOARD MEMBER PARTICIPATION IN FINANCINGS
On October 9, 1997, as part of a bridge financing, we issued a warrant to
purchase 326,995 shares of Series A preferred stock at an exercise price of
$0.49695 per share to Prism Venture Partners, of which Mr. Fleming is a general
partner. This warrant has a five-year term and will convert automatically to a
right to purchase 128,233 shares of common stock at an exercise price of $1.27
per share upon the closing of this offering. No part of the warrant has been
exercised to date.
On December 18, 1997, we sold a total of 10,515,925 shares of our Series A
preferred stock in a private financing at a price of $0.49695 per share. The
purchasers included Prism Venture Partners (6,036,825 shares), of which Mr.
Fleming is a general partner, The Still River Fund (1,006,138 shares), of which
Mr. Tischler is a general partner, and Alain Hanover (201,228 shares). As part
of the terms of the financing, the purchasers received registration rights with
respect to the purchased shares.
On August 18, 1998, we sold a total of 14,320,446 shares of our Series B
preferred stock in a private financing at a price of $0.60 per share. The
purchasers included Alliance Technology Ventures and an affiliate (5,100,000
shares), of which Mr. Papantonis is a venture partner, Prism Venture Partners
(1,666,667 shares), of which Mr. Fleming is a general partner, The Still River
Fund (833,333 shares), of which Mr. Tischler is a general partner, and Alain
Hanover (100,000 shares).
On November 8, 1999, we sold a total of 16,233,766 shares of our Series C
preferred stock in a private placement at a price of $1.54 per share. The
purchasers included Alliance Technology Ventures and an affiliate (662,338
shares), of which Mr. Papantonis is a venture partner, Prism Venture Partners
(324,675 shares), of which Mr. Fleming is a general partner, The Still River
Fund (649,351 shares), of which Mr. Tischler is a general partner, Edson de
Castro (64,935 shares) and Alain Hanover (65,000 shares).
51
<PAGE> 55
The following table provides information with respect to the Series A,
Series B and Series C preferred stock financings on an as-converted to common
stock basis, reflecting the 1-for-2.55 reverse stock split:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
----------------------------------
STOCKHOLDER SERIES A SERIES B SERIES C
----------- -------- -------- --------
<S> <C> <C> <C>
Prism Venture Partners............................ 2,367,382 653,594 127,323
The Still River Fund.............................. 394,563 326,797 254,647
Alain Hanover..................................... 78,912 39,215 25,490
Alliance Technology Ventures...................... -- 1,960,784 254,647
Edson de Castro................................... -- -- 25,464
</TABLE>
We believe that all transactions set forth above were made on terms no less
favorable to us than would have been or were obtained from unaffiliated third
parties. We have adopted a policy providing that all future transactions between
Eprise and any of our officers, directors and affiliates will be on terms no
less favorable to us than could be obtained from unaffiliated third parties and
will be approved by a majority of the disinterested members of our board of
directors.
52
<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table provides information concerning the beneficial
ownership of Eprise's common stock as of December 31, 1999, and as adjusted to
reflect the sale of common stock offered by this prospectus. The information is
provided for
- each person known to Eprise to beneficially own at least five percent of
the common stock of Eprise (on an as-converted basis),
- each named executive officer of Eprise,
- each director of Eprise and
- all executive officers and directors as a group.
Unless otherwise noted, each person or group identified possesses sole voting
and investment power with respect to such shares, subject to community property
laws where applicable. Shares not outstanding but deemed beneficially owned
because a person or member of a group has a right to acquire them within 60 days
after the date of this prospectus are treated as outstanding only when
determining the amount and percent owned by such person or group.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED(1)
NUMBER OF SHARES -----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER: BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING(2)
- ------------------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Prism Venture Partners I, L.P.(3)......... 3,276,532 17.2% 14.2%
100 Lowder Brook Drive, Suite 2500
Westwood, MA 02090
Alliance Technology Ventures II,
L.P.(4)................................. 2,259,738 11.9 9.8
3343 Peachtree Road NE, Suite 1140
East Tower, Atlanta, GA 30326
Angela Bull(5)............................ 2,135,390 11.3 9.2
c/o Eprise Corporation
1671 Worcester Road,
Framingham, MA 01701
TGI Fund I, LC(6)......................... 1,899,249 10.0 8.3
c/o Tredegar Investments, Inc.
6501 Columbia Center, 701 Fifth Avenue
Seattle, WA 98104
Brookside Capital Partners Fund,
L.P.(7)................................. 1,273,236 6.7 5.5
Two Copley Place
Boston, MA 02116
Van Wagoner Funds(8)...................... 1,018,589 5.4 4.4
345 California Street, Suite 2450
San Francisco, CA 94104
Axiom Venture Partners II, L.P.(9)........ 995,245 5.3 4.3
City Place II, 17th Floor
185 Asylum Street
Hartford, CT 06103
The Still River Fund(10).................. 976,007 5.2 4.3
100 Federal Street, 29th Floor
Boston, MA 02109
</TABLE>
53
<PAGE> 57
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS:
- ---------------------------------
<S> <C> <C> <C>
Joseph A. Forgione(11).................... 802,352 4.1% 3.4%
Jonathan B. Radoff(12).................... 2,135,390 11.3 9.2
Joseph Fiorentino(13)..................... 329,411 1.7 1.4
Robert Strong(14)......................... 188,235 1.0 *
Milton A. Alpern(15)...................... 137,254 * *
Deborah M. Besemer(16).................... 15,686 * *
Edson D. de Castro........................ 84,287 * *
Robert C. Fleming(17)..................... 3,276,532 17.2 14.2
Alain J. Hanover.......................... 182,832 1.0 *
Nicholas A. Papantonis(18)................ 2,259,738 11.9 9.8
Joseph J. Tischler(19).................... 976,007 5.2 4.3
---------- ---- ----
All executive officers and directors as a
group (13 persons)...................... 10,679,879 51.6% 43.2%
========== ==== ====
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentages are based on a total of 18,943,440 shares of common stock
(including shares of preferred stock convertible into common stock)
outstanding as of December 31, 1999. For holders of options or warrants
exercisable within 60 days after the date of this prospectus, the number of
shares so exercisable by each such holder has been added to the denominator
for purposes of calculating such holder's percentage ownership.
(2) Assumes the underwriters' over-allotment option is not exercised.
(3) Includes 128,233 shares of common stock issuable within 60 days upon
exercise of a warrant. The general partner of Prism Venture Partners I,
L.P. is Prism Investment Partners, L.P. Prism Venture Partners, LLC, of
which Mr. Fleming is a managing member, is the general partner of Prism
Investment Partners, L.P. and exercises sole voting and investment power
with respect to all shares held of record by Prism Venture Partners I, L.P.
No member or manager of Prism Venture Partners, LLC is deemed individually
to have or to share such voting or investment power.
(4) Includes 2,215,431 shares held by Alliance Technology Ventures II, L.P. and
44,307 shares held by ATV II Affiliates Fund, L.P. Alliance Associates II,
LLC is the sole general partner of both Alliance Technology Ventures II,
L.P. and ATV II Affiliates Fund, L.P., and exercises sole voting and
investment control with respect to all shares held of record by Alliance
Technology Ventures II, L.P. and ATV II Affiliates Fund, L.P. Michael A.
Henos, Stephen R. Fleming and Michael R. Slawson are the managing members
of Alliance Associates II, LLC. No member of Alliance Associates II, LLC is
deemed individually to have or to share voting or investment control with
respect to any shares held of record by Alliance Technology Ventures II,
L.P. and ATV II Affiliates Fund, L.P. Nicholas A. Papantonis, a member of
our board of directors, has an ownership interest in Alliance Associates
II, LLC; Mr. Papantonis disclaims beneficial ownership of the shares held
by Alliance Technology Ventures II, L.P. and ATV II Affiliates Fund, L.P.
(5) Includes 969,901 shares of common stock held by, and 196,078 shares
issuable within 60 days upon exercise of outstanding options to, Ms. Bull's
spouse, Jonathan Radoff. Ms. Bull disclaims beneficial ownership of such
shares.
(6) Tredegar Investments, Inc. is the sole manager of TGI Fund I, LC. Tredegar
Corporation owns 100% of Tredegar Investments, Inc. and exercises sole
voting and investment control with respect to all shares held of record by
TGI Fund I, LC. No stockholder,
54
<PAGE> 58
director or officer of Tredegar Corporation is deemed individually to have
or to share such voting or investment control.
(7) Brookside Capital Investors, L.P. is the sole general partner of Brookside
Capital Partners Fund, L.P. Brookside Capital Investors, Inc. is the sole
general partner of Brookside Capital Investors, L.P. W. Mitt Romney is the
sole stockholder of Brookside Capital Investors, Inc., and Mr. Romney is
thus the controlling person of Brookside Capital Partners Fund, L.P.
(8) Includes 483,207 shares held by Van Wagoner Funds and 26,087 shares held by
Van Wagoner Capital Partners. Van Wagoner Capital Management, Inc. is the
sole investment advisor to Van Wagoner Funds. Van Wagoner Capital
Management, Inc. is the general partner of Van Wagoner Capital Partners.
Garrett R. Van Wagoner is the sole shareholder of Van Wagoner Capital
Management, Inc., and he exercises sole voting and investment control with
respect to all shares held of record by Van Wagoner Funds and by Van
Wagoner Capital Partners.
(9) The general partner of Axiom Venture Partners II Limited Partnership is
Axiom Venture Associates II Limited Liability Company. The managers of
Axiom Venture Associates are Alan M. Mendelson, Samuel McKay, Linda Sonntag
and Barry R. Bronfin, all of whom make investment and voting decisions on a
unanimous basis. No manager is deemed individually to have or to share
voting or investment power.
(10) Still River Management Company, Inc. is the sole manager of The Still River
Fund. James A. Saalfield and Joseph J. Tischler are each 50% stockholders
of Still River Management Company, Inc., and each has 50% voting and
investment control with respect to all shares held of record by The Still
River Fund.
(11) Includes 516,967 shares issuable within 60 days upon exercise of
outstanding stock options; 22,549 shares held by Maria-Elena Kadala, Mr.
Forgione's spouse, as trustee under three trusts, the beneficiaries of
which are Michael A. Forgione, Angela Forgione and Joseph A. Forgione; and
250,568 shares pledged to Eprise pursuant to stock pledge agreements dated
August 1, 1999 and October 29,1999 as collateral for promissory notes held
by Eprise of the same dates in the aggregate amount of $71,146.
(12) Includes 196,078 shares issuable within 60 days upon exercise of
outstanding options and 969,411 shares held by Mr. Radoff's spouse, Angela
Bull, as to which Mr. Radoff disclaims beneficial ownership.
(13) Represents shares issuable within 60 days upon exercise of outstanding
options.
(14) Includes 152,941 shares issuable within 60 days upon exercise of
outstanding options.
(15) Includes 125,000 shares issuable within 60 days upon exercise of
outstanding options and 12,254 shares pledged to Eprise under a pledge
agreement dated October 29, 1999.
(16) Represents shares issuable within 60 days upon exercise of outstanding
options.
(17) Represents shares beneficially owned by Prism Venture Partners I, L.P. (See
note 3.) Mr. Fleming disclaims beneficial ownership of all such shares,
except to the extent of his direct pecuniary interest therein.
(18) Represents shares beneficially owned by Alliance Technology Ventures and an
affiliate, of which Mr. Papantonis is a venture partner. Mr. Papantonis
disclaims beneficial ownership of all such shares.
(19) Represents shares beneficially owned by The Still River Fund. (See note
10.) Mr. Tischler disclaims beneficial ownership of all such shares, except
to the extent of his direct pecuniary interest therein.
55
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
GENERAL
Effective upon the closing of this offering and the filing of a Certificate
of Amendment to our Fourth Amended and Restated Certificate of Incorporation,
our authorized capital stock will consist of 90,000,000 shares of common stock,
par value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. Prior to the effectiveness of the registration statement of
which this prospectus is a part, and in accordance with our Fifth Amended and
Restated Certificate of Incorporation, the authorized and outstanding capital
stock was as follows:
<TABLE>
<CAPTION>
OUTSTANDING AS OF
AUTHORIZED DECEMBER 31, 1999
----------- -----------------
<S> <C> <C>
Common Stock, par value $0.001 per share................. 58,500,000 2,837,595
Preferred Stock, par value $0.01 per share............... 41,663,366 41,070,137
----------- ----------
Total Capital Stock...................................... 100,163,366 43,907,732
=========== ==========
</TABLE>
Upon the closing of this offering there will be 22,943,440 shares of our
common stock outstanding, including all outstanding shares of preferred stock
which will have automatically converted into 16,105,845 shares of common stock.
The following summary of the terms and provisions of Eprise's capital stock
does not purport to be complete and is qualified by reference to the actual
terms and provisions of the capital stock contained in our amended and restated
certificate of incorporation, the various documents and agreements referred to
below, which are included as exhibits to the registration statement of which
this prospectus forms a part, and the provisions of applicable Delaware law.
COMMON STOCK
As of December 31, 1999, there were 2,837,595 shares of common stock
outstanding held by 62 stockholders of record. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the 4,000,000
shares of common stock offered by Eprise in this offering and the conversion of
the outstanding shares of preferred stock, there will be 22,943,440 shares of
common stock outstanding upon the closing of this offering. In addition, as of
December 31, 1999, there were outstanding stock options for the purchase of
2,225,264 shares of common stock and outstanding warrants for the purchase of
303,918 shares of common stock and 326,995 shares of Series A preferred stock.
The 326,955 shares of Series A preferred stock will be automatically convertible
into 128,233 shares of our common stock upon the closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in this election. The
holders of common stock are entitled to receive, at the same rate, cash
dividends when and as declared by the board of directors out of legally
available funds, subject to the rights and preferences of the holders of
preferred stock. In the event of any liquidation, dissolution, or winding up of
Eprise, the holders of common stock are entitled to receive, at the same rate,
the net assets of Eprise available after the payment of all our debts and other
liabilities, and after the satisfaction of the rights of any outstanding
preferred stock. Holders of the common stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of
56
<PAGE> 60
common stock are, and the shares offered by Eprise in this offering will be,
when issued and paid for, validly issued, fully paid and non-assessable. The
rights, powers, preferences and privileges of holders of common stock are
subordinate to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which we may designate and issue in the
future.
PREFERRED STOCK
The board of directors will be authorized, subject to any limitations
prescribed by Delaware law, without further stockholder approval, to issue from
time to time up to an aggregate of 10,000,000 shares of preferred stock, in one
or more series. The board of directors is also authorized, subject to the
limitations prescribed by Delaware law, to establish the number of shares to be
included in each series and to fix the voting powers, preferences,
qualifications and special or relative rights or privileges of each series. The
board of directors is authorized to issue preferred stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of common stock.
Eprise has no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding common stock of Eprise.
WARRANTS
Upon the closing of this offering and giving effect to the exercise of
outstanding warrants to purchase 125,357 shares of our common stock at an
exercise price of $3.93 per share by Deutsche Bank Securities, Inc., we will
have outstanding warrants as follows:
<TABLE>
<CAPTION>
HOLDERS GRANT DATE NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
------- ---------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Silicon Valley Bank July 18, 1997 19,728 $ 0.03 July 17, 2002
Prism Venture
Partners I, L.P. October 9, 1997 128,233 1.27 October 9, 2002
Silicon Valley Bank December 5, 1997 29,592 1.27 December 5, 2002
Deutsche Bank
Securities Inc. September 8, 1999 129,241 13.00 September 8, 2004
</TABLE>
The number of shares for which the December 5, 1997 Silicon Valley Bank
warrant is exercisable will be subject to adjustment for future issuances of
common stock at a price per share that is less than the warrant price, other
than issuances pursuant to outstanding options or options granted in the future
under plans approved by the board of directors.
REGISTRATION RIGHTS
We have granted registration rights to the holders of preferred stock under
a registration rights agreement dated November 8, 1999 with respect to any
common stock acquired by such holders, whether by conversion of preferred stock
or otherwise. Under that agreement, we have agreed to register the registrable
securities upon request of at least 40% in interest of the holders of the
registrable securities, at the earlier of (i) six months following our initial
public offering or (ii) December 18, 2000. The holders are entitled to two
demand registrations as described in the preceding sentence, as well as
unlimited registrations on Form S-3 (when and if we are eligible to register
shares on such form). The holders of at least 20% of the registrable securities
must request registrations on Form S-3 and the minimum aggregate price to the
public must be expected to be at least $1.0 million. Further, if we elect to
register any of our shares of common stock for an offering to the public, our
holders are entitled to include
57
<PAGE> 61
their registrable securities in such offering, subject to the terms of our
underwriting agreement and underwriter cutbacks. Registration expenses for
demand registrations and the first two registrations on Form S-3 shall be borne
by us. The holders of at least 50% of the preferred stock must approve any
further registration rights granted by us to third parties. In addition, we
shall not engage in a merger or consolidation in which Eprise is not the
surviving company unless the surviving company agrees to assume the registration
rights described in this paragraph. Such registration rights shall terminate on
the fifth anniversary of our initial public offering.
We also have granted registration rights to the holders of warrants to
purchase our common stock. Under Registration Rights Agreements between the
Company and Silicon Valley Bank dated July 18, 1997 and December 5, 1997, if we
elect to register any of our shares of common stock under the Securities Act
(with exceptions related to underwritten offerings and registrations in
connection with acquisitions or employee stock plans), we have agreed to include
the warrant shares in such offering, subject to the terms of our underwriting
agreement and underwriter cutbacks, if any. The Company must pay all
registration expenses incurred in connection with any such registration.
Under the terms of the warrant issued to Deutsche Bank Securities Inc. as
of September 8, 1999, if we elect to register any of our shares of common stock
for an underwritten offering to the public on a form that would permit
registration of the warrant shares, we have agreed to include the warrant shares
in such offering, subject to the terms of our underwriting agreement and
underwriter cutbacks, if any. Eprise will pay all registration expenses incurred
in connection with such registration. These registration rights will terminate
on the fifth anniversary of our initial public offering.
We also have granted registration rights to one holder of shares of our
common stock. Under the terms of a debenture purchase agreement between Eprise
and Leigh Leeper dated April 1, 1993, if we elect to register any of our
securities under the Securities Act (other than registrations relating to
employee stock plans), we have agreed to use our best efforts to include in such
registration such number of Mr. Leeper's shares as he may request.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS AND ANTI-TAKEOVER EFFECTS
Upon completion of this offering, the provisions of Section 203 of the
General Corporation Law of Delaware will prohibit Eprise from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is defined as a person who, at the time of determination whether a
person is an interested stockholder,
- beneficially owns 15% or more of Eprise's common stock; or
- is an affiliate or associate of Eprise and beneficially owned 15% or more
of Eprise's common stock at any time within three years of the date of
determination.
Eprise's Fourth Amended and Restated Certificate of Incorporation provides
for the division of the board of directors into three classes as nearly equal in
size as possible with staggered three-year terms. See "Management -- Election of
Officers and Directors". In addition, our Fourth Amended and Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of 75% of the shares of capital
stock of Eprise entitled to vote. Under our Fourth Amended and Restated
Certificate of Incorporation, any vacancy on the board of directors, however
occurring, including a vacancy resulting from an enlargement of the board, may
only be filled by vote of a majority of the
58
<PAGE> 62
directors then in office. The likely effect of the classification of the board
of directors and the limitations on the removal of directors and filling of
vacancies is an increase in the time required for the stockholders to change the
composition of the board of directors. For example, because only two to three
directors may be replaced by stockholder vote at each annual meeting of
stockholders, stockholders seeking to replace a majority of the members of the
board of directors will need at least two annual meetings of stockholders to
effect this change.
Eprise's Fourth Amended and Restated Certificate of Incorporation also
provides that, after the effective date of the registration statement of which
this prospectus is a part, any action required or permitted to be taken by the
stockholders of Eprise at an annual meeting 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. Eprise's Amended and Restated
By-laws provide that special meetings of the stockholders may only be called by
the board of directors, the chairman of the board of directors, the Chief
Executive Officer or the president of Eprise. Eprise's Amended and Restated
By-laws further provide that in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with requirements regarding
advance notice to Eprise. The foregoing provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of
Eprise. These provisions may also discourage another person or entity from
making a tender offer for Eprise's common stock, because such person or entity,
even if it acquired a majority of the outstanding voting securities of Eprise,
would be able to take action as a stockholder, such as electing new directors or
approving a merger, only at a duly called stockholders meeting, and not by
written consent.
The General Corporation Law of Delaware provides that the affirmative vote
of a majority of the shares entitled to vote on any matter is required to amend
a corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Eprise's Fourth Amended and Restated Certificate of Incorporation
requires the affirmative vote of the holders of at least 75% of the shares of
capital stock of Eprise issued and outstanding and entitled to vote to amend or
repeal any of the foregoing provisions of the Fourth Amended and Restated
Certificate of Incorporation. Eprise's Amended and Restated By-laws may be
amended or repealed by a majority vote of the board of directors. The Amended
and Restated By-laws may also be amended or repealed by the affirmative vote of
the holders of at least 75% of the shares of capital stock of Eprise issued and
outstanding and entitled to vote. The 75% stockholder vote would be in addition
to any separate class vote that might in the future be required in accordance
with the terms of any series of preferred stock that might be outstanding at the
time any such amendments are submitted to stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is EquiServe Trust
Company.
LISTING
We have applied to list the common stock on the Nasdaq National Market
under the symbol "EPRS."
59
<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock. Since
substantially all of our shares currently outstanding will not be available for
sale immediately following this offering because of the contractual and legal
restrictions on resale described below, sales of substantial amounts of common
stock in the public market after these restrictions lapse could adversely affect
the prevailing market price and our ability to raise equity capital in the
future.
Upon completion of this offering and based on shares outstanding as of
December 31, 1999, we will have outstanding an aggregate of 22,943,440 shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, all of the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless such shares are purchased
by "affiliates" as that term is defined in Rule 144 under the Securities Act. In
general, affiliates include officers, directors or 10% stockholders. The
remaining 18,943,440 shares outstanding are "restricted securities" within the
meaning of Rule 144. Restricted securities may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which are summarized
below. Sales of the restricted securities in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the common stock.
LOCK UP AGREEMENTS
All of our directors and officers and substantially all of our security
holders have entered into lock-up agreements in connection with this offering
generally providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock for a period of
180 days after the effectiveness of this offering without the prior written
consent of Deutsche Bank Securities Inc. Holders of an aggregate of 67,647
shares of our common stock that were issued upon exercise of stock options are
subject to a 120-day lock-up period, rather than a 180-day period, under the
terms of our stock option plans. The holder of warrants to purchase an aggregate
of 49,320 shares of our common stock is not subject to a lock-up agreement.
Taking into account the lock-up agreements, and assuming Deutsche Bank
Securities Inc. does not release security holders from these agreements, the
number of shares that will be available for sale in the public market under the
provisions of Rule 144, 144(k) and 701 will be as follows:
- Beginning on the effective date of this prospectus, only the shares sold
in this offering and 49,320 shares of common stock issuable upon exercise
of two warrants will be immediately available for sale in the public
market.
- Beginning 120 days after the effective date, 67,647 shares will be
eligible for sale.
- Beginning 180 days after the effective date, approximately 11,391,880
shares will be eligible for sale, including approximately 778,934 shares
subject to outstanding warrants and vested options.
- At various times thereafter upon the expiration of applicable holding
periods, 10,159,807 shares will become eligible for sale, including
1,632,310 shares subject to outstanding unvested options.
STOCK OPTIONS
Approximately 180 days after this offering, we intend to file a
registration statement on Form S-8 under the Securities Act covering the shares
of common stock reserved for issuance
60
<PAGE> 64
under our stock incentive and employee stock purchase plans as well as the
resale of the shares issued upon the exercise of options prior to filing the
registration statement on Form S-8. As of December 31, 1999, options to purchase
2,225,264 shares of common stock were issued and outstanding. Shares registered
under the registration statement on Form S-8 will, subject to vesting provisions
and Rule 144 volume limitations applicable to shares held by our affiliates and
to options exercised before the registration statement is filed, be available
for sale in the open market immediately after the 180-day lock-up period expires
or terminates pursuant to the lock-up agreement.
RULE 144
In general, under Rule 144, after the expiration of the lock-up agreements,
a person who has beneficially owned restricted securities 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:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately 229,434 shares immediately after the
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person holding restricted securities who is not deemed
to have been our affiliate at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
RULE 701
Rule 701 permits our employees, officers, directors or consultants who
purchased shares pursuant to a written compensatory plan or contract to resell
such shares in reliance upon Rule 144 but without compliance with specific
restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares
under Rule 144 without complying with the holding period requirement and that
non-affiliates may sell such shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
WARRANTS
Upon the closing of this offering, there will be warrants outstanding to
purchase 432,151 shares of common stock at a weighted average exercise price of
$2.78 per share.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 16,105,845 shares of our
common stock, or their transferees, will be entitled to registration of such
shares under the Securities Act as described above in "Description of Capital
Stock -- Registration Rights." Upon the effectiveness of such a registration,
these shares would become freely tradable without restriction under the
Securities Act.
61
<PAGE> 65
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Dain Rauscher Incorporated, and SoundView Technology Group, Inc., have
severally agreed to purchase from Eprise the following respective number of
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ..............................
Dain Rauscher Incorporated..................................
SoundView Technology Group, Inc. ...........................
---------
Total............................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares of common stock offered by this prospectus
are subject to the prior satisfaction of various conditions, including the
absence of any material adverse change in our business and the receipt of
certificates, opinions and letters from us, and that the underwriters will be
obligated to purchase all shares of the common stock offered by this prospectus,
other than those covered by the over-allotment option described below, if any
are purchased. The underwriting agreement provides that, in the event of a
default by an underwriter who is obligated to purchase not more than 10% of the
common stock offered by this prospectus or not more than 10% of the shares
covered by the over-allotment option, as the case may be, the purchase
commitments of the non-defaulting underwriters may be increased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, the representatives of the underwriters may
change the offering price and other selling terms.
At our request, the underwriters have reserved up to 280,000 shares of
common stock to be sold in the offering and offered for sale, at the public
offering price, to our directors, employees, business associates and persons
related to, or affiliated with, the foregoing persons. The number of shares of
common stock available for sale to the general public will be reduced to the
extent these individuals purchase the reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered by this prospectus.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered by this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of additional shares of common stock as the number of shares of
common stock to be purchased by it in the above table bears to the total number
of shares of common stock offered by this prospectus.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is % of the initial public offering price. We
have agreed to pay the underwriters the
62
<PAGE> 66
following fees, assuming either no exercise or full exercise by the underwriters
of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
--------------------------------------
WITHOUT EXERCISE WITH FULL EXERCISE
FEE PER OF OVER-ALLOTMENT OF OVER-ALLOTMENT
SHARE OPTION OPTION
------- ----------------- ------------------
<S> <C> <C> <C>
Fees paid by Eprise.............................. $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $850,000.
We have agreed to indemnify the underwriters against specified types of
liabilities, including liabilities under the Securities Act and to contribute to
payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors and substantially all of our
stockholders and holders of options and warrants to purchase our common stock,
have agreed not to offer, sell, contract to sell or otherwise dispose of or
transfer, or enter into any transaction that is designed to, or could be
expected to, result in the disposition of any portion of our common stock or
common stock issuable upon exercise or conversion of options, warrants or
convertible securities held by these persons for a period of 180 days after the
date of this prospectus without the prior written consent of Deutsche Bank
Securities Inc. This consent may be given at any time without public notice. We
have entered into a similar agreement with the representatives of the
underwriters.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority in excess of 5% of the shares of common stock
being offered by this prospectus.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on Web sites
maintained by each of these dealers. Other than the prospectus in electronic
format, the information on Wit Capital's Web site and any information contained
on any other Web site maintained by Wit Capital is not part of the prospectus or
the registration statement of which this prospectus forms a part, has not been
approved or endorsed by Eprise or any underwriter in its capacity as underwriter
and should not be relied upon by investors.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
In June 1999, we sold shares of our Series C preferred stock in a private
placement at a price of $1.54 per share. Each of the shares of Series C
preferred stock is convertible at the
63
<PAGE> 67
option of the holder into one share of our common stock. In this private
placement, Deutsche Bank Securities Inc. received a warrant to purchase 254,598
shares of common stock at an exercise price of $3.93 per share, ABS Employees'
Venture Fund, LP, an affiliate of Deutsche Bank Securities Inc., purchased
246,443 shares of Series C preferred stock and Timothy Dolan, an employee of
Deutsche Bank Securities Inc., purchased 6,494 shares of Series C preferred
stock, each at the purchase price of $1.54 per share. ABS Employees' Venture
Fund, LP and Mr. Dolan purchased the Series C preferred stock on the same terms
as the other investors in the private placement, and the exercise price per
share under the warrant issued to Deutsche Bank Securities Inc. is the same
price per share paid by the investors in the private placement, assuming the
reverse stock split immediately prior to, and the automatic conversion of the
Series C preferred stock upon, the closing of this offering.
Pursuant to the terms of letter agreements with Eprise each dated March 14,
2000, Deutsche Bank, the ABS Employees' Venture Fund, L.P. and Mr. Dolan agreed
not to sell, transfer, assign, pledge or hypothecate its or his respective
securities referenced above for a period of one year following the date of this
prospectus.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
There can be no assurance that an active trading market will develop for
our common stock or that the common stock will trade in the market subsequent to
the offering at or above the initial public offering price.
64
<PAGE> 68
LEGAL MATTERS
Hill & Barlow, a Professional Corporation, will pass upon the validity of
the shares of common stock offered by this prospectus for us. A purchase trust,
the beneficiaries of which are members of Hill & Barlow, purchased 16,233 shares
of our Series C preferred stock in the private placement that closed on November
8, 1999. Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts, will pass upon
legal matters in connection with this offering for the underwriters.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for the four months ended December 31, 1997 and for the years ended December 31,
1998 and 1999 included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report (which includes an
explanatory paragraph relating to a restatement of the 1999 consolidated
financial statements) appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements for the year ended August 31, 1997 included in
this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in giving said reports.
CHANGE IN ACCOUNTANTS
Effective in May 1998, Deloitte & Touche LLP was engaged as our independent
auditors and replaced Arthur Andersen LLP whose position as our independent
auditors was terminated. The decision to change independent auditors was
approved by our board of directors. In the period from October 1995 to May 1998,
Arthur Andersen LLP issued no audit report which was qualified or modified as to
uncertainty, audit scope or accounting principles. During the same period,
Arthur Andersen LLP issued no adverse opinions or disclaimers of opinion on any
of our financial statements, and there were no disagreements with Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures. Arthur Andersen LLP has
reported on the financial statements for the year ended August 31, 1997 included
in this prospectus. Prior to May 1998 we had not consulted with Deloitte &
Touche LLP on items which involved our accounting principles or the form of
audit opinion to be issued on our financial statements.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-1
under the Securities Act with respect to the shares of common stock offered by
this prospectus. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedule filed
therewith. For further information with respect to Eprise Corporation and the
common stock offered by this prospectus, reference is made to the registration
statement and the exhibits and schedule filed therewith. Statements contained in
this prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. A copy of the registration statement and the
exhibits and schedule filed therewith may be inspected without charge at the
public reference facilities maintained by the Commission in Room 1025, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located in Northwestern
65
<PAGE> 69
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048 and copies of all
or any part of the registration statement may be obtained from such offices upon
the payment of the fees prescribed by the Commission. Copies of these materials
may also be obtained from the Public Reference Room of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain
information regarding the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is www.sec.gov.
66
<PAGE> 70
EPRISE CORPORATION
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports............................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999
(Restated)................................................ F-4
Consolidated Statements of Operations for the Year Ended
August 31, 1997, the Four Months Ended December 31, 1997,
and the Years Ended December 31, 1998 and 1999
(Restated)................................................ F-5
Consolidated Statements of Changes in Stockholders'
Deficiency for the Year Ended August 31, 1997, the Four
Months Ended December 31, 1997, and the Years Ended
December 31, 1998 and 1999 (Restated)..................... F-6
Consolidated Statements of Cash Flows for the Year Ended
August 31, 1997, the Four Months Ended December 31, 1997,
and the Years Ended December 31, 1998 and 1999
(Restated)................................................ F-7
Notes to the Consolidated Financial Statements.............. F-8
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Eprise Corporation:
We have audited the accompanying consolidated balance sheets of Eprise
Corporation (the "Company") as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the four months ended December 31, 1997, and for the years ended
December 31, 1998 and 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1999, and the results of its operations and its cash flows for the
four-month period ended December 31, 1997 and for the years ended December 31,
1998 and 1999, in conformity with accounting principles generally accepted in
the United States of America.
As discussed in Note 10, the 1999 financial statements have been restated.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 21, 2000 (March 21, 2000, as to the effects of the stock split described
in Note 2 and the restatement described in Note 10)
F-2
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Eprise Corporation:
We have audited the accompanying statements of operations, stockholders'
deficit and cash flows of Eprise Corporation (the "Company") for the year ended
August 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Company's operations and its cash
flows for the year ended August 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------
Boston, Massachusetts
December 18, 1997
(except with respect to the disclosure of the issuance of
Series A Redeemable Preferred Stock (Note 5) as to which
the date is January 28, 1998)
F-3
<PAGE> 73
EPRISE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- DECEMBER 31,
1998 1999 1999
----------- -------------- -------------
(RESTATED, SEE
NOTE 10) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,356,665 $ 22,455,448
Accounts receivable (less allowance for doubtful accounts
of approximately $48,000 and $189,000 at December 31,
1998 and 1999, respectively)............................ 103,060 2,045,076
Due from related parties.................................. -- 58,145
Prepaid expenses and other current assets................. 129,657 316,945
----------- ------------
Total current assets.................................... 6,589,382 24,875,614
----------- ------------
Property and equipment:
Computers and equipment................................... 672,296 987,443
Furniture and fixtures.................................... 92,758 134,933
Leasehold improvements.................................... 29,897 29,897
----------- ------------
Total................................................... 794,951 1,152,273
Less accumulated depreciation and amortization............ (345,103) (538,886)
----------- ------------
Property and equipment, net............................. 449,848 613,387
----------- ------------
Other assets, net........................................... 36,054 45,377
----------- ------------
Total assets................................................ $ 7,075,284 $ 25,534,378
=========== ============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Current portion of equipment line of credit............... $ 85,920 $ 85,917
Accounts payable.......................................... 264,273 148,484
Accrued compensation and benefits......................... 220,492 597,380
Other accrued expenses.................................... 100,125 495,050
Deferred revenue.......................................... 89,873 571,724
----------- ------------
Total current liabilities............................... 760,683 1,898,555
----------- ------------
Long-term equipment line of credit, less current portion.... 157,510 78,756
----------- ------------
Commitments (Note 9)
Redeemable convertible preferred stock (Aggregate
liquidation preference of $13,818,157 and $38,818,157 in
1998 and 1999)............................................ 13,740,189 35,315,984
----------- ------------
Stockholders' (deficiency) equity:
Common stock, $.001 par value; 58,500,000 shares
authorized; 2,237,331 and 2,837,595 shares issued and
outstanding at December 31, 1998 and 1999, respectively
(18,943,440 shares pro forma)........................... 2,238 2,838 $ 18,944
Additional paid-in capital................................ 209,535 24,332,606 59,632,484
Accumulated deficit....................................... (7,794,871) (36,025,090) (36,025,090)
Notes receivable from officers............................ (69,271) (69,271)
----------- ------------ ------------
Total stockholders' (deficiency) equity................. (7,583,098) (11,758,917) $ 23,557,067
----------- ------------ ============
Total liabilities and stockholders' (deficiency) equity..... $ 7,075,284 $ 25,534,378
=========== ============
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 74
EPRISE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
---------- ------------ ------------ ---------------
(RESTATED, SEE
NOTE 10)
<S> <C> <C> <C> <C>
Revenues:
Software licenses............................ 33,000 $ 65,000 $ 345,000 $ 2,354,908
Services..................................... 1,387,223 237,541 462,321 1,303,907
---------- ----------- ----------- ---------------
Total revenues............................. 1,420,223 302,541 807,321 3,658,815
Cost of revenues (includes compensation cost of
$14,521 for stock options in 1999.).......... 518,456 285,037 459,730 1,125,050
---------- ----------- ----------- ---------------
Gross profit................................... 901,767 17,504 347,591 2,533,765
Operating expenses:
Research and development (includes
compensation cost of $72,946 for stock
options in 1999.).......................... 179,929 326,718 2,149,289 2,360,201
Selling and marketing (includes compensation
cost of $381,446 for stock options in
1999.)..................................... 800,399 392,537 2,348,835 5,056,254
General and administrative (includes
compensation cost of $54,813 for stock
options in 1999.).......................... 500,715 362,708 1,245,951 2,004,988
---------- ----------- ----------- ---------------
Total operating expenses................... 1,481,043 1,081,963 5,744,075 9,421,443
---------- ----------- ----------- ---------------
Operating loss................................. (579,276) (1,064,459) (5,396,484) (6,887,678)
---------- ----------- ----------- ---------------
Other income (expense):
Interest income.............................. 2,232 4,146 164,105 314,441
Interest expense and other................... (156,364) (103,392) (28,129) (26,759)
---------- ----------- ----------- ---------------
Other income (expense), net................ (154,132) (99,246) 135,976 287,682
---------- ----------- ----------- ---------------
Net loss....................................... (733,408) (1,163,705) (5,260,508) (6,599,996)
Accretion of redeemable convertible preferred
stock...................................... -- (1,983) (14,920) (21,630,223)
---------- ----------- ----------- ---------------
Loss to common shareholders.................... $ (733,408) $(1,165,688) $(5,275,428) $ (28,230,219)
========== =========== =========== ===============
Loss per share................................. $ (0.35) $ (0.54) $ (2.40) $ (11.42)
========== =========== =========== ===============
Weighted-average common shares outstanding..... 2,072,575 2,156,252 2,199,732 2,472,745
========== =========== =========== ===============
Pro forma loss per share....................... $ (0.50)
===============
Pro forma weighted-average common shares
outstanding.................................. 13,273,529
===============
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE> 75
EPRISE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEAR ENDED AUGUST 31, 1997, THE FOUR MONTHS ENDED DECEMBER 31, 1997 AND THE
YEARS ENDED DECEMBER 31, 1998 AND 1999 (RESTATED, SEE NOTE 10)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE
------------------ PAID-IN ACCUMULATED RECEIVABLE
SHARES AMOUNT CAPITAL DEFICIT FROM OFFICER TOTAL
--------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1996................. 2,067,157 $2,067 $ 97,133 $ (620,347) $ -- $ (521,147)
Exercise of stock options................ 3,921 4 2,496 -- -- 2,500
Issuance of warrants..................... -- -- 12,212 -- -- 12,212
Issuance of stock in exchange for notes
payable................................ 79,292 79 19,921 -- -- 20,000
Net loss................................. -- -- -- (733,408) -- (733,408)
--------- ------ ----------- ------------ -------- ------------
Balance, August 31, 1997................... 2,150,370 2,150 131,762 (1,353,755) -- (1,219,843)
Exercise of stock options................ 11,765 11 7,489 -- -- 7,500
Issuance of warrants..................... -- -- 51,186 -- -- 51,186
Accretion of redeemable preferred stock
to redemption value.................... -- -- -- (1,983) -- (1,983)
Net loss................................. -- -- -- (1,163,705) -- (1,163,705)
--------- ------ ----------- ------------ -------- ------------
Balance, December 31, 1997................. 2,162,135 2,161 190,437 (2,519,443) -- (2,326,845)
Exercise of stock options................ 75,196 77 19,098 -- -- 19,175
Accretion of redeemable preferred stock
to redemption value.................... -- -- -- (14,920) -- (14,920)
Net loss................................. -- -- -- (5,260,508) -- (5,260,508)
--------- ------ ----------- ------------ -------- ------------
Balance, December 31, 1998................. 2,237,331 2,238 209,535 (7,794,871) -- (7,583,098)
Exercise of stock options.............. 600,264 600 180,085 -- -- 180,685
Issuance of Series C preferred stock... -- -- 21,555,501 -- -- 21,555,501
Accretion of redeemable preferred stock
to redemption value.................. -- -- (21,630,223) -- (21,630,223)
Compensation cost for stock options.... -- -- 523,726 -- -- 523,726
Issuance of warrant for services....... -- -- 1,863,759 -- -- 1,863,759
Notes receivable from officers......... (69,271) (69,271)
Net loss (as restated)................. -- -- -- (6,599,996) -- (6,599,996)
--------- ------ ----------- ------------ -------- ------------
Balance, December 31, 1999 (as restated)... 2,837,595 $2,838 $24,332,606 $(36,025,090) $(69,271) $(11,758,917)
========= ====== =========== ============ ======== ============
</TABLE>
See notes to the consolidated financial statements.
F-6
<PAGE> 76
EPRISE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
---------- ------------ ------------ -------------
(RESTATED,
SEE NOTE 10)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(733,408) $(1,163,705) $(5,260,508) $ (6,599,996)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization......................... 51,312 27,680 146,225 198,034
Compensation cost for stock options................... -- -- -- 523,726
Loss on sale of property and
equipment........................................... -- 5,642 -- 4,108
Provision for doubtful accounts receivable............ -- 4,600 3,200 155,770
Interest accretion related to warrants................ 4,037 59,361 -- --
Conversion of interest to note payable................ -- 28,165 -- --
Exchange of preferred stock for
services............................................ -- 63,888 91,000 --
Increase (decrease) in cash from:
Accounts receivable................................... 203,110 (63,595) 26,575 (2,097,786)
Due from related parties.............................. -- -- -- (58,145)
Prepaid expenses and other current assets............. (18,407) (70,997) (40,253) (187,288)
Other assets.......................................... (10,399) (19,388) 5,965 (9,323)
Accounts payable...................................... (190) 3,622 44,867 (115,789)
Accrued expenses...................................... 116,317 (11,428) (19,821) 771,813
Deferred revenue...................................... 249,631 (81,985) (256,327) 481,851
--------- ----------- ----------- -------------
Net cash used for operating
activities........................................ (137,997) (1,218,140) (5,259,077) (6,933,025)
--------- ----------- ----------- -------------
Cash flows from investing activities:
Purchases of property and equipment..................... (47,941) (165,539) (349,534) (366,432)
Proceeds from sale of property and equipment............ -- 1,010 -- 750
--------- ----------- ----------- -------------
Net cash used for investing
activities........................................ (47,941) (164,529) (349,534) (365,682)
--------- ----------- ----------- -------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of
issuance costs........................................ -- 3,712,581 8,629,928 23,364,830
Payments on notes payable............................... (202,914) (1,056,167) (77,470) (78,754)
Proceeds from issuance of note payable.................. 491,000 1,750,000 257,750 --
Proceeds from exercise of stock options................. 2,500 7,500 19,175 111,414
--------- ----------- ----------- -------------
Net cash provided by (used for) financing
activities........................................ 290,586 4,413,914 8,829,383 23,397,490
--------- ----------- ----------- -------------
Net increase (decrease) in cash........................... 104,648 3,031,245 3,220,772 16,098,783
Cash and cash equivalents, beginning of period............ -- 104,648 3,135,893 6,356,665
--------- ----------- ----------- -------------
Cash and cash equivalents, end of period.................. $ 104,648 $ 3,135,893 $ 6,356,665 $ 22,455,448
========= =========== =========== =============
Supplemental disclosures of cash flow information -- cash
paid for interest....................................... $ 55,642 $ 16,617 $ 46,987 $ --
========= =========== =========== =============
Summary of noncash investing and financing activities
-- Issuance of stock for notes payable.................. $ 20,000 $ 1,225,889 $ -- $ --
========= =========== =========== =============
-- Issuance of stock for note receivable................ $ -- $ -- $ -- $ 69,271
========= =========== =========== =============
-- Issuance of preferred stock for services at fair
value................................................ $ -- $ 63,888 $ 91,000 $ --
========= =========== =========== =============
-- Issuance of warrant for common stock for services.... $ -- -- -- $ 331,227
========= =========== =========== =============
</TABLE>
See notes to the consolidated financial statements.
F-7
<PAGE> 77
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Eprise Corporation and its subsidiary, together referred to as the
"Company," develop, market and implement web content management solutions that
help businesses shape and direct e-business communications effectively and
efficiently. The Company also provides design and other consultative services
designed to help organizations maximize the value they derive from the Company's
web content management solutions. Business is conducted primarily in the United
States.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma balance sheet as of December 31, 1999, reflects the
conversion of all outstanding shares of Series A, B and C preferred stock to
common stock, which will occur upon closing of an initial public offering.
STOCK SPLIT
The accompanying financial statements reflect a 1 for 2.55 reverse split of
the Company's common stock. All share and per share information herein has been
retroactively restated to reflect this split.
SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates that affect the reported amounts of assets, liabilities and reported
results of operations. Actual results could differ from those estimates.
REVENUE RECOGNITION
Software license fees are generally recognized when a signed contract has
been received, the product has been shipped, the fee is fixed or determinable
(based on vendor specific objective evidence), and collectibility is probable.
Vendor specific objective evidence is based on the prices at which products and
services are separately sold, as listed in our current price lists. Discounts
from established prices are infrequent and require management approval. Revenue
from maintenance agreements is deferred and recognized ratably over the term of
the agreement. Consulting revenue is recognized as services are performed.
COSTS OF REVENUE
Costs of revenue consist primarily of personnel costs related to the
provision of services. Costs of licenses, which are comprised of media and
documentation costs, are not material in any period presented.
COMPREHENSIVE INCOME (LOSS)
The Company does not have any items of comprehensive income (loss) other
than net loss.
F-8
<PAGE> 78
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of demand deposits and highly
liquid short-term instruments purchased with remaining maturities of three
months or less.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Repairs and maintenance are
expensed as incurred, while betterments are capitalized. Depreciation and
amortization are provided using the straight-line method over estimated useful
lives ranging from three years for computer equipment to seven years for
furniture and fixtures. Leasehold improvements are amortized over the life of
the asset or the lease, whichever is shorter.
LONG-LIVED ASSETS
Upon occurrence of certain events or changes in circumstances, the Company
reviews the carrying value of its long-lived assets to determine if impairment
has occurred and, if necessary, adjusts the carrying value accordingly. No
adjustments have been required to date.
STOCK-BASED COMPENSATION
Compensation expense associated with awards of stock or options to
employees is measured using the intrinsic-value method. Compensation expense
associated with awards to nonemployees is measured using the fair-value method.
(See Note 6)
INCOME TAXES
Deferred income taxes are provided for differences between the financial
statement carrying amounts and tax basis of the Company's assets and liabilities
and tax loss and credit carryforwards, using enacted tax rates in effect in the
years in which the differences are expected to reverse. Valuation allowances are
provided to the extent realization of deferred tax assets is not considered more
likely than not.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, other than software development costs, are
expensed as incurred. Software development costs are capitalized upon
achievement of technological feasibility. To date, no costs have been incurred
which qualify for capitalization.
NET LOSS PER SHARE
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share has been computed using the weighted-average
number of shares of common stock outstanding during each period. In addition,
for purposes of pro forma net loss per share, all shares of Series A, B and C
preferred stock, which are convertible into common stock on a one-for-one basis
and are expected to be converted to common upon closing of this offering, have
been treated as though they were common stock in all periods in which such
shares were outstanding. In addition, no effect is given to accretion of the
preferred stock for purposes of this computation.
F-9
<PAGE> 79
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HISTORICAL NET LOSS PER SHARE
Historical net loss per share has been computed using the weighted-average
number of shares of common stock outstanding during each period. Diluted amounts
per share would include the impact of the Company's outstanding potential common
shares, such as options and warrants (computed using the treasury stock method)
and convertible preferred stock. However, the effect of these items would be
antidilutive in all periods presented and they are excluded from the
computation. Had such shares been included in the computation, weighted average
shares would have been increased by 1,794,249 shares in 1999.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company's revenues are derived from various customers who generally are
not required to provide collateral for amounts owed to the Company. The Company
operates in one segment. The Company's customers are dispersed over a wide
geographic area.
Major customers accounted for the following percentages of the Company's
revenues:
<TABLE>
<CAPTION>
YEAR FOUR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Customer A........... -- 21% 58% 13%
Customer B........... -- 16 -- --
Customer C........... -- 15 -- --
Customer D........... -- 13 -- --
Customer E........... 22% -- -- --
Customer F........... -- -- -- 10%
</TABLE>
No other customers accounted for more than 10% of revenue in any of the
periods presented.
DUE FROM RELATED PARTIES
Amounts shown as due from related parties represent cash due from employees
at December 31, 1999 for exercise of stock options. This cash was received in
January 2000.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS
On June 1998, the Financial Accounting Standards Board released Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 2000. The new standard requires that all companies record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for based on the use of the derivative and whether it qualifies for
hedge accounting. Management is currently assessing the impact of SFAS No. 133
on the financial statements of the Company. The Company will adopt this
accounting standard on January 1, 2001.
F-10
<PAGE> 80
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SOFTWARE REVENUE RECOGNITION
In December 1998, the American Institute of Certified Public Accountants
released Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 to provide guidance related to determination of the allocation
of revenues in multiple element contracts under certain circumstances. SOP 98-9
will be effective for transactions entered into in the Company's fiscal year
beginning January 1, 2000. The Company does not expect that adoption of SOP 98-9
will have a material impact on financial position or the results of operations.
3. LINES OF CREDIT
The Company has lines of credit with a bank providing for borrowings of up
to $1,000,000 for working capital ($800,000 prior to March 26, 1999) and
borrowings of up to $500,000 for equipment purchases ($400,000 prior to March
26, 1999).
Borrowings under the working capital commitment are limited to the lesser
of $1,000,000 or 80% of eligible accounts receivable. The revolving line of
credit expires on March 26, 2000. Any borrowings outstanding under the working
capital line of credit bear interest at the bank's prime rate plus 1%. As of
December 31, 1998 and 1999, there were no borrowings under the working capital
line of credit. The equipment line of credit was available to purchase equipment
acquisitions through December 26, 1999. Borrowings under the equipment line of
credit bear interest at the bank's prime rate plus 1.5%. At December 31, 1998
and 1999, $243,430 and $78,756 were outstanding under the initial tranche of the
equipment line of credit, respectively. As of December 31, 1999, there were no
borrowings under the second tranche of the lease line of credit. Minimum lease
payments at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------
<S> <C>
2000................................................ $ 97,701
2001................................................ 82,444
--------
Total payments...................................... 180,145
Less portion representing interest.................. 15,472
--------
Net amount due...................................... 164,673
Current portion of note payable..................... 85,917
--------
Long-term note payable.............................. $ 78,756
========
</TABLE>
Both the revolving line of credit and the equipment line of credit are
collateralized by substantially all of the Company's assets. The lines of credit
contain covenants requiring minimum levels of liquidity and tangible net worth,
and prohibit the payment of cash dividends. At December 31, 1998, the Company
was not in compliance with maximum net loss covenants contained in the
agreements related to the lines of credit; the bank has waived the events of
non-compliance for 1998, and the agreements have been amended. At December 31,
1999, the Company was in compliance with the terms and covenants contained in
the amended lines of credit.
F-11
<PAGE> 81
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE AND OTHER OBLIGATIONS
CONVERTIBLE DEMAND NOTES PAYABLE
In August 1997, the Company entered into a convertible demand note payable
with an investor in the amount of $200,000, bearing interest at a rate of 10%
per annum. Effective with the issuance of the Series A redeemable convertible
preferred stock in December 1997 ("Series A"), the investor elected to convert
the note and accrued interest into 415,983 shares of Series A (see Note 5).
On October 9, 1997, the Company issued a $1,000,000 convertible demand note
payable, bearing interest at 10% per annum. Effective with the issuance of
Series A, the investor elected to convert the note and accrued interest into
2,050,843 shares of Series A (see Note 5). In connection with the issuance of
this note, the Company issued the investor a warrant to purchase 326,995 shares
of Series A for $0.49695 per share (see Note 6).
ACCOUNTS RECEIVABLE FINANCING
The Company has an agreement with a bank to finance its accounts receivable
with recourse. There were no borrowings under the agreement during 1998 or 1999.
The outstanding balance due to the bank under this agreement at December 31,
1997 was $37,696, which was repaid in 1998. The agreement has no defined
termination date.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
In December 1997, the Company issued 10,189,936 shares of Series A, $0.01
par value. The issuance involved the sale of 7,594,550 shares for approximately
$3,774,100, the conversion of a note payable carried at $1,163,329 into
2,340,938 shares and the issuance of 125,888 shares for services rendered valued
at $63,888. Issuance costs approximated $61,500 and are being accreted to the
carrying value of the Series A stock over the period to the stock's scheduled
redemption date.
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
In August 1998, the Company sold 14,272,113 shares of Series B and received
proceeds of approximately $8,530,000. Issuance costs approximated $33,000 and
are being accreted to the carrying value of the Series B stock over the period
to the stock's scheduled redemption date.
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
In November 1999, the Company issued 16,233,766 shares of Series C, $0.01
par value, and received proceeds of $25,000,000. Issuance costs approximated
$3,445,000, which includes the value of a warrant granted to the placement agent
in connection therewith (Note 6), and will be accreted to the carrying value of
the Series C stock over the period to the stock's scheduled redemption date.
The rights and preferences of the different classes of preferred stock are
as follows:
Liquidation -- Upon liquidation, dissolution or winding up of the
Company, holders of the Series C will be entitled to receive, before any
distribution is made to any other class of currently outstanding capital
stock, an amount equal to $1.54 per share, plus all accrued and unpaid
dividends, if any. Following this distribution to the holders of the Series
C, the holders
F-12
<PAGE> 82
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Series A and B will be entitled to receive, on a pari passu basis,
before any distribution or payment is made on the common stock, an amount
equal to $0.49695 and $0.60 per share, respectively, plus all accrued and
unpaid dividends, if any. The remaining assets will be distributed among
the holders of Series A, B and C and the common stock on an "as if"
converted basis. If the assets of the Company are insufficient to permit
payment in full to the holders of Series A and B of all amounts
distributable to them, then the entire assets of the Company available for
distribution will be distributed ratably among the holders of Series A and
B in proportion to the full preferential amount each holder is otherwise
entitled to receive.
Conversion -- Each share of Series A, B or C is convertible at the
option of the holder into shares of common stock on a 1 for 2.55 basis,
subject to adjustment in the event of subsequent issuances of securities at
a price per share that is lower than the price paid by the preferred
stockholders. Conversion of all classes of currently outstanding preferred
stock into common becomes automatic upon the closing of an initial public
offering with gross proceeds of at least $15,000,000 and a per share price
of at least $0.98, as to the Series A and B, and $1.21 as to the Series C.
Conversion also becomes automatic if at least two-thirds of the preferred
shareholders, voting as a single class, so elect or if at least 90% of the
outstanding preferred shares have been converted to common.
Dividends -- The holders of Series A, B and C are entitled to receive
dividends, if and when declared on the shares of common stock, on an "as
if" converted basis.
Voting -- The holders of Series A, B and C vote together with all
other classes and series of stock of the corporation as one class. Each
share of Series A, B and C entitles the holder to a number of votes equal
to the number of shares of common stock into which the preferred shares
could be converted on that date.
Redemption -- Upon the election of a majority of the Series C holders
at any time on or after December 18, 2002, the Company will be required to
redeem all of the then outstanding shares of Series C in three equal
installments. The redemption price per share is equal to the greater of
$1.54 per share plus all accrued but unpaid dividends, if any, or the fair
market value of the Series C shares. These redemption rights of the Series
C holders are senior to the redemption rights described below for the
Series A and B shares. Should sufficient funds exist if redemption of the
Series C has occurred and upon the election of the majority of the Series A
and B holders at any time on or after December 18, 2002, the Company will
be required to redeem all of the then outstanding shares of the Series A
and B in three equal annual installments. The redemption price per share is
equal to the greater of $0.49695 for Series A and $0.60 for Series B, plus
all declared but unpaid dividends, if any, or the fair market value of the
stock.
Covenants -- The Company's fourth amended and restated certificate of
incorporation provides for separate, identical covenants for all classes of
redeemable preferred stock as follows: except with the approval of a
majority of each class of redeemable preferred stock outstanding, the
Company may not amend its Certificate of Incorporation or By-laws; increase
the number of shares of redeemable preferred stock, or reclassify any
common stock into shares having any preference or priority superior to or
in parity with the redeemable preferred stock; create, authorize or issue
any class or classes of stock senior to or in parity with the redeemable
preferred stock; pay or declare any dividend or distribution on any shares
of common stock; or effect any sale, lease, assignment, transfer or other
conveyance (other than the grant of a mortgage or security interest in
connection with indebtedness for borrowed money) of all or substantially
all the assets of the
F-13
<PAGE> 83
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company, any liquidation, dissolution or winding up of, or any
consolidation or merger involving the Company, or recapitalization of the
Company.
Beneficial Conversion Feature -- Because of the proximity of the
issuance of the Series C to the commencement of the Company's proposed
stock offering, the Company has concluded that a beneficial conversion
feature was present in the preferred stock on the date of issuance. For
purposes of evaluating this beneficial conversion feature, the Company
considers that the mid-point value implied in the preliminary range of
prices for the proposed stock offering ($9.00) represents the fair value of
the common stock on the date the Series C was issued.
In accordance with Emerging Issues Task Force Abstract No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," the proceeds from the Series C
financing were allocated between the conversion feature and the preferred stock;
because the fair value of the common stock ($9.00) was significantly in excess
of the conversion price implicit in the Series C stock ($3.93), the entire
amount of net proceeds ($21,555,501) were allocated to the conversion feature.
Because the preferred stock is immediately convertible into common stock, an
immediate dividend or accretion of $21,555,501 was recorded from common
stockholders' equity to the carrying value of the Series C preferred stock.
In addition, except with the approval of 51% of the holders of Series C
preferred stock, the Company may not issue additional securities (other than
under an approved plan), adopt or amend its stock option plans, sell or lease
the assets of the Company or impair its ability to perform under the Series C
Purchase Agreement.
As of December 31, 1998 and 1999, the number of shares, and liquidation
value of each class of redeemable convertible preferred stock are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Number of shares:
Series A............................................ 10,515,925 10,515,925
Series B............................................ 14,320,446 14,320,446
Series C............................................ -- 16,233,766
Redemption and liquidation value:
Series A............................................ $ 5,225,889 $ 5,225,889
Series B............................................ 8,592,268 8,592,268
Series C............................................ -- 25,000,000
</TABLE>
6. STOCKHOLDERS' DEFICIENCY
In August 1998, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock from 25,000,000 to
40,000,000. In November 1999, the number of authorized shares of common stock
was further increased to 58,500,000.
WARRANTS
In connection with the issuance of a bridge note payable to a bank issued
and paid in 1997 (see Note 4), the Company issued a warrant to purchase 19,728
shares of the Company's common stock at an exercise price of $0.03 per share.
The warrant expires five years from the
F-14
<PAGE> 84
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issuance date. The estimated fair value of the warrant as of the grant date,
$12,205, was recorded as a discount on the bridge note. This discount was
amortized to interest expense over the period the bridge note payable was
outstanding.
In connection with the issuance of a convertible demand note payable,
issued and paid in 1997 (see Note 4), the Company issued a warrant to purchase
326,995 shares of the Company's Series A preferred stock at an exercise price of
$0.49695 per share. The warrant expires five years from the issuance date. The
estimated fair value of the warrant as of the date of the grant, $41,589, was
recorded as a discount on the convertible demand note payable and charged to
interest expense during the four months ended December 31, 1997.
In connection with the issuance of a promissory note payable, issued and
paid in 1997 (see Note 4), the Company issued a warrant to purchase 29,592
shares of the Company's common stock at an initial exercise price of $1.27 per
share, which may be adjusted upon issuance of securities at a price less than
the initial exercise price of the warrant. The warrant expires five years from
the issuance date. The estimated fair value of the warrant as of the date of the
grant, $9,597, was recorded as a discount on the promissory note and charged to
interest expense during the four months ended December 31, 1997.
In connection with the private placement of 16,233,776 shares of Series C
preferred stock, the Company issued to the placement agent a warrant to purchase
254,598 shares of common stock at an exercise price of $3.93 per share. The
warrant expires five years from the issuance date (September 1999). The
estimated fair value of the warrant as of the date of grant was $1,863,759. The
warrant has been recorded as an issuance cost and has been offset against the
initial carrying value of the Series C Preferred Stock.
All warrants were valued on the date of grant using the Black-Scholes
option pricing model. Among the assumptions used to value these warrants were as
follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31,
1997 1997 1999
----------- ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate................. 6.1% - 6.75% 6.0% 6.0%
Expected life of warrant................ 5 years 5 years 5 years
Expected dividend payment rate, as a
percentage of the stock price on the
date of grant......................... -- -- --
Assumed volatility...................... 45% 45% 51%
Fair value of underlying common stock... $0.64 $0.64 $9.00
</TABLE>
STOCK OPTIONS
In August 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan"), which provides for the issuance of common stock as either incentive
stock options ("ISOs") or nonqualified stock options ("NSOs"). Under the terms
of the 1997 Plan, ISOs are to be granted at the fair market value of the
Company's common stock on the date of grant and NSOs are to be granted at a
price determined by the Board of Directors. ISOs and NSOs generally vest over
four years and have contractual lives of up to ten years. In December 1999, the
Company amended the plans to allow the holder of options to exercise their
options immediately, with a requirement that the employees rights to the shares
vest over a period that is identical to the original vesting schedule. Should
the employee terminate prior to vesting, the
F-15
<PAGE> 85
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employee is required to resell the shares to the Company at the original
purchase price. This amendment did not result in a new measurement date.
In December 1999, the 1997 Plan was amended to provide for automatic
increases in options available for grant on January 1 of each of 2000, 2001 and
2002. The increase in options available (and the related reserved shares of
common stock) in any given year is limited to the lesser of 5% of the total
outstanding shares of common stock as of December 31st of the previous year or
1,372,549 additional options.
As of the effective date of the 1997 Plan, any unvested or unexercised
options that were issued under the 1997 Plan's predecessor, the 1994 Plan, that
are forfeited will become available for issuance under the 1997 Plan thereby
increasing the options available for grant under the 1997 Plan to a maximum of
4,144,281 shares. Option activity under both the 1997 and 1994 plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE FAIR
SHARES PRICE VALUE
--------- --------- ---------
<S> <C> <C> <C>
Outstanding, September 1, 1996........... 227,452 $0.64
Granted................................ 423,529 0.64 $0.15
Exercised.............................. (3,922) 0.64
Canceled............................... (214,510) 0.64
---------
Outstanding, August 31, 1997............. 432,549 0.64
Granted................................ 844,082 0.64 0.15
Exercised.............................. (11,765) 0.64
Canceled............................... (111,373) 0.64
---------
Outstanding, December 31, 1997........... 1,153,493 0.64
Granted................................ 962,393 0.28 0.08
Exercised.............................. (75,196) 0.26
Canceled............................... (239,706) 0.26
---------
Outstanding, December 31, 1998........... 1,800,984 0.26
Granted................................ 1,380,940 0.99 2.37
Exercised.............................. (600,287) 0.30
Canceled............................... (356,373) 0.29
---------
Outstanding and exercisable, December 31,
1999................................... 2,225,264 0.71
=========
Vested, December 31, 1999................ 586,549 0.26
=========
Vested, December 31, 1998................ 337,902 0.26
=========
Vested, December 31, 1997................ 137,255 0.64
=========
Vested, August 31, 1997.................. 98,039 0.64
=========
</TABLE>
In October 1999, the Company granted options to acquire 133,725 shares of
common stock to employees at an exercise price of $0.64. In December 1999, the
Company granted options to acquire 200,196 shares of common stock to employees
at an exercise price of
F-16
<PAGE> 86
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3.53. In January 2000, the Company granted options to acquire 259,118 shares of
common stock to employees at an exercise price of $6.89.
In July, 1999, the Board of Directors approved a stock loan program, which
allows specified employees to fund the purchase of common stock pursuant to the
exercise of stock options through loans from the Company. Borrowings are limited
to 50% of the employee's annual salary. Loans under this program bear interest
at a variable rate of 0.5% over the Company's cost of funds and are secured by
the underlying shares. All loans are due no later than five years from the date
of the loan. At December 31, 1999, $69,271 had been advanced to employees under
this program.
In January 2000, the Board of Directors of the Company approved the 2000
Employee Stock Purchase Plan, which allows employees of the Company to purchase
common stock of the Company through payroll deductions at 85% of the then fair
market value of the Company's stock. The Company reserved 588,235 shares for
issuance under the plan. The 2000 Employee Stock Purchase Plan provides for
automatic increases in shares available for purchase under the plan. In general,
the increase in shares available in any given year is limited to the lesser of
1% of the total outstanding shares of common stock as of December 31st of the
previous year or 294,118 additional shares.
The board of directors has approved the 2000 Non-Employee Director Stock
Plan, which will become effective upon the effectiveness of the Company's
proposed initial public offering. The 2000 Non-Employee Director Stock Plan
provides for the issuance of options covering up to 274,510 shares of common
stock to non-employee directors. Under the plan, non-employee directors will
receive a one-time grant of 15,686 options upon election to the Board of
Directors. In addition, each year all non-employee directors will automatically
receive an additional grant of 7,843 shares following the Company's annual
meeting. Options granted under the plan will be immediately exercisable, but
will be subject to repurchase restrictions which will lapse over a three year
period following the grant. Options granted under the plan will contain exercise
prices equal to the fair market value of the underlying common stock on the date
of grant.
At December 31, 1999, there were 1,221,964 options available for grant
under the 1997 Plan, including those shares forfeited under the 1994 Plan. In
February 1998, the Company's Board approved the repricing of all outstanding
options on that date, covering approximately 1,153,333 shares, to $0.26 per
share to reflect the Board's estimate of the fair value of the underlying common
stock on the date of the repricing.
Grants made during 1999 contained exercise prices which were the Company's
best estimate of fair value of the underlying common stock on the date of grant.
However, subsequent to the grant date, management concluded that for grants
after the release of the new version of the Company's principal product, these
estimates may not have fully reflected the impact of this event. Management has
concluded that for grants made between May and August 1999, $3.93 is a more
reliable estimate of the fair value of the common stock during this period. For
grants made in periods after August 1999, management concluded that the
mid-point value implied in the preliminary range of prices for a proposed
initial public offering ($9.00) is a more reliable estimate of the fair value of
the common stock during the period. For grants during this period, compensation
cost aggregated $6,796,000, which will be amortized to expense over the four
year vesting period of the option grants. For the year ended December 31, 1999,
compensation expense recorded related to these grants aggregated $523,726.
F-17
<PAGE> 87
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of the options on their grant date was measured using the
Black-Scholes option pricing model. Key assumptions used to apply this option
pricing model are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Risk-free interest
rate................... 6.1% - 6.75% 6.0% 6.0% 6.0%
Expected life of option
grants................. 5 years 5 years 5 years 5 years
Expected dividend payment
rate, as a percentage
of the stock price on
the date of grant...... -- -- -- --
Assumed volatility....... 45% 45% 45% 51%
</TABLE>
The option-pricing model used was designed to value readily tradable stock
options with relatively short lives. However, management believes that the
assumptions used to value the options and the model applied yield a reasonable
estimate of the fair value of the grants made under the circumstances.
The following table sets forth information regarding options outstanding
and vested at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
- ------------------------------------------------------------ ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
SHARES PRICE LIFE PRICE SHARES PRICE
------ ------------ ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
2,225,264............ $0.26 - 3.53 9.00 years $0.71 586,549 $0.26
</TABLE>
As described in Note 2, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. If the Company had used the fair value method to measure
compensation, reported net loss would have been as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
As reported....................... $(733,408) $(1,163,705) $(5,260,508) $(6,599,996)
========= =========== =========== ===========
Pro forma......................... $(743,799) $(1,179,636) $(5,337,568) $(8,276,951)
========= =========== =========== ===========
Pro forma loss per share.......... $ (0.36) $ (0.54) $ (2.42) $ (12.09)
========= =========== =========== ===========
</TABLE>
RESERVED SHARES
At December 31, 1999, 19,985,224 shares of common stock were reserved for
issuance under the Company's stock option plans and outstanding warrants and for
potential conversion of preferred stock.
F-18
<PAGE> 88
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The components of the provision (benefit) for income taxes consisted of the
following:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998 1999
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Federal -- deferred.................. $(226,000) $(358,000) $(1,619,000) $ (2,144,000)
State -- deferred.................... (70,000) (110,000) (500,000) (627,000)
Increase in valuation allowance...... 296,000 468,000 2,119,000 2,771,000
--------- --------- ----------- ------------
Provison (benefit) for income
taxes.............................. $ -- $ -- $ -- $ --
========= ========= =========== ============
</TABLE>
Taxes during interim periods are computed using the estimated rate
effective for the entire year. Changes to the estimated rate are reflected in
periods in which the change in estimate occurs.
A reconciliation of the statutory federal rate to the effective rate for
all periods is as follows:
<TABLE>
<S> <C>
Statutory Federal rate benefit............................ (34)%
State, net of Federal effect.............................. (6)
Valuation allowance provided.............................. 40
---
Effective rate............................................ --%
===
</TABLE>
Deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets (liabilities):
Property and equipment........................ $ (13,400) $ (30,500)
Accounts receivable -- allowance for doubtful
accounts................................... 19,100 75,600
Accrued liabilities........................... -- 182,800
Net operating loss carryforwards.............. 3,115,600 5,471,500
Research and development credits.............. 125,800 318,900
Valuation allowance........................... (3,247,100) (6,018,300)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards for
federal and state tax purposes aggregating approximately $13,500,000 available
to offset future taxable income. These net operating loss carryfowards expire in
varying amounts through 2013. At December 31, 1999, the Company had federal and
state tax credits aggregating $318,900 available to offset future taxable
income, expiring through 2013. Due to changes in ownership due to stock
issuances during 1997, 1998 and 1999, the Company's ability to utilize these
carryforwards and credits is likely to be limited.
The valuation allowance increased by $2,191,500 and $2,771,200 in 1998 and
1999, respectively, primarily due to the generation of net operating loss
carryforwards and credits for which realization is not reasonably assured.
F-19
<PAGE> 89
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) retirement plan (the "Plan") under which
eligible employees may contribute up to 20% of their annual compensation,
subject to limitations imposed by the Internal Revenue Code. The Company
provides matching contributions of 50% of the employee salary deferral, up to 5%
of eligible earnings. Employees vest immediately in their contributions and
earnings thereon and ratably over six years in the Company's contributions.
During the year ended August 31, 1997, the four months ended December 31, 1997,
the year ended December 31, 1998 and 1999, the Company made matching
contributions of approximately $13,900, $7,200, $55,800, and $81,882
respectively.
9. COMMITMENTS
LEASE COMMITMENTS
The Company has operating lease agreements for facilities and equipment.
The Company entered into a three-year, noncancelable operating sublease for its
office facilities commencing October 15, 1997. The lease provides that the
Company pay a base monthly rental of approximately $16,500, plus its
proportionate annual share of the facility's common area expenses and real
estate taxes. On November 30, 1997, the Company terminated its previous lease
for office space and paid a $34,000 termination fee.
Subsequent to December 31, 1999, the Company entered into a short-term
lease for an operating facility. This lease calls for rental payments of
$171,126 and expires at the end of September 2000. The Company also entered into
a ten year lease, commencing in October 2000, for a 78,260 sq. ft. operating
facility which calls for base lease payments of $27 per square foot in the first
three years of the lease, $28.75 in years four through six, and $30.75
thereafter.
Future minimum lease commitments for all noncancelable operating leases at
December 31, 1999, including leases entered into subsequent to December 31,
1999, approximated the following:
<TABLE>
<S> <C>
Years Ending December 31:
2000........................................... $ 792,000
2001........................................... 2,115,000
2002........................................... 2,115,000
2003........................................... 2,150,000
2004........................................... 2,252,000
Thereafter..................................... 13,567,000
</TABLE>
Rent expense under operating lease agreements approximated $148,000,
$113,900, (including the termination fee) $198,400 and $255,835 for the year
ended August 31, 1997, the four months ended December 31, 1997, and the years
ended December 31, 1998 and 1999, respectively.
10. RESTATEMENTS
The accompanying 1999 consolidated financial statements have been restated
to correct the accounting applied to the issuance of the Series C redeemable
preferred stock (the "Series C") and to correct the accounting applied to grants
of stock options during 1999.
F-20
<PAGE> 90
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to the issuance of the Company's 1999 consolidated financial
statements, management determined that the Company had incorrectly accounted for
the issuance of the Series C preferred stock in 1999. Because of the proximity
of the issuance of the Series C to the commencement of the Company's proposed
stock offering, the Company has concluded that a beneficial conversion feature
was present in the preferred stock on the date of issuance. For purposes of
evaluating this beneficial conversion feature, the Company considers that the
mid-point value implied in the preliminary range of prices for the proposed
stock offering ($9.00) represents the fair value of the common stock on the date
the Series C was issued.
In accordance with Emerging Issues Task Force Abstract No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," the proceeds from the Series C
financing were allocated between the conversion feature and the preferred stock;
because the fair value of the common stock ($9.00) was significantly in excess
of the conversion price implicit in the Series C stock ($3.93), the entire
amount of net proceeds ($21,555,501) were allocated to the conversion feature.
Because the preferred stock is immediately convertible into common stock, an
immediate dividend or accretion of $21,555,501 was recorded from common
stockholders' equity to the carrying value of the Series C preferred stock.
In addition, the Company had originally estimated that for grants of stock
options in September and October of 1999, the fair value of the underlying
common stock was $3.93 per share. The Company has concluded that this estimate
does not fully reflect the fair value of the common stock at such times. The
Company has concluded that $9.00 more accurately represents the fair value of
common stock during the period these grants were made and has adjusted its
estimates of compensation cost related to those option grants accordingly.
The effects of these restatements on the Company's consolidated financial
statements as of and for the year ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
AS
PREVIOUSLY
REPORTED AS RESTATED
------------ ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET:
Redeemable convertible preferred stock................. $ 36,848,516 $ 35,315,984
Additional paid-in capital............................. 1,053,085 24,332,606
Accumulated deficit.................................... (14,278,101) (36,025,090)
Total stockholders' deficiency......................... (13,291,449) (11,758,917)
</TABLE>
F-21
<PAGE> 91
EPRISE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS
PREVIOUSLY
REPORTED AS RESTATED
------------ ------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Cost of revenues....................................... $ 1,119,741 $ 1,125,050
Research and development expenses...................... 2,333,530 2,360,201
Selling and marketing expenses......................... 4,916,787 5,056,254
General and administrative expenses.................... 1,984,947 2,004,988
Operating loss......................................... (6,696,190) (6,887,676)
Net loss............................................... (6,408,508) (6,599,996)
Accretion of redeemable convertible preferred stock.... (74,722) (21,630,223)
Loss to common shareholders............................ $ (6,483,230) $(28,230,219)
============ ============
Loss per share......................................... $(2.62) $(11.42)
</TABLE>
F-22
<PAGE> 92
[INTENTIONALLY LEFT BLANK]
<PAGE> 93
[INTENTIONALLY LEFT BLANK]
<PAGE> 94
[EPRISE CORPORATION LOGO]
<PAGE> 95
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Special Note Regarding Forward-
Looking Statements and Industry
Data................................ 13
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 30
Management............................ 41
Certain Transactions.................. 51
Principal Stockholders................ 53
Description of Capital Stock.......... 56
Shares Eligible for Future Sale....... 60
Underwriting.......................... 62
Legal Matters......................... 65
Experts............................... 65
Change in Accountants................. 65
Where You Can Find Additional
Information......................... 65
Index to Financial Statements......... F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 2000 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
[EPRISE CORPORATION LOGO]
4,000,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
DAIN RAUSCHER WESSELS
WIT SOUNDVIEW
PROSPECTUS
, 2000
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Eprise in connection with the
sale of the common stock being registered under this registration statement. All
amounts shown are estimated, except the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 17,001
NASD filing fee............................................. 6,940
Nasdaq National Market listing fee.......................... 90,000
Blue Sky fee and expenses (including legal fees)............ 10,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 200,000
Transfer agent and registrar fees and expenses.............. 12,000
Miscellaneous expenses...................................... 74,059
--------
Total............................................. $860,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and our by-laws, as amended, provide
for indemnification of our directors and officers for liabilities and expenses
that they may incur in such capacities. In general, directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, our best interests and, with respect to
any criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. For a more complete description, you should
refer to our by-laws, as amended, and our proposed amended and restated by-laws
filed as Exhibits 3.5 and 3.6 to this registration statement.
The Underwriting Agreement (filed as Exhibit 1.1 to this registration
statement) provides that the Underwriters are obligated, under certain
circumstances, to indemnify our directors, officers and controlling persons
against certain liabilities, including liabilities under the Securities Act. For
a more complete description, you should refer to Exhibit 1.1 to the registration
statement.
In addition, we have an existing directors and officers liability insurance
policy in effect.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we
have issued the following securities that were not registered under the
Securities Act. All share numbers and purchase prices reflect a 1-for-2.55
reverse split of the common stock occurring immediately prior to the
effectiveness of the offering that is the subject of this registration.
(a) Issuances of Capital Stock
In August 1997, we issued and sold 79,291 shares of common stock to one
purchaser at a purchase price of approximately $0.26 per share, which was paid
by conversion of a convertible promissory note.
In December 1997 and January 1998, we issued and sold an aggregate of
10,262,604 shares of Series A preferred stock to four investors at a purchase
price of $0.49695 per share,
II-1
<PAGE> 97
for an aggregate sales price of $5.1 million. In addition, we issued 253,321
shares of Series A preferred stock to a consultant as a placement fee in
connection with hiring two executives.
In August 1998, we issued and sold an aggregate of 14,320,446 shares of
Series B preferred stock to ten investors at a purchase price of $0.60 per
share, for an aggregate sales price of approximately $8.6 million.
In November 1999, we issued and sold an aggregate of 16,233,776 shares of
Series C preferred stock to approximately 190 investors at a purchase price of
$1.54 per share, for an aggregate sales price of approximately $25.0 million.
Deutsche Bank Securities Inc. served as placement agent for this offering. As
partial consideration for its services, we issued Deutsche Bank Securities Inc.
a warrant to purchase 254,598 shares of our common stock as described in
paragraph (b) below.
No underwriters were engaged in connection with the foregoing sales of
securities. All such sales were made solely to accredited investors, as defined
in Rule 501 under the Securities Act, and were made in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act and,
as to the private placement of our Series C preferred stock, Regulation D
promulgated under the Securities Act, for transactions by an issuer not
involving a public offering.
(b) Issuances of Warrants
In July and December 1997, we issued warrants to Silicon Valley Bank to
purchase 19,728 and 29,592 shares of our common stock, respectively, at an
exercise price of $0.0255 and $1.267 per share, respectively, in consideration
for extending two bridge loans to us. These warrants expire in July and December
2002, respectively.
In October 1997, we issued a warrant to an investor to purchase 326,995
shares of our Series A preferred stock at an exercise price of $0.49695 per
share, in consideration for extending a bridge loan to us. This warrant expires
in December 2002.
As of September 1999, we issued a warrant to Deutsche Bank Securities Inc.
to purchase 254,598 shares of our common stock at an exercise price of $3.93 per
share in partial consideration of its services as the placement agent for the
shares of Series C preferred stock offered in November 1999 as described in
paragraph (a) above. This warrant expires in September 2004.
No underwriters were engaged for purposes of the foregoing transactions.
All sales of securities described above were made in reliance upon the exemption
from registration provided by Section 4(2) under the Securities Act for
transactions by an issuer not involving a public offering.
(c) Grants and Exercises of Stock Options
Since January 1, 1997, we have granted stock options to purchase 3,444,313
shares of common stock with exercise prices ranging from $0.255 to $3.93 per
share, to employees and directors under our 1994 and 1997 stock plans. Of these
options, 597,052 have been exercised for an aggregate consideration of $207,359
as of December 31, 1999. The issuance of common stock upon exercise of such
options was exempt either pursuant to Rule 701 under the Securities Act, as a
transaction pursuant to a compensatory benefit plan, or pursuant to Section 4(2)
under the Securities Act, as a transaction by an issuer not involving a public
offering.
II-2
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENT
- --- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Eprise and the
Underwriters
3.1+ Third Amended and Restated Certificate of Incorporation of
Eprise Corporation filed in the State of Delaware on
November 2, 1999
3.2 Fifth Amended and Restated Certificate of Incorporation of
Eprise
3.3 Certificate of Amendment to Fifth Amended and Restated
Certificate of Incorporation of Eprise
3.4 Form of Amended and Restated Certificate of Incorporation of
Eprise (to be filed with the Secretary of State of Delaware
and effective upon the closing of the offering.)
3.5+ Corporate bylaws of Inner Circle Technologies, Inc., as
currently in effect
3.6+ Form of Amended and Restated By-Laws (to take effect as of
the effective date of the registration statement)
4.1 Specimen certificate for shares of the common stock of
Eprise
4.2 Description of capital stock (contained in Exhibits 3.1 and
3.2)
4.3+ Warrant to purchase 50,307 shares of common stock, issued to
Silicon Valley Bank on July 18, 1997
4.4+ Warrant to purchase 326,995 shares of Series A Preferred
Stock, issued to Prism Venture Partners I, L.P. on October
9, 1997
4.5+ Warrant to purchase 75,460 shares of common stock, issued to
Silicon Valley Bank on December 5, 1997
4.6+ Antidilution Agreement with Silicon Valley Bank, dated
December 5, 1997
4.7+ Warrant to purchase 649,227 shares of common stock, issued
to Deutsche Bank Securities Inc. as of September 8, 1999
5.1 Opinion of Hill & Barlow regarding legality of common stock
to be offered hereunder
10.1 Lease dated as of February 22, 2000 between NDNE 9/90 200
Crossing Boulevard, LLC and Eprise Corporation, relating to
the future principal executive offices of Eprise at 200
Crossing Boulevard, Framingham, Massachusetts
10.2+ Sublease Agreement between NovaLink USA Corporation and
Merkert Enterprises, Inc., as amended
10.3+ Sublease Agreement dated June 9, 1999 between Aquila
Biopharmaceuticals, Inc. and Eprise Corporation
10.4+ Eprise Corporation 1997 Stock Option Plan, as amended
through December 1, 1999
10.5+ Eprise 1997 Amended and Restated Stock Option Plan
10.6+ Inner Circle Technologies, Inc. 1994 Stock Option Plan
10.7+ Eprise 2000 Non-Employee Director Stock Option Plan
10.8+ Employment Agreement between Eprise Corporation and Joseph
A. Forgione dated as of November 4, 1997
10.9+ Employment Agreement between Eprise Corporation and Jonathan
B. Radoff dated as of December 17, 1997
10.10 Eprise 2000 Employee Stock Purchase Plan dated January 5,
2000, as amended through March 22, 2000
10.11+ Eprise Corporation Retirement Savings Plan dated October 14,
1998, as amended
</TABLE>
II-3
<PAGE> 99
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENT
- --- -----------------------
<C> <S>
10.12+ Second Amended and Restated Stockholders Agreement dated as
of November 8, 1999 among Eprise and the preferred
stockholders of Eprise......................................
10.13+ Second Amended and Restated Registration Rights Agreement
dated as of November 8, 1999 among Eprise and the preferred
stockholders of Eprise......................................
10.14+ Registration Rights Agreement dated July 18, 1997 among
Eprise and Silicon Valley Bank..............................
10.15+ Registration Rights Agreement dated December 5, 1997 among
Eprise and Silicon Valley Bank..............................
10.16+ Loan and Security Agreement among Eprise and Silicon Valley
Bank dated January 28, 1998.................................
10.17+ Negative Pledge Agreement among Eprise and Silicon Valley
Bank dated 1997.............................................
10.18+ First Loan Modification Agreement among Eprise and Silicon
Valley Bank dated March 1999................................
16+ Letter re Change in Certifying Accountant...................
21.1+ List of Subsidiaries........................................
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP......
23.2 Independent Accountants' Consent -- Arthur Andersen LLP.....
23.3 Consent of Hill & Barlow, a Professional Corporation
(contained in Exhibit 5.1)..................................
23.4+ Consent of IDC..............................................
27.1 Eprise Financial Data Schedule of the period ending December
31, 1999
27.2+ Eprise Financial Data Schedule for the period ending
December 31, 1998...........................................
27.3+ Eprise Financial Data Schedule for the period ending
December 31, 1997...........................................
27.4+ Eprise Financial Data Schedule for the period ending August
31, 1997....................................................
</TABLE>
- ------------------------
+ Previously filed.
* To be filed by amendment.
b. Financial Statement Schedules.
None required.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Eprise
pursuant to the provisions described in Item 14, or otherwise, Eprise has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Eprise of expenses incurred
or paid by a director, officer or controlling person of Eprise 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, Eprise
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 of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Eprise hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon
II-4
<PAGE> 100
Rule 430A and contained in a form of prospectus filed by Eprise pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Eprise hereby undertakes to provide at the closing of this offering to the
underwriters 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.
II-5
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts on March 23, 2000.
EPRISE CORPORATION
By: /s/ JOSEPH A. FORGIONE
-----------------------------------------------
Joseph A. Forgione
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <C> <S>
/s/ JOSEPH A. FORGIONE President, Chief Executive March 23, 2000
- ------------------------------------------------ Officer and Director
(Joseph A. Forgione) (Principal Executive
Officer)
/s/ MILTON A. ALPERN Vice President, Finance and March 23, 2000
- ------------------------------------------------ Chief Financial Officer,
(Milton A. Alpern) (Principal Financial and
Accounting Officer)
* Chairman of the Board March 23, 2000
- ------------------------------------------------
(Edson D. de Castro)
* Director March 23, 2000
- ------------------------------------------------
(Deborah M. Besemer)
* Director March 23, 2000
- ------------------------------------------------
(Robert C. Fleming)
* Director March 23, 2000
- ------------------------------------------------
(Alain J. Hanover)
* Director March 23, 2000
- ------------------------------------------------
(Nicholas A. Papantonis)
</TABLE>
II-6
<PAGE> 102
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <C> <S>
* Director March 23, 2000
- ------------------------------------------------
(Jonathan B. Radoff)
* Director March 23, 2000
- ------------------------------------------------
(Joseph Tischler)
*By: /s/ JOSEPH A. FORGIONE
-------------------------------------------
Joseph A. Forgione
Attorney-in-fact
</TABLE>
II-7
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Eprise and the
Underwriters
3.1+ Third Amended and Restated Certificate of Incorporation of
Eprise Corporation filed in the State of Delaware on
November 2, 1999
3.2 Fifth Amended and Restated Certificate of Incorporation of
Eprise
3.3 Certificate of Amendment to Fifth Amended and Restated
Certificate of Incorporation of Eprise
3.4 Form of Amended and Restated Certificate of Incorporation of
Eprise (to be filed with the Secretary of State of Delaware
and effective upon the closing of the offering.)
3.5+ Corporate bylaws of Inner Circle Technologies, Inc., as
currently in effect
3.6+ Form of Amended and Restated By-Laws (to take effect as of
the effective date of the registration statement)
4.1 Specimen certificate for shares of the common stock of
Eprise
4.2 Description of capital stock (contained in Exhibits 3.1 and
3.2)
4.3+ Warrant to purchase 50,307 shares of common stock, issued to
Silicon Valley Bank on July 18, 1997
4.4+ Warrant to purchase 326,995 shares of Series A Preferred
Stock, issued to Prism Venture Partners I, L.P. on October
9, 1997
4.5+ Warrant to purchase 75,460 shares of common stock, issued to
Silicon Valley Bank on December 5, 1997
4.6+ Antidilution Agreement with Silicon Valley Bank, dated
December 5, 1997
4.7+ Warrant to purchase 649,227 shares of common stock, issued
to Deutsche Bank Securities Inc. as of September 8, 1999
5.1 Opinion of Hill & Barlow regarding legality of common stock
to be offered hereunder
10.1 Lease dated as of February 22, 2000 between NDNE 9/90 200
Crossing Boulevard, LLC and Eprise, relating to the future
principal executive offices of Eprise at 200 Crossing
Boulevard, Framingham, Massachusetts
10.2+ Sublease Agreement between NovaLink USA Corporation and
Merkert Enterprises, Inc., as amended
10.3+ Sublease Agreement dated June 9, 1999 between Aquila
Biopharmaceuticals Inc. and Eprise Corporation
10.4+ Eprise Corporation 1997 Stock Option Plan, as amended
through December 1, 1999
10.5+ Eprise 1997 Amended and Restated Stock Option Plan
10.6+ Inner Circle Technologies, Inc. 1994 Stock Option Plan
10.7+ Eprise 2000 Non-Employee Director Stock Option Plan
10.8+ Employment Agreement between Eprise Corporation and Joseph
A. Forgione dated as of November 4, 1997
10.9+ Employment Agreement between Eprise Corporation and Jonathan
B. Radoff dated as of December 17, 1997
10.10 Eprise 2000 Employee Stock Purchase Plan dated January 5,
2000, as amended through March 22, 2000
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.11+ Eprise Corporation Retirement Saving Plan dated October 14,
1998, as amended
10.12+ Second Amended and Restated Stockholders Agreement dated as
of November 8, 1999 among Eprise and the preferred
stockholders of Eprise
10.13+ Second Amended and Restated Registration Rights Agreement
dated as of November 8, 1999 among Eprise and the preferred
stockholders of Eprise
10.14+ Registration Rights Agreement dated July 18, 1997 among
Eprise and Silicon Valley Bank
10.15+ Registration Rights Agreement dated December 5, 1997 among
Eprise and Silicon Valley Bank
10.16+ Loan and Security Agreement among Eprise and Silicon Valley
Bank dated January 28, 1998
10.17+ Negative Pledge Agreement among Eprise and Silicon Valley
Bank dated 1997
10.18+ First Loan Modification Agreement among Eprise and Silicon
Valley Bank dated March 1999
16+ Letter re Change in Certifying Accountant
21.1+ List of Subsidiaries
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP
23.2 Independent Accountants' Consent -- Arthur Andersen LLP
23.3 Consent of Hill & Barlow, a Professional Corporation
(contained in Exhibit 5.1)
23.4+ Consent of IDC
27.1 Eprise Financial Data Schedule for the period ending
December 31, 1999
27.2+ Eprise Financial Data Schedule for the period ending
December 31, 1998
27.3+ Eprise Financial Data Schedule for the period ending
December 31, 1997
27.4+ Eprise Financial Data Schedule for the period ending August
31, 1997
</TABLE>
- ------------------------
+ Previously filed.
* To be filed by amendment.
<PAGE> 1
_____________ SHARES
EPRISE CORPORATION
COMMON STOCK
($.001 Par Value)
EQUITY UNDERWRITING AGREEMENT
_________ __, 2000
Deutsche Bank Securities Inc.
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated SoundView
Technology Group, Inc.
As Representatives of the Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, MD 21202
Ladies and Gentlemen:
Eprise Corporation, a Delaware corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in SCHEDULE I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of _________ shares of the Company's Common Stock, $.001 par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in SCHEDULE I hereto.
The Company also proposes to sell, at the Underwriters' option, up to _________
additional shares of the Company's Common Stock (the "Option Shares") as set
forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the number of Firm Shares set forth opposite their
respective names in SCHEDULE I, plus their pro rata portion of the Option
Shares, if you elect to exercise the over-allotment option in whole or in part
for the accounts of the several Underwriters. The Firm Shares and the Option
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
Deutsche Bank Securities Inc. ("DBSI") has agreed to reserve up to
___________ of the Shares to be purchased by it under this Agreement for sale to
the Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriting" (the "Directed
<PAGE> 2
Share Program"). The Shares to be sold by DBSI and its affiliates pursuant to
the Directed Share Program are referred to hereinafter as the "Directed Shares."
Any Directed Shares not orally confirmed for purchase by any Participants by the
end of the business day on which this Agreement is executed will be offered to
the public by the Underwriters as set forth in the Prospectus.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as follows.
The representations, warranties and covenants of the Company contained herein
shall be deemed to apply to each of the subsidiaries of the Company unless
otherwise required by the context.
(a) A registration statement on Form S-1 (File No. 33-94777) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act, and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to any
Prospectus shall be deemed to include any supplements or amendments thereto
filed with the Commission after the date of filing of the Prospectus under Rules
424(b) or 430A, and prior to the termination of the offering of the Shares by
the Underwriters. For purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement to any of the foregoing, shall be deemed to include all
printed copies thereof and the copies filed with the Commission pursuant to the
Commission's "EDGAR" system.
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, except where the failure to so qualify or
be in good standing would not result in a material adverse effect on the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise), or prospects of the Company and its
subsidiaries taken as a whole, or a material adverse effect on
<PAGE> 3
the ability of the Company to consummate the transactions contemplated hereby (a
"Material Adverse Effect").
(c) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company; the performance of
this Agreement and the consummation of the transactions herein contemplated will
not result in a material breach or violation of any of the terms and provisions
of, or constitute a default under, (i) any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any Subsidiary is a party, (ii) the charter or bylaws of
the Company, each as currently in effect, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or over its properties, except in the case of clauses (i) and (iii) for
such breaches, violations or defaults as would not have a Material Adverse
Effect. No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its properties is required for the
execution and delivery of this Agreement and the consummation by the Company of
the transactions herein contemplated, except such as may be required under the
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
under state or other securities or Blue Sky laws, or under the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD")
(including the Nasdaq National Market), and all of which requirements which
pertain to the Company have been satisfied by the Company in all material
respects.
(d) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares have been duly authorized and, when issued and paid for as contemplated
herein, will be validly issued, fully paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock.
(e) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct in all material respects. All of the Shares
conform to the description thereof contained in the Registration Statement in
all material respects. The form of certificates for the Shares conforms to the
requirements of the corporate law of the jurisdiction of the Company's
incorporation. Except as described in or contemplated by the Registration
Statement, there are no outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of capital stock of the Company and there are no outstanding or
authorized options, warrants or rights of any character obligating the Company
to issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of such stock.
<PAGE> 4
(f) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform to, the
requirements of the Act and the Rules and Regulations in all material respects.
The Registration Statement and any amendment thereto do not contain, and will
not contain, any untrue statement of a material fact and do not omit, and will
not omit, to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(g) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company, at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the periods
involved, except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement present fairly the
information shown therein and such data have been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company.
(h) The accounting firms that have certified certain of the financial
statements filed with the Commission as part of the Registration Statement are
independent public accountants as required by the Act and the Rules and
Regulations.
(i) There is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened against the Company
before any court, administrative agency, self-regulatory body or otherwise which
if determined adversely to the Company might result in any material adverse
change in the earnings, business, management, properties, assets, rights,
operations, or condition (financial or otherwise) or prospects of the Company
and its subsidiaries taken as a whole, whether or not arising in the ordinary
course of business (a "Material Adverse Change") or prevent the consummation of
the transactions contemplated hereby, except as set forth in the Registration
Statement.
(j) The Company has good and valid title to all of the properties and
assets reflected in the financial statements (or as described in the
Registration Statement) hereinabove
<PAGE> 5
described, subject to no security interest, lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial statements and
the related notes thereto (or as described in the Registration Statement) or
which are not material in amount. The Company occupies its leased properties
under valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement.
(k) The Company has filed all federal, state, local and foreign
income tax returns which have been required to be filed or timely filed for
extension of the filing of such returns and has paid all taxes indicated by said
returns and all assessments received by them to the extent that such taxes have
become due. All tax liabilities have been adequately provided for in the
financial statements of the Company, and the Company does not know of any actual
or proposed additional material tax assessments relating to any of its
historical periods.
(l) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, to date there
has not been any Material Adverse Change or any development involving a
prospective Material Adverse Change, whether or not occurring in the ordinary
course of business, and since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, to
date there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(m) The Company is not, or with the giving of notice or lapse of time
or both, will not be, in violation of or in default under its corporate charter
or by-laws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any of its
properties, is bound and which default would have a Material Adverse Effect.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the NASD or such additional steps as may be necessary to qualify the Shares for
public offering by the Underwriters under state securities laws) has been
obtained and is in full force and effect.
(o) The Company holds all material licenses, certificates and permits
from governmental authorities which are necessary to the conduct of its
business; the Company owns or possesses the right to use all patents, patent
rights, trademarks, trade names, service marks, service names, copyrights,
license rights, know-how (including trade secrets and other unpatented and
unpatentable proprietary or confidential information, systems or procedures) and
other intellectual property rights ("Intellectual Property") necessary to carry
on its business in all material respects;
<PAGE> 6
the Company has not, to its knowledge, infringed, and the Company has not
received notice of conflict with, any Intellectual Property of any other person
or entity. The Company has taken all reasonable steps necessary to secure
interests in such Intellectual Property from its contractors. There are no
outstanding options, licenses or agreements of any kind relating to the
Intellectual Property of the Company that are required to be described in the
Prospectus and are not described in all material respects. The Company is not a
party to or bound by any options, licenses or agreements with respect to the
Intellectual Property of any other person or entity that are required to be set
forth in the Prospectus and are not described in all material respects. None of
the technology employed by the Company has been obtained or is being used by the
Company in violation of any contractual obligation binding on the Company or, to
its knowledge, any of its officers, directors or employees or otherwise in
violation of the rights of any persons; the Company has not received any written
or oral communications alleging that the Company has violated, infringe or
conflicted with, or, by conducting its business as set forth in the Prospectus,
would violate, infringe or conflict with, any of the Intellectual Property of
any other person or entity. The Company knows of no infringement by others of
Intellectual Property owned by or licensed to the Company.
(p) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
(q) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder (the "1940 Act").
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as is customary for
companies in the software industry.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any
<PAGE> 7
"pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company would
have any liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(u) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its principal
suppliers, customers or vendors, which, in any case, may reasonably be expected
to result in a Material Adverse Effect.
(v) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
(w) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater security holders.
(x) Other than as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Act.
(y) The Company has not been advised, and has no reason to believe,
that it is not conducting business in compliance with all applicable laws, rules
and regulations, of the jurisdictions in which it is conducting business
including, without limitation, all applicable local, state and federal laws and
regulations, except where the failure to so comply would not have a Material
Adverse Effect.
(z) No consent, approval, authorization or order of, or qualification
with, any governmental body or agency, other than those obtained, is required in
connection with the offering of the Directed Shares in any jurisdiction where
the Directed Shares are being offered. The Company has not offered, or caused
DBSI or its affiliates to offer, Shares to any person pursuant to the Directed
Share Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type of
business with the Company, or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
<PAGE> 8
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in SCHEDULE I hereof,
subject to adjustments in accordance with Section 11 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds against delivery of certificates therefor for the
several accounts of the Underwriters through the facilities of the Depository
Trust Company, New York, New York at a closing to be held at the offices of
Testa, Hurwitz & Thibeault, LLP, at 10:00 a.m., Eastern time, on the third
business day after the date of this Agreement or at such other time and date not
later than five business days thereafter as you and the Company shall agree
upon, such time and date being herein referred to as the "Closing Date." (As
used herein, "business day" means a day on which the New York Stock Exchange is
open for trading and on which banks in New York are open for business and are
not permitted by law or executive order to be closed.)
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) from time
to time thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares purchased, adjusted by you
in such manner as to avoid fractional shares. The option with respect to the
Option Shares granted hereunder may be exercised only to cover over-allotments
in the sale of the Firm Shares by the Underwriters. You, as Representatives of
the several Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in the same manner as payment for the
Firm Shares.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be
<PAGE> 9
initially offered to the public at the initial public offering price set forth
in the Prospectus. The Representatives may from time to time thereafter change
the public offering price and other selling terms. To the extent, if at all,
that any Option Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (iii) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided that the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
<PAGE> 10
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Representatives, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) Prior to the Closing Date, the Company will furnish to the
Representatives, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities
<PAGE> 11
exchange pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Exchange Act.
(i) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of DBSI, except that the Company
may, without such consent, (A) issue shares upon exercise of options issued
pursuant to the Company's currently existing stock-based compensation plans and
(B) grant options, offer to sell and sell shares of its Common Stock to its
employees, directors and consultants pursuant to its currently existing
stock-based compensation plans.
(j) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq National Market.
(k) The Company has caused each officer and director and specific
shareholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to sell, offer
or contract to sell, sell short or otherwise dispose of any shares of Common
Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for Common Shares or
derivative of Common Shares owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of 180 days after the date of
this Agreement, directly or indirectly, except with the prior written consent of
DBSI ("Lockup Agreements").
(l) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(m) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company to register as an investment company under the 1940 Act.
(n) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(o) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
<PAGE> 12
(p) The Company will comply with all applicable securities and other
applicable laws, rules and regulations in each jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement, including the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as reasonably requested by,
the Underwriters copies of the Registration Statement, Preliminary Prospectuses,
the Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees and expenses (including reasonable legal fees and disbursements)
incident to securing any required review by the NASD of the terms of the sale of
the Shares; the listing fee of the Nasdaq National Market; and the expenses,
including the reasonable fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under State
securities or Blue Sky laws. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Company. The Company
shall not, however, be required to pay for any of the Underwriters' expenses
(other than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or by
reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on their part to be performed, unless such failure
to satisfy said condition or to comply with said terms be due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; provided, however, that the Company shall not in
any event be liable to any of the several Underwriters for damages on account of
loss of anticipated profits from the sale by it of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of its covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order
<PAGE> 13
suspending the effectiveness of the Registration Statement, as amended from time
to time, shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission and no injunction, restraining order, or order of any nature by a
Federal or state court of competent jurisdiction shall have been issued as of
the Closing Date or Option Closing Date, as the case may be, which would prevent
the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Hill & Barlow,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; and the Company is duly
qualified to transact business in all jurisdictions in which the conduct of
their business requires such qualification, or in which the failure to qualify
would have a Material Adverse Effect.
(ii) The Company has authorized and outstanding capital stock as
set forth (under the caption "Capitalization") in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus in all material respects; the
certificates for the Shares, assuming they are in the form filed with the
Commission, are in due and proper form; the shares of Common Stock to be sold by
the Company pursuant to this Agreement have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and paid for as
contemplated by this Agreement; and to its knowledge no preemptive rights of
stockholders exist with respect to any of the Shares or the issue or sale
thereof.
(iii) Except as described in or contemplated by the Prospectus,
to its knowledge there are no outstanding securities of the Company convertible
or exchangeable into or evidencing the right to purchase or subscribe for any
shares of capital stock of the Company and there are no outstanding or
authorized options, warrants or rights of any character obligating the Company
to issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of such stock; and except as described in the Prospectus, to its
knowledge no holder of any securities of the Company or any other person has the
right, contractual or otherwise, which has not been satisfied or effectively
waived, to cause the Company to sell or otherwise issue to them, or to permit
them to underwrite the sale of, any of the Shares or the right to have any
Common Shares or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration Statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company.
<PAGE> 14
(iv) They have been advised by the Commission that the
Registration Statement has become effective under the Act and, to its best
knowledge, no stop order proceedings with respect thereto have been instituted
or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act or the Exchange Act, as applicable and the
applicable rules and regulations thereunder (except that such counsel need
express no opinion as to the financial information, including the financial
statements, statistical information and related schedules in the Registration
Statement or the Prospectus, as the case may be).
(vi) The statements under the captions "Shares Eligible For
Future Sale" and "Description of Capital Stock" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or matters
of law, fairly summarize in all material respects the information called for
with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth in the
Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or bylaws of the Company, or any
material agreement or instrument known to such counsel to which the Company is a
party or by which the Company may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by state securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
<PAGE> 15
In rendering such opinion Hill & Barlow may rely as to matters of fact upon
certificates of officers of the Company, and as to matters governed by the laws
of states other than Delaware or Federal laws on local counsel in such
jurisdictions, provided that in each case Hill & Barlow shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
information, including financial statements, schedules and statistical
information in the Registration Statement or the Prospectus, as the case may
be). With respect to such statement, such counsel may state that their belief is
based upon the procedures set forth therein, including reliance upon
certificates of officers of the Company, but is without independent check and
verification.
(c) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (ii), (iii) and (iv) of Paragraph (b) of this Section
6, and that the Company is a duly organized and validly existing corporation
under the laws of the State of Delaware and with respect to any other matters
that the Representatives may reasonably require. In rendering such opinion
Testa, Hurwitz & Thibeault, LLP may rely as to all matters governed other than
by the laws of the Commonwealth of Massachusetts or Federal laws on the opinion
of counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, or any amendment thereto, as of
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
information, including the financial statements, schedules and statistical
information therein). With respect to such statement, such counsel may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
<PAGE> 16
(d) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of the auditing firms that have audited any
financial statements contained in the Registration Statement, confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) To the best of his knowledge after reasonable investigation,
the representations and warranties of the Company contained in Section 1 hereof
are true and correct as of the Closing Date or the Option Closing Date, as the
case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement
and the Prospectus and, to the best of his knowledge after reasonable
investigation, as of the effective date of the Registration Statement, the
statements contained in the Registration Statement were true and correct in all
material respects, and such Registration Statement and Prospectus did not omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, to the best of his knowledge after
reasonable investigation, there has not been any Material Adverse Change or any
development involving a prospective Material Adverse Change in or affecting the
condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, condition
<PAGE> 17
(financial or otherwise) or prospects of the Company, whether or not arising in
the ordinary course of business.
(f) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(g) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the NASDAQ National Market.
(h) The Lockup Agreements described in Section 5 are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to counsel
for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the Shares required to
be delivered as and when specified in this Agreement are subject to the
conditions that at the Closing Date or the Option Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances
<PAGE> 18
under which they were made; provided, however, that the Company will not be
liable (x) in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof and (y) with respect to any untrue statement contained in or
any omission from a Preliminary Prospectus of the untrue statement or omission
from a Preliminary Prospectus was corrected in the applicable Prospectus and the
person asserting any loss, liability, claim or damage was not given or sent a
copy of the applicable Prospectus in the manner and at such time as required by
the Act, provided the Company has furnished you with copies of the applicable
Prospectus. This indemnity obligation will be in addition to any liability which
the Company may otherwise have.
The Company agrees to reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling person is
a party to any action or proceeding. In the event that it is finally judicially
determined that the Underwriters were not entitled to receive payments for legal
and other expenses pursuant to this subparagraph, the Underwriters will promptly
return all sums that had been advanced pursuant hereto.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
<PAGE> 19
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the indemnified
party in the event (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel, (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have failed to
assume the defense and employ counsel acceptable to the indemnified party within
a reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) The Company agrees to indemnify and hold harmless DBSI and its
affiliates and each person, if any, who controls DBSI or its affiliates within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i)
<PAGE> 20
caused by any untrue statement or alleged untrue statement of a material fact
contained in any material prepared by or with the consent of the Company for
distribution to Participants in connection with the Directed Share Program, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; (ii) caused by the failure of any Participant to pay for and accept
delivery of Directed Shares that the Participant has agreed to purchase; or
(iii) related to, arising out of, or in connection with the Directed Share
Program other than losses, claims, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith, willful misconduct or gross negligence of DBSI.
(e) To the extent the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(e). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection 8(e), (i) no Underwriter shall be required to contribute any amount
in excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning
<PAGE> 21
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 8(e) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements of the Company and the Underwriters
contained in this Section 8 and the representations and warranties of the
Company set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or any persons controlling the Company, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, its directors or
officers, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company), you, as Representatives of
the Underwriters, shall use your reasonable efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered
<PAGE> 22
hereby, the Company or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or the Company except to the extent provided in
Section 8 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as you,
as Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, faxed or telegraphed and
confirmed as follows: if to the Underwriters, to Deutsche Bank Securities Inc.,
One South Street, Baltimore, Maryland 21202, Attention: Syndicate Department;
with a copy to Deutsche Bank Securities, Inc., 31 West 52nd Street, New York,
New York 10019, Attention: General Counsel; if to the Company, to Eprise
Corporation, 1671 Worcester Road, Framingham, MA 01701, Attention: Chief
Financial Officer; with a copy to Hill & Barlow, One International Place,
Boston, MA 02110, Attention: Dennis W. Townley.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, excluding any amendment or supplement
thereto after the date hereof, any Material Adverse Change or any development
involving a prospective Material Adverse Change, whether or not arising in the
ordinary course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or Nasdaq-Amex or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension of trading of the Company's common stock by the
Commission, Nasdaq or any other governmental authority; or (vii) the taking of
any action by any governmental body or agency in respect of its
<PAGE> 23
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
(a) The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the Company
or its directors or officers and (iii) delivery of and payment for the Shares
under this Agreement.
(b) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(c) This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts.
[Remainder of page intentionally left blank.]
<PAGE> 24
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
EPRISE CORPORATION
By: __________________
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
DEUTSCHE BANK SECURITIES INC.
DAIN RAUSCHER WESSELS, A DIVISION OF DAIN RAUSCHER INCORPORATED
SOUNDVIEW TECHNOLOGY GROUP, INC.
As Representatives of the several Underwriters listed on Schedule I
By: DEUTSCHE BANK SECURITIES INC.
By: ___________________________
Authorized Officer
<PAGE> 25
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares to be
Underwriter Purchased
- ----------- ---------------------------
<S> <C>
Deutsche Bank Securities Inc.................................................
Dain Rauscher Incorporated...................................................
Soundview Technology Group, Inc..............................................
Total....................................................
------------
============
</TABLE>
<PAGE> 1
EXHIBIT 3.2
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF EPRISE CORPORATION
Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware
The undersigned, Joseph A. Forgione, certifies that he is President of
Eprise Corporation, a corporation organized and existing under the laws of the
State of Delaware, and does hereby further certify as follows:
1. The name of the corporation is Eprise Corporation (the
"Corporation"). The name of the Corporation at the time of its incorporation was
Inner Circle Technologies, Inc. The Certificate of Incorporation of the
Corporation, as subsequently amended, was filed in the office of the Secretary
of State of the State of Delaware on September 24, 1992.
2. At a meeting held on January 5, 2000, the Board of Directors
recommended this Fourth Amended and Restated Certificate of Incorporation to the
stockholders for approval as being advisable and in the best interests of the
Corporation.
3. In accordance with Section 228 of the General Corporation Law of the
State of Delaware, this Fifth Amended and Restated Certificate of Incorporation
has been duly approved by written consent of the holders of not less than (i) a
majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote thereon and (ii) a majority of the issued and
outstanding shares of each series entitled to vote thereon as a class.
4. This Fifth Amended and Restated Certificate of Incorporation
restates and integrates and further amends the certificate of incorporation of
the Corporation, as heretofore amended or supplemented.
The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, is amended and restated in its entirety as follows:
FIRST: The name of the Corporation is Eprise Corporation.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
<PAGE> 2
FOURTH: The Corporation shall have authority to issue 100,163,366
shares of capital stock, consisting of (i) Fifty-Eight Million Five Hundred
Thousand (58,500,000) shares of Common Stock with a par value of $.001 per
share, (ii) Ten Million Eight Hundred Forty-Two Thousand Nine Hundred Twenty
(10,842,920) shares of Series A Convertible Preferred Stock with a par value of
$.01 per share (the "Series A Preferred Stock"), (iii) Fourteen Million Three
Hundred Twenty Thousand Four Hundred Forty-Six (14,320,446) shares of Series B
Convertible Preferred Stock with a par value of $.01 per share (the "Series B
Preferred Stock") and (iv) Sixteen Million Five Hundred Thousand (16,500,000)
shares of Series C Convertible Preferred Stock with a par value of $.01 per
share (the "Series C Preferred Stock," and, together with the Series A Preferred
Stock and the Series B Preferred Stock, the "Preferred Stock"), amounting to an
aggregate par value of $475,134.
The powers, preferences and rights, and qualifications, limitations and
restrictions thereof, in respect of each class or series of stock of the
Corporation shall be as follows:
Section 1. Voting Rights.
Except as otherwise required by law or hereinafter set forth, the
holders of Preferred Stock shall vote together with all other classes and series
of stock of the Corporation as one class upon any matter submitted to the
stockholders for a vote, including, but not limited to, actions amending the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock.
Each share of Preferred Stock shall entitle the holder thereof to such
number of votes per share on each such action as shall equal the number of
shares of Common Stock into which each such share of Preferred Stock held by
such holder could be converted on the date for determination of stockholders
entitled to vote at the meeting or on the date of any written consent.
Section 2. Dividends.
When and as dividends are declared payable in cash, property or shares
of the Corporation's capital stock on shares of Common Stock, the Corporation
shall (except as otherwise provided in Subsection 4.4) declare at the same time
and pay, pari passu to each holder of Preferred Stock, a dividend equal to the
dividend which would have been payable to such holder if the shares of Preferred
Stock held by such holder had been converted into Common Stock on the record
date for the determination of holders of Common Stock entitled to receive such
dividend.
Section 3. Liquidation.
3.1 Liquidation Payments.
3.1.1 In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
shares of Series C Preferred Stock
2
<PAGE> 3
shall be entitled to be paid first out of the assets of the Corporation
available for distribution to holders of the Corporation's capital stock of all
classes an amount equal to $1.54 per share of Series C Preferred Stock (which
amount shall be subject to equitable adjustment whenever there shall occur a
stock dividend, stock split, combination of shares, reclassification or other
similar event with respect to the Series C Preferred Stock), plus all dividends
accrued or declared but unpaid thereon, to and including the date on which full
payment shall be tendered to the holders of the Series C Preferred Stock with
respect to such liquidation, dissolution or winding up (such aggregate amount,
the "Series C Liquidation Payments").
If the assets of the Corporation shall be
insufficient to permit the payment in full of the Series C Liquidation Payments,
then the entire assets of the Corporation available for such distribution shall
be distributed ratably among the holders of the Series C Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive under this Subsection 3.1.1.
3.1.2 In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after payment
in full of the Series C Liquidation Payments, the holders of shares of Series A
Preferred Stock and Series B Preferred Stock shall be entitled to be paid out of
the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes the following amounts:
(a) in the case of the Series A Preferred
Stock, an amount equal to $.49695 per share of Series A Preferred Stock (which
amount shall be subject to equitable adjustment whenever there shall occur a
stock dividend, stock split, combination of shares, reclassification or other
similar event with respect to the Series A Preferred Stock), plus all dividends
accrued or declared but unpaid thereon, to and including the date on which full
payment shall be tendered to the holders of the Series A Preferred Stock with
respect to such liquidation, dissolution or winding up;
(b) in the case of the Series B Preferred
Stock, an amount equal to $0.60 per share of Series B Preferred Stock (which
amount shall be subject to equitable adjustment whenever there shall occur a
stock dividend, stock split, combination of shares, reclassification or other
similar event with respect to the Series B Preferred Stock), plus all dividends
accrued or declared but unpaid thereon, to and including the date on which full
payment shall be tendered to the holders of the Series B Preferred Stock with
respect to such liquidation, dissolution or winding up.
If the assets of the Corporation remaining
after payment in full of the Series C Liquidation Payments shall be insufficient
to permit the payment in full to the holders of the Series A Preferred Stock and
Series B Preferred Stock of all amounts distributable to them under this
Subsection 3.1.2, then the entire remaining assets of the Corporation available
for such distribution shall be distributed ratably among the holders of the
Series A Preferred Stock and Series B Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive under this
Subsection 3.1.2.
3
<PAGE> 4
3.1.3 After the payments described in Subsections
3.1.1 and 3.1.2 shall have been made in full to the holders of the Preferred
Stock, or funds necessary for such payments shall have been set aside by the
Corporation in trust for the account of holders of Preferred Stock so as to be
available for such payments, the remaining assets available for distribution
shall be distributed among the holders of the Preferred Stock and the Common
Stock ratably in proportion to the number of shares of Common Stock then held by
them or issuable to them upon conversion of the Preferred Stock then held by
them.
3.1.4 Upon conversion of shares of Preferred Stock
into shares of Common Stock pursuant to Section 4 below, the holders of such
Common Stock shall not be entitled to any preferential payment or distribution
in case of any liquidation, dissolution or winding up of the Corporation, but
shall share ratably in any distribution of the assets of the Corporation to all
the holders of Common Stock.
3.1.5 The amounts payable with respect to shares of
Series A Preferred Stock and Series B Preferred Stock under this Subsection 3.1
are sometimes hereinafter referred to as "Series A Liquidation Payments" and
"Series B Liquidation Payments," respectively, and together with the Series C
Liquidation Payments are sometimes hereinafter referred to as the "Liquidation
Payments."
3.2 Distributions Other than Cash. Whenever the distributions
provided for in this Section 3 shall be payable in property other than cash, the
value of such distributions shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Corporation.
3.3 Merger as Liquidation, etc. The merger or consolidation of
the Corporation into or with another corporation (except one in which the
holders of capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold at least fifty percent (50%) in voting power
(assuming conversion of all convertible securities and exercise of all
outstanding options and warrants) of the capital stock of the surviving
corporation, in which case the provisions of Subsection 4.6 shall apply), or the
sale of all or substantially all of the assets of the Corporation (other than to
a corporation in which holders of the capital stock of the Corporation hold at
least fifty percent (50%) in voting power (assuming conversion of all
convertible securities and exercise of all outstanding options and warrants) of
the capital stock), shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this Section 3 with respect to (1) the
Series C Preferred Stock unless the holders of at least 51% of the then
outstanding shares of Series C Preferred Stock (voting as a separate class)
elect to the contrary and (2) the Series A Preferred Stock and Series B
Preferred Stock unless the holders of at least 51% of the then outstanding
shares of Series A Preferred Stock and Series B Preferred Stock (voting as a
single class) elect to the contrary, any such election to be made by giving
written notice thereof to the Corporation at least three days before the
effective date of such event. If such notice is given, the provisions of
Subsection 4.6 shall apply to the series of Preferred Stock which have provided
such notice. Unless such election is made, any consideration received by the
holders of the Preferred Stock as a result of such merger or consolidation shall
be deemed to be applied toward, and all consideration received by the
4
<PAGE> 5
Corporation in such asset sale together with all other available assets of the
Corporation shall be distributed toward, the Liquidation Payments attributable
to each such series of Preferred Stock, respectively, as set forth in Subsection
3.1. If such consideration is in the form of property, rights, or other
securities, the value of such property, rights, or other securities shall be
determined in good faith by the Board of Directors of the Corporation.
3.4 Notice. Written notice of any proposed liquidation,
dissolution or winding up of the Corporation (including any merger,
consolidation or sale of assets which may be deemed to be a liquidation,
dissolution or winding up of the Corporation under Subsection 3.3), stating a
payment date, the amount of the Liquidation Payments and the place where said
Liquidation Payments shall be payable, shall be given to the holders of record
of the Preferred Stock by first class mail, postage prepaid, or by fax or DHL,
Federal Express or other recognized express international courier service in the
case of non-U.S. stockholders, not less than twenty (20) days prior to the
payment date stated therein, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. Any holder of
outstanding shares of Preferred Stock may waive any notice required by this
Subsection by a written document specifically indicating such waiver.
Section 4. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights");
4.1 Voluntary Conversion
4.1.1 Right to Convert; Conversion Price for Series A
Preferred Stock. Each share of Series A Preferred Stock shall be convertible,
without the payment of any additional consideration by the holder thereof and at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the Series A
Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $.49695 by the "Series A Conversion
Price," determined as hereinafter provided, in effect at the time of conversion.
The Series A Conversion Price at which shares of Common Stock shall be
deliverable upon conversion without the payment of any additional consideration
by the holders of Series A Preferred Stock shall initially be $.49695 per share
(the "Series A Conversion Price"). The initial Series A Conversion Price shall
be subject to adjustment, in order to adjust the number of shares of Common
Stock into which the Series A Preferred Stock is convertible, as provided in
Subsection 4.3.
4.1.2 Right to Convert; Conversion Price for Series B
Preferred Stock. Each share of Series B Preferred Stock shall be convertible,
without the payment of any additional consideration by the holder thereof and at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the Series B
Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $.60 by the "Series B Conversion
Price," determined as hereinafter provided, in effect at the time of conversion.
The Series B Conversion Price at which shares of Common Stock shall be
deliverable upon conversion without the payment of any additional consideration
by the holders of Series A Preferred Stock shall initially
5
<PAGE> 6
be $.60 per share (the "Series B Conversion Price"). The initial Series B
Conversion Price shall be subject to adjustment, in order to adjust the number
of shares of Common Stock into which the Series B Preferred Stock is
convertible, as provided in Subsection 4.3.
4.1.3 Right to Convert; Conversion Price for Series C
Preferred Stock. Each share of Series C Preferred Stock shall be convertible,
without the payment of any additional consideration by the holder thereof and at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the Series C
Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $1.54 by the "Series C Conversion
Price," as defined below, in effect at the time of conversion. The Series C
Conversion Price at which shares of Common Stock shall be deliverable upon
conversion without the payment of any additional consideration by the holders of
Series C Preferred Stock shall initially be $1.54 per share (the "Series C
Conversion Price"). The initial Series C Conversion Price shall be subject to
adjustment, in order to adjust the number of shares of Common Stock into which
the Series C Preferred Stock is convertible, as provided in Subsection 4.3.
4.1.4 Mechanics of Voluntary Conversion. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed for transfer or with duly executed stock transfer powers
sufficient to permit transfer attached, at the office of the Corporation or of
any transfer agent for the Preferred Stock (or such holder shall notify the
Corporation or any transfer agent that such certificates have been lost, stolen
or destroyed and shall execute an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith), and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state therein such
holder's name or the name or names of such holder's nominees in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. No fractional shares of Common Stock shall be issued upon conversion of
the Preferred Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Preferred Stock, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid, together with cash in lieu of any fraction of a share.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificates for the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
4.2 Automatic Conversion
4.2.1 Conversion by Two-Thirds Vote. Each share of
Series A Preferred Stock and Series B Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Series A Conversion
Price or Series B Conversion Price, respectively,
6
<PAGE> 7
if the holders of at least two-thirds of the then outstanding Series A Preferred
Stock and Series B Preferred Stock, voting as a single class, shall so elect by
giving written notice of such election to the Corporation. Each share of Series
C Preferred Stock shall automatically be converted into shares of Common Stock
at the then effective Series C Conversion Price if the holders of at least
two-thirds of the then-outstanding Series C Preferred Stock, voting as a
separate class, shall so elect by giving written notice of such election to the
Corporation. Any such conversion shall be deemed to have occurred immediately
after the close of business on the later of the date specified in such notice or
the date such written notice is actually received by the Corporation.
4.2.2 Conversion Upon Qualifying Public Offering.
(a) Each share of Series A Preferred Stock
and Series B Preferred Stock shall automatically be converted into shares of
Common Stock at the then effective Series A Conversion Price or Series B
Conversion Price, respectively, upon the closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public at an initial public offering price per
share of not less than $2.50 (subject to equitable adjustment in the event of
any stock split, stock dividend, combination or reclassification of shares or
other similar event) and with net proceeds to the Corporation of not less than
$15,000,000 (a "Series A and B Qualifying Initial Public Offering"). In the
event of a Series A and B Qualifying Initial Public Offering, the holders
entitled to receive the Common Stock issuable upon such conversion of the Series
A Preferred Stock and Series B Preferred Stock shall not be deemed to have
converted such Preferred Stock until the closing of the Series A and B
Qualifying Initial Public Offering.
(b) Each share of Series C Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series C Conversion Price upon the closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public at an initial public offering price per
share of not less than $3.08 (subject to equitable adjustment in the event of
any stock split, stock dividend, combination or reclassification of shares or
other similar event) and with net proceeds to the Corporation of not less than
$15,000,000 (a "Series C Qualifying Initial Public Offering"). In the event of a
Series C Qualifying Initial Public Offering, the holders entitled to receive the
Common Stock issuable upon such conversion of the Series C Preferred Stock shall
not be deemed to have converted their Series C Preferred Stock until the closing
of the Series C Qualifying Initial Public Offering.
4.2.3 Conversion Upon Conversion of 90% of
Preferred Stock.
(a) Each share of Series A Preferred Stock
and Series B Preferred Stock then outstanding shall automatically be converted
into shares of Common Stock at the then-effective Series A Conversion Price or
Series B Conversion Price, respectively, upon the conversion of ninety percent
(90%) or more of the authorized Series A Preferred Stock and Series B Preferred
Stock (measured as a single class). Such conversion shall be deemed to have
7
<PAGE> 8
occurred on the date upon which the aggregate number of shares of Series A
Preferred Stock and Series B Preferred Stock which have been converted to Common
Stock equals or exceeds ninety percent (90%) of the aggregate authorized Series
A Preferred Stock and Series B Preferred Stock.
(b) Each share of Series C Preferred Stock
then outstanding shall automatically be converted into shares of Common Stock at
the then-effective Series C Conversion Price upon the conversion of ninety
percent (90%) or more of the authorized Series C Preferred Stock. Such
conversion shall be deemed to have occurred on the date upon which the number of
shares of Series C Preferred Stock which have been converted to Common Stock
equals or exceeds ninety percent (90%) of the aggregate authorized Series C
Preferred Stock.
4.2.4 Mechanics of Automatic Conversion. Upon an
automatic conversion pursuant to this Subsection 4.2, all shares of the
applicable series of Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of the Preferred Stock
being converted are either delivered to the Corporation or its transfer agent,
or the holder of such shares notifies the Corporation or any transfer agent that
such certificates have been lost, stolen, or destroyed and executes an agreement
reasonably satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith. Upon the delivery of such
certificates, at the office of the Corporation or of its transfer agent, or upon
the execution and delivery to the Corporation of such agreement, there shall be
issued and delivered to such holder, promptly at such office and in the name as
shown on such surrendered certificate or certificates or specified in such
agreement, a certificate or certificates for the number of shares of Common
Stock into which the shares of the Preferred Stock surrendered were convertible
on the date on which such automatic conversion occurred. No fractional shares of
Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
4.3 Adjustments to Conversion Price for Diluting
Issuances
4.3.1 Special Definitions. For purposes of this
Subsection 4.3, the following definitions shall apply:
(a) "Option" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible
Securities.
(b) "Original Issue Date" shall mean the first date on which a share of
the applicable series of Preferred Stock was issued.
8
<PAGE> 9
(c) "Convertible Securities" shall mean any evidences of indebtedness,
shares (other than shares of Common Stock and Preferred Stock) or other
securities directly or indirectly convertible into or exchangeable for
Common Stock.
(d) "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued (or, pursuant to Subsection 4.3.3, deemed to be issued) by
the Corporation after the applicable Original Issue Date, other than:
(i) up to 10,842,940 shares of Common Stock issued or issuable
upon conversion of shares of Series A Preferred Stock,
provided that the number of shares referred to in this clause
shall be appropriately adjusted to give effect to any changes
in the Series A Conversion Price pursuant to the antidilution
provisions of this Section 4;
(ii) up to 14,320,446 shares of Common Stock issued or
issuable upon conversion of shares of Series B Preferred
Stock, provided that the number of shares referred to in this
clause shall be appropriately adjusted to give effect to any
changes in the Series B Conversion Price pursuant to the
antidilution provisions of this Section 4;
(iii) up to 16,500,000 shares of Common Stock issued or
issuable upon conversion of shares of Series C Preferred
Stock, provided that the number of shares referred to in this
clause shall be appropriately adjusted to give effect to any
changes in the Series C Conversion Price pursuant to the
antidilution provisions of this Section 4; and
(iv) such number of shares of Common Stock as may be issued or
issuable to officers, employees or directors of the
Corporation pursuant to either a stock purchase or option plan
or other employee stock bonus arrangement approved by the
directors of the Corporation (appropriately adjusted to take
account of any stock split, stock dividend, combination of
shares or the like); provided, however, that such options or
purchases must be granted or made at fair market value and
approved by the Board of Directors, and the maximum number of
shares issuable under any such arrangement must be approved by
the holders of a majority in interest of the Preferred Stock,
voting as a single class; and provided, further, that the
issuance of up to 8,152,614 shares of Common Stock under
option plans in effect as of November 3, 1999 (less any
issuances to date under such plans) is deemed approved by the
holders of Series C Preferred Stock.
4.3.2 No Adjustment of Conversion Price. No
adjustment in the number of shares of Common Stock into which the Preferred
Stock is convertible shall be made, by adjustment in the Conversion Price for
any series of Preferred Stock (referred to generally as a "Series Conversion
Price"), in respect of the issuance of Additional Shares of Common Stock or
otherwise, unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
applicable Series Conversion Price in
9
<PAGE> 10
effect on the date of, and immediately prior to, the issue of such Additional
Share of Common Stock.
4.3.3 Issue or Sale of Securities Deemed Issue of
Additional Shares of Common Stock.
(a) Options and Convertible Securities. In
the event the Corporation at any time or from time to time after the applicable
Original Issue Date shall issue or sell any Options or Convertible Securities
(other than those excluded from the definition of Additional Shares of Common
Stock in Subsection 4.3.1(d) pursuant to clause (iv) thereof) or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or sale or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4.3.5 hereof)
received for such Additional Shares of Common Stock would be less than any
Series Conversion Price in effect on the date of and immediately prior to such
issue or sale or such record date, as the case may be, and shall be deemed to be
Additional Shares of Common Stock only with respect to the series of Preferred
Stock as to which the consideration received is less than the Conversion Price
therefor, and provided further that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
(i) no further adjustment in the applicable Series Conversion Price
shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion
or exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any change in the
consideration payable to the Corporation, or change in the number of
shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the applicable Series Conversion Price computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such change becoming effective, be recomputed to
reflect such change insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(iii) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Series Conversion Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
10
<PAGE> 11
(A) in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common Stock
issued were the shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, and the consideration
received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or
not exercised, plus the consideration actually received by the
Corporation upon such exercise, or for the issue of all such
Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange;
and
(B) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for
the Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received
by the Corporation (determined pursuant to Subsection 4.3.5)
upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(iv) in the case of any Options which expire by their terms not more
than 30 days after the date of issue thereof, no adjustment of the
applicable Conversion Price shall be made until the expiration or
exercise of all such Options, whereupon such adjustment shall be made
in the same manner provided in clause (iii) above; and
(v) if such record date shall have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the applicable Series Conversion Price
which became effective on such record date shall be canceled as of the
close of business on such record date, and thereafter the applicable
Series Conversion Price shall be adjusted pursuant to this Subsection
4.3.3 as of the actual date of their issuance.
(b) Stock Dividends, Stock Distributions and
Subdivisions. In the event the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock or effect a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise) then and in any such event Additional Shares of Common Stock shall be
deemed to have been issued:
(i) in the case of any such dividend or distribution, immediately after
the close of business on the record date for the determination of
holders of any class of securities entitled to receive such dividend or
distribution, or
11
<PAGE> 12
(ii) in the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which such corporate action
becomes effective.
If such record date shall have been fixed and no part of such dividend shall
have been paid on the date fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date shall be canceled as
of the close of business on such record date, and thereafter the Conversion
Price shall be adjusted pursuant to this Subsection 4.3.3 as of the time of
actual payment of such dividend. If such record date shall have been fixed and
part but not all of such dividend shall have been paid on the date fixed
therefor, the adjustment previously made in the Conversion Price which became
effective on such record date shall be revised as of the close of business on
such record date to reflect the amount of such dividend actually paid.
4.3.4 Adjustment of Series Conversion Price Upon
Issuance, Sale or Deemed Issuance of Additional Shares of Common Stock. In the
event that at any time or from time to time after the applicable Original Issue
Date, the Corporation shall issue or sell Additional Shares of Common Stock
(including, without limitation, Additional Shares of Common Stock deemed to be
issued pursuant to Subsection 4.3.3(a) but not including Additional Shares of
Common Stock deemed to be issued pursuant to Subsection 4.3.3(b) as a result of
a dividend or other distribution on the Common Stock payable in Common Stock or
a subdivision of outstanding shares of Common Stock), without consideration or
for a consideration per share less than the applicable Series Conversion Price
in effect on the date of and immediately prior to such issue or sale, then and
in such event, the applicable Series Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined in accordance with the following formula:
P(1) Q(1) + P(2) Q(2)
Conversion Price = ------------------------
Q(1) + Q(2)
where:
Conversion Price = New Conversion Price.
P(1) = Conversion Price of the applicable series of
Preferred Stock in effect immediately prior to
such new issue or sale.
Q(1) = Number of shares of Common Stock deemed
outstanding immediately prior to such new issue or
sale.
12
<PAGE> 13
P(2) = Weighted average price per share received by the
Corporation upon such new issue or sale.
Q(2) = Number of shares of Common Stock issued or sold or
deemed to have been issued in the subject
transaction.
For the purpose of this Subsection 4.3.4, (a) the number of shares of Common
Stock outstanding at any given time shall exclude shares in the treasury of the
Corporation or shares of Common Stock held for the account of the Corporation or
any of its subsidiaries and (b) all shares of Common Stock issuable upon
exercise or conversion of Options, Convertible Securities and shares of
Preferred Stock outstanding immediately prior to the issue or sale of Additional
Shares of Common Stock triggering the adjustment provided for by this Subsection
4.3.4 shall be deemed to be outstanding. Anything contained in this Subsection
4.3.4 to the contrary notwithstanding, the applicable Series Conversion Price
shall not be reduced at any time if the amount of such reduction would be an
amount less than $.01, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.01 or more.
4.3.5 Determination of Consideration. For purposes of
this Subsection 4.3, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration
shall:
(i) insofar as it consists of cash, be computed at the aggregate
amounts of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(ii) insofar as it consists of property other than cash, be computed at
the fair market value thereof at the time of such issue or sale, as
determined in good faith by the Board of Directors; and
(iii) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (i) and
(ii) above, as determined in good faith by the Board of Directors.
(b) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4.3.3(a) relating
to Options and Convertible Securities shall be determined by dividing (x) the
total amount, if any, received or receivable as consideration for the issue of
such Options or Convertible Securities plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any
13
<PAGE> 14
provision contained therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities by (y) the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
4.3.6 Adjustment for Dividends, Distributions, or
Subdivisions, Combinations or Consolidations
of Common Stock.
(a) Stock Dividends, Distributions or
Subdivisions. In the event Additional Shares of Common Stock shall be deemed to
have been issued in a dividend or other distribution on the Common Stock payable
in Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise) described in Subsection 4.3.3(b), the applicable
Series Conversion Price in effect immediately prior to the record date or
effectiveness, as the case may be, of such dividend, distribution or subdivision
shall, concurrently with such record date or effectiveness, be proportionately
decreased.
(b) Combinations or Consolidations. In the
event the outstanding shares of Common Stock shall be combined or consolidated
(by reclassification or otherwise) into a lesser number of shares of Common
Stock, the applicable Series Conversion Price in effect immediately prior to
such combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
4.4 Adjustments for Certain Dividends and Distributions. In
the event that at any time or from time to time after the applicable Original
Issue Date the Corporation shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion thereof in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation that they would have received had their Preferred
Stock been converted into Common Stock on the date of and immediately prior to
such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities receivable
by them as aforesaid during such period, giving application during such period
to all adjustments called for herein.
4.5 Adjustment for Reclassification, Exchange, or
Substitution. In the event that at any time or from time to time after the
applicable Original Issue Date, the Common Stock issuable upon the conversion of
the Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a merger, consolidation, or sale
of assets provided for below), then and in
14
<PAGE> 15
each such event the holder of each such share of Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by a holder of the number of shares of Common
Stock into which such share of Preferred Stock might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
4.6 Adjustment for Merger, Consolidation or Sale of Assets. In
the event that at any time or from time to time after the applicable Original
Issue Date, the Corporation shall merge or consolidate with or into another
entity or sell all or substantially all of its assets (other than a
consolidation, merger or sale which is treated as a liquidation pursuant to
Subsection 3.3), each share of Preferred Stock shall thereafter be convertible
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Preferred Stock would have been entitled
upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of Preferred Stock, to the end
that the provisions set forth in this Section 4 (including provisions with
respect to changes in and other adjustments of the Series Conversion Prices)
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of the Preferred Stock.
4.7 No Impairment. The Corporation shall not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
shall at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
4.8 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Series Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each affected
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any affected holder of Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of each share
of Preferred Stock.
4.9 Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof
15
<PAGE> 16
who are entitled to receive any dividend (other than a cash dividend which is
the same as cash dividends paid in previous quarters) or other distribution, the
Corporation shall mail to each holder of Preferred Stock at least ten (10) days
prior to such record date a notice specifying the date on which any such record
is to be taken for the purpose of such dividend or distribution.
4.10 Common Stock Reserved. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Preferred Stock.
4.11 Certain Taxes. The Corporation shall pay any stamp, issue
or transfer taxes payable in connection with the conversion of the Preferred
Stock; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer to a name other than that of
the holder of the Preferred Stock.
4.12 Closing of Books. The Corporation shall at no time close
its transfer books against the transfer of any shares of Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any shares
of Preferred Stock in any manner which interferes with the timely conversion or
transfer of such Preferred Stock or Common Stock, unless otherwise required by
law.
Section 5. Redemption.
5.1 At the written election of holders of a majority of the
outstanding shares of Series C Preferred Stock, made at any time on or after
December 18, 2002 (the "Series C Redemption Election"), the Corporation shall be
required to redeem all, but not less than all, of the outstanding shares of
Series C Preferred Stock in three equal annual installments, upon the terms set
forth in this Section 5. The first installment of such redemption (the "First
Series C Redemption Date") shall occur on a date specified by the electing
holders in such written election to redeem shares of Series C Preferred Stock,
which date shall not be earlier than 90 days following the date of the Series C
Redemption Election. The second and third installments of such redemption shall
occur on the first and second anniversaries of the First Series C Redemption
Date, respectively. The Corporation shall redeem one-third of the outstanding
shares of Series C Preferred Stock held by each holder on the First Series C
Redemption Date, one-third of the outstanding shares of Series C Preferred Stock
held by each holder immediately prior to the First Series C Redemption Date on
the first anniversary of the First Series C Redemption Date and the remaining
shares on the second anniversary of the First Series C Redemption Date. On each
such redemption date, the holders shall surrender the certificate or
certificates for the shares to be redeemed duly endorsed for transfer or with
duly executed stock transfer powers sufficient to permit transfer attached, at
the offices of the Corporation or of any transfer agent for the Series C
Preferred Stock. The Corporation shall, as soon as practicable thereafter, issue
and deliver to each holder a certificate or certificates for the balance of the
shares not being redeemed. The redemption price per share of the Series C
Preferred Stock shall be equal to the greater of (i) $1.54 (subject to equitable
adjustment in the event of any stock dividend, stock split, combination,
reclassification of shares or other similar event) plus all accrued but unpaid
dividends thereon, if any, at the time of such redemption and (ii) the Fair
16
<PAGE> 17
Market Value (as defined in Subsection 5.7) per share as of the date of the
Series C Redemption Election. The Series C redemption rights described in this
Subsection 5.1 shall be senior to the Series A and Series B redemption rights
set forth below. The Corporation shall not redeem any Series A Preferred Stock
or Series B Preferred Stock unless it has set aside sufficient funds to redeem
the Series C Preferred Stock in full as provided in Section 5.4 hereof.
5.2 At the written election of holders of a majority of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
acting as a single class, made at any time on or after December 18, 2002 (the
"Series A and B Redemption Election"), the Corporation shall be required to
redeem all, but not less than all, of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock in three equal annual installments,
upon the terms set forth in this Section 5. The first installment of such
redemption (the "First Series A and B Redemption Date") shall occur on a date
specified by the electing holders in such written election to redeem shares of
Series A Preferred Stock and Series B Preferred Stock, which date shall not be
earlier than 90 days following the date of the Series A and B Redemption
Election. The second and third installments of such redemption shall occur on
the first and second anniversaries of the First Series A and B Redemption Date,
respectively. The Corporation shall redeem one-third of the outstanding shares
of Series A Preferred Stock and/or Series B Preferred Stock held by each holder
on the First Series A and B Redemption Date, one-third of the outstanding shares
of such Preferred Stock held by each holder immediately prior to the First
Series A and B Redemption Date on the first anniversary of the First Series A
and B Redemption Date and the remaining shares on the second anniversary of the
First Series A and B Redemption Date. On each such redemption date, the holders
shall surrender the certificate or certificates for the shares to be redeemed
duly endorsed for transfer or with duly executed stock transfer powers
sufficient to permit transfer attached, at the offices of the Corporation or of
any transfer agent for the Series A Preferred Stock and Series B Preferred
Stock. The Corporation shall, as soon as practicable thereafter, issue and
deliver to each holder a certificate or certificates for the balance of the
shares not being redeemed. The redemption price per share of the Series A
Preferred Stock shall be equal to the greater of (i) $.49695 (subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reclassification of shares or other similar event) plus all accrued
but unpaid dividends thereon, if any, at the time of such redemption and (ii)
the Fair Market Value (as defined in Subsection 5.7) per share as of the date of
the Series A and B Redemption Election. The redemption price per share of the
Series B Preferred Stock shall be equal to the greater of (i) $.60 (subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reclassification of shares or other similar event) plus all accrued
but unpaid dividends thereon, if any, at the time of such redemption and (ii)
the Fair Market Value (as defined in Subsection 5.7) per share as of the date of
the Series A and B Redemption Election.
5.3 Notice of redemption shall be sent by first class mail,
postage prepaid, to each holder of record of the applicable series of Preferred
Stock, not less than 30 days nor more than 60 days prior to the First Redemption
Date for such series, at the address of such holder as it appears on the books
of the Corporation. Such notice shall set forth (1) the First Redemption Date
for such series, the dates of the second and third installments of such
redemption, and the place of redemption; and (ii) the number of shares to be
redeemed on each date of redemption
17
<PAGE> 18
and the redemption price on each such date, including all accrued but unpaid
dividends thereon, if any, to each redemption date. The Corporation shall be
obligated to redeem the applicable series of Preferred Stock on the dates and in
the amounts set forth in the notice; provided, however, that any holder of
Preferred Stock who is not party to a Redemption Election may convert any or all
of the shares owned by such holder into Common Stock in accordance with Section
4 at any time prior to the date of redemption of such shares. The Corporation,
if advised before the close of business on the relevant redemption date by
written notice from any holder of record of Preferred Stock to be redeemed,
shall credit against the number of shares of Preferred Stock required to be
redeemed from such holder, and shall not redeem, the number of shares of
Preferred Stock which had been converted by such holder on or before such date
and which had not previously been credited against any redemption.
5.4 If, on or before a redemption date, the funds necessary
for such redemption shall have been set aside by the Corporation and deposited
with a bank or trust company, in trust for the pro rata benefit of the holders
of the Preferred Stock that has been called for redemption, then,
notwithstanding that any certificates for shares that have been called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding from and after such
redemption date, and all rights of holders of such shares so called for
redemption shall forthwith, after such redemption date, cease and terminate with
respect to such shares, excepting only the right to receive the redemption funds
therefor to which they are entitled. Any interest accrued on funds so deposited
and unclaimed by stockholders entitled thereto shall be paid to such holders at
the time their respective shares are redeemed or to the Corporation at the time
unclaimed amounts are paid to it. In case the holders of Preferred Stock which
shall have been called for redemption shall not, within six years after the
final redemption date, claim the amounts so deposited with respect to the
redemption thereof, any such bank or trust company shall, upon demand, pay over
to the Corporation such unclaimed amounts and thereupon such bank or trust
company shall be relieved of all responsibility in respect thereof to such
holder and such holder shall look only to the Corporation for the payment
thereof. Any funds so deposited with a bank or trust company which shall not be
required for such redemption by reason of the exercise subsequent to the date of
such deposit of the right of conversion of any shares or otherwise shall be
returned to the Corporation forthwith.
5.5 If the Corporation for any reason fails to redeem any of
the shares of Preferred Stock in accordance with Subsections 5.1 and 5.2 on or
prior to the redemption dates determined in accordance with this Section 5,
then, notwithstanding anything to the contrary contained in this Certificate of
Incorporation:
5.5.1 The Corporation may not incur any indebtedness
for money borrowed (unless the proceeds of such incurrence of indebtedness are
used to make all overdue redemptions) or borrow or reborrow any amounts under
any lines of credit which it may then have outstanding without the prior written
consent of the holders of not less than two-thirds of the then outstanding
shares of the Preferred Stock required to be redeemed; and
18
<PAGE> 19
5.5.2 Notwithstanding any provision to the contrary
contained herein or in any contract or agreement to which the Corporation is a
party, the number of directors constituting the Board of Directors shall be
fixed at eight and the holders of a majority of the outstanding shares of
Preferred Stock required to be redeemed shall have the right, by written consent
or at any special or annual meeting of the stockholders of the Corporation,
voting as a separate class to the exclusion of the holders of Common Stock and
any series of Preferred Stock not being redeemed, or which is being redeemed in
accordance with the schedule set forth in Section 5.1, to elect five of the
eight directors of the Corporation. Such right shall continue until the
Corporation is no longer in default of its obligation to redeem shares of
Preferred Stock pursuant to Subsections 5.1 and 5.2. Each director elected by
the holders of shares of any Preferred Stock pursuant to this Subsection 5.5.2
(each, an "Additional Director") shall continue to serve as such director until
the date that all obligations of the Corporation pursuant to this Section 5 have
been satisfied in full, notwithstanding that prior to such date a default under
this Section 5 shall cease to exist. Any Additional Director may be removed by,
and shall not be removed except by, the written consent or vote of the holders
of record of a majority of the outstanding shares of the Preferred Stock
entitled to have originally voted for such director's election, voting together
as a separate class to the exclusion of the holders of Common Stock and any
series of Preferred Stock not being redeemed or which is being redeemed in
accordance with the schedule set forth in Section 5.1. So long as a default
under this Section 5 shall exist, any vacancy in the office of an Additional
Director shall be filled by the vote or written consent of the holders of a
majority of the outstanding shares of the Preferred Stock entitled to have
originally voted for the removed director's election, voting together as a
separate class to the exclusion of the holders of Common Stock and any series of
Preferred Stock not being redeemed, or which is being redeemed in accordance
with the schedule set forth in Section 5.1.
5.6 If the funds of the Corporation legally available for
redemption of shares of Preferred Stock on a redemption date are insufficient to
redeem the total number of shares of Preferred Stock submitted for redemption,
those funds which are legally available will be used to redeem the maximum
possible number of whole shares ratably among the holders of such shares in
proportion to the redemption amounts otherwise payable to them, subject to the
priority of the Series C Preferred Stock specified in the last sentence of
Section 5.1. The shares of Preferred Stock not redeemed shall remain outstanding
and entitled to all rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of such shares of Preferred Stock, such funds will be used, at
the end of the next succeeding fiscal quarter, to redeem the balance of such
shares, or such portion thereof for which funds are then legally available.
5.7 For the purposes of Subsections 5.1 and 5.2, the "Fair
Market Value" of each share of Preferred Stock shall be determined as follows:
if, within 20 days after the date of the applicable Redemption Election, the
Corporation and the holders of a majority of the outstanding Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be,
agree upon the fair market value of one share of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, as the case may be, then
the Fair Market Value shall be as so agreed. If the Corporation and such holders
do not agree upon the Fair Marker Value within such 20 day period but agree upon
an appraiser to determine the fair market
19
<PAGE> 20
value per share of the Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as the case may be, then such appraiser shall make
such determination and such determination shall govern. If the Corporation and
such holders do not, within such 20 day period, agree as to the Fair Market
Value or as to a single appraiser to determine the fair market value of each
share of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, then the Corporation shall, by notice to
the holders of the applicable series of Preferred Stock, appoint one appraiser,
and the holders of a majority of the outstanding shares of all such series of
Preferred Stock electing redemption shall, by notice to the Corporation and
acting as a single class, appoint one appraiser, both experienced in the
appraisal of companies engaged in the business of the Corporation. If either the
Corporation or such holders shall fail to appoint such an appraiser within 15
days after the lapse of such 20-day period, then the appraiser appointed by the
party which does appoint an appraiser shall make the appraisal of the Fair
Market Value, and such appraisal shall govern. If two appraisers are appointed,
then the average of the appraisals rendered by such appraisers shall be
considered the Fair Market Value. All appraisal reports shall be rendered in
writing and shall be signed by the appraiser(s), and the Corporation and the
holders of the series of Preferred Stock who designated an appraiser shall use
reasonable efforts to cause each appraiser to render its appraisal report within
20 days after the date of its appointment. The costs of the appraisals shall be
borne by the Corporation. All notices delivered pursuant to this Subsection 5.7
shall be sent by certified mail, postage prepaid, or by hand or
nationally-recognized overnight delivery service and shall, in the case of
notices to holders of Preferred Stock, be sent to the address of such holder as
it appears on the books of the Corporation.
Section 6. Negative Covenants
6.1 Series A. So long as at least one-fourth of the number of
shares of Series A Preferred Stock (subject to equitable adjustment in the event
of any stock split, stock dividend, combination or reclassification of shares or
other similar event) shall remain issued and outstanding, the Corporation shall
not, without first having provided the written notice of such proposed action to
each holder of outstanding shares of Series A Preferred Stock and having
obtained the affirmative vote or written consent of the holders of 51% of the
shares of Series A Preferred Stock then outstanding:
6.1.1 amend, alter or repeal any provision of, or add
any provision to, the Corporation's Certificate of Incorporation or By-laws;
6.1.2 increase the number of shares of Series A
Preferred Stock designated as Series A Preferred Stock, or reclassify any Common
Stock or Preferred Stock into shares having any preference or priority as to
assets superior to or on a parity with any such preference or priority of the
Series A Preferred Stock;
6.1.3 create, authorize or issue any other class or
classes of stock or series of Common Stock or Preferred Stock or any security
convertible into or evidencing the right to purchase shares of any class or
series of Common Stock or Preferred Stock or any capital stock of the
Corporation senior to or in parity with the Series A Preferred Stock in any
respect;
20
<PAGE> 21
6.1.4 pay or declare any dividend or distribution on
any shares of Common Stock or apply any of its assets to the redemption,
retirement, purchase or other acquisition, directly or indirectly, through
subsidiaries or otherwise, of any shares of Common Stock except (1) pursuant to
that certain Second Amended and Restated Stockholders Agreement dated on or
about November 3, 1999 by and among the Corporation and certain stockholders, or
(2) pursuant to repurchase provisions contained in any Stock Restriction
Agreement dated as of December 18, 1997 by and between the Corporation and any
of its stockholders; or
6.1.5 effect any sale, lease, assignment, transfer or
other conveyance (other than the grant of a mortgage or security interest in
connection with indebtedness for borrowed money) of all or substantially all the
assets of the Corporation or any of its subsidiaries; any liquidation,
dissolution or winding up of, or any consolidation or merger involving, the
Corporation or any of its subsidiaries; or any recapitalization of the
Corporation.
6.2 Series B. So long as at least one-fourth of the number of
shares of Series B Preferred Stock (subject to equitable adjustment in the event
of any stock split, stock dividend, combination or reclassification of shares or
other similar event) shall remain issued and outstanding, the Corporation shall
not, without first having provided the written notice of such proposed action to
each holder of outstanding shares of Series B Preferred Stock and having
obtained the affirmative vote or written consent of the holders of 51% of the
shares of Series B Preferred Stock then outstanding:
6.2.1 amend, alter or repeal any provision of, or add
any provision to, the Corporation's Certificate of Incorporation or By-laws;
6.2.2 increase the number of shares of Series B
Preferred Stock designated as Series B Preferred Stock, or reclassify any Common
Stock or Preferred Stock into shares having any preference or priority as to
assets superior to or on a parity with any such preference or priority of the
Series B Preferred Stock;
6.2.3 create, authorize or issue any other class or
classes of stock or series of Common Stock or Preferred Stock or any security
convertible into or evidencing the right to purchase shares of any class or
series of Common Stock or Preferred Stock or any capital stock of the
Corporation senior to or in parity with the Series B Preferred Stock in any
respect;
6.2.4 pay or declare any dividend or distribution on
any shares of Common Stock or apply any of its assets to the redemption,
retirement, purchase or other acquisition, directly or indirectly, through
subsidiaries or otherwise, of any shares of Common Stock except (1) pursuant to
that certain Second Amended and Restated Stockholders Agreement dated on or
about November 3, 1999 by and among the Corporation and certain stockholders, as
the same may be amended from time to time or (2) pursuant to repurchase
provisions contained in any Stock Restriction Agreement dated as of December 18,
1997 by and between the Corporation and any of its stockholders; or
21
<PAGE> 22
6.2.5 effect any sale, lease, assignment, transfer or
other conveyance (other than the grant of a mortgage or security interest in
connection with indebtedness for borrowed money) of all or substantially all the
assets of the Corporation or any of its subsidiaries; any liquidation,
dissolution or winding up of, or any consolidation or merger involving, the
Corporation or any of its subsidiaries; or any recapitalization of the
Corporation.
6.3 Series C. So long as at least one-fourth of the number of
shares of Series C Preferred Stock (subject to equitable adjustment in the event
of any stock split, stock dividend, combination or reclassification of shares or
other similar event) shall remain issued and outstanding, the Corporation shall
not, without first having provided the written notice of such proposed action to
each holder of outstanding shares of Series C Preferred Stock and having
obtained the affirmative vote or written consent of the holders of 51% of the
shares of Series C Preferred Stock then outstanding:
6.3.1 amend, alter or repeal any provision of, or add
any provision to, the Corporation's Certificate of Incorporation or By-laws;
6.3.2 increase the number of shares of Series C
Preferred Stock designated as Series C Preferred Stock, or reclassify any Common
Stock or Preferred Stock into shares having any preference or priority as to
assets superior to or on a parity with any such preference or priority of the
Series C Preferred Stock;
6.3.3 create, authorize or issue any other class or
classes of stock or series of Common Stock or Preferred Stock or any security
convertible into or evidencing the right to purchase shares of any class or
series of Common Stock or Preferred Stock or any capital stock of the
Corporation senior to or in parity with the Series C Preferred Stock in any
respect;
6.3.4 pay or declare any dividend or distribution on
any shares of Common Stock or any other series of Preferred Stock or apply any
of its assets to the redemption, retirement, purchase or other acquisition,
directly or indirectly, through subsidiaries or otherwise, of any shares of
Common Stock or any other series of Preferred Stock except (1) pursuant to that
certain Second Amended and Restated Stockholders Agreement dated on or about
November 3, 1999 by and among the Corporation and certain stockholders, as the
same may be amended from time to time or (2) pursuant to repurchase provisions
contained in any Stock Restriction Agreement dated as of December 18, 1997 by
and between the Corporation and any of its stockholders;
6.3.5 effect any sale, lease, assignment, transfer or
other conveyance (other than the grant of a mortgage or security interest in
connection with indebtedness for borrowed money) of all or substantially all the
assets of the Corporation or any of its subsidiaries; any liquidation,
dissolution or winding up of, or any consolidation or merger involving, the
Corporation or any of its subsidiaries; or any recapitalization of the
Corporation;
22
<PAGE> 23
6.3.6 enter into any agreement that would restrict
the Corporation's ability to perform under that certain Series C Stock Purchase
Agreement dated on or about November 3, 1999 by and among the Corporation and
the holders of Series C Preferred Stock;
6.3.7 sell or lease 25% or more of the assets of the
Corporation, except in the ordinary course of business;
6.3.8 issue additional securities to employees,
officer or directors of the Corporation, except securities (a) issued under
stock option plans in existence as of November 3, 1999 or stock option plans
approved by the holders of Series C Preferred Stock as provided herein, (b)
issuable upon the exercise of outstanding options or warrants or (c) issuable
upon the exercise of options granted in the future at fair market value;
6.3.9 adopt any additional stock option plans or
increase the number of shares available for issuance under plans in effect as of
November 3, 1999; or
6.3.10 issue any securities for a price less than
fair market value, other than as may be required by contractual commitments in
existence as of November 3, 1999.
6.4 Notice. Any other provision of the Corporation's
Certificate of Incorporation or By-laws to the contrary notwithstanding, notice
of any action specified in Subsections 6.1, 6.2 or 6.3 shall be given by the
Corporation to each holder of outstanding shares of the applicable series of
Preferred Stock by first class mail, postage prepaid, addressed to such holder
at the last address of such holder as shown by the records of the Corporation,
at least 20 days before the date on which the books of the Corporation shall
close or a record shall be taken with respect to such proposed action, or, if
there shall be no such date, at least 20 days before the date when such proposed
action is scheduled to occur. Any holder of outstanding shares of Preferred
Stock may waive any notice required by this Subsection 6.4 by a written document
indicating such waiver.
Section 7. No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
Section 8. Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
Subject to Section 6 above, the Board of Directors of the Corporation
shall have full authority, to the extent permitted by law, to increase, decrease
or otherwise adjust the capital stock of the Corporation, to designate the
classes or series thereof and to determine whether all or any part of such stock
shall have voting powers, full or limited, or no voting powers, and to determine
such designations, and such powers, preferences, relative, participating or
optional, or
23
<PAGE> 24
other special rights and the qualifications, limitations or restrictions thereof
as the Board shall from time to time determine in duly adopted resolutions.
Subject to Section 6 above, at any time and from time to time when
authorized by resolution of the Board of Directors and without any action by its
stockholders, the Corporation may issue or sell any shares of its capital stock
of any class or series, whether out of the unissued shares thereof authorized by
the Certificate of Incorporation of the Corporation as originally filed or by an
amendment thereof or out of shares of its capital stock acquired by it after the
issue thereof, and whether or not the shares thereof so issued or sold shall
confer upon the holders thereof the right to exchange or convert such shares for
or into other shares of capital stock of the Corporation of any class or classes
or any series thereof. When similarly authorized, but without any action by its
stockholders, the Corporation may issue or grant rights, warrants or options, in
bearer or registered or such other form as the Board of Directors may determine,
for the purchase of shares of the capital stock of any class or series of the
Corporation within such period of time, or without limit as to time, to such
aggregate number of shares, and at such price per share, as the Board of
Directors may determine. Such rights, warrants or options may be issued or
granted separately or in connection with the issue of any bonds, debentures,
notes, obligations or other evidences of indebtedness or shares of the capital
stock of any class or series of the Corporation and for such consideration and
on such terms and conditions as the Board of Directors in its sole discretion
may determine. In each case, the consideration to be received by the Corporation
for any such shares so issued or sold shall be such as shall be fixed from time
to time by resolution of the Board of Directors.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The following provisions are included for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and stockholders:
Section 1. Board of Directors.
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors of the Corporation.
Section 2. Amendment of By-Laws.
The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the by-laws of the Corporation, subject to
any limitation thereof contained in the by-laws. The stockholders shall also
have the power to adopt, amend or repeal the by-laws of the Corporation;
PROVIDED, however, that, in addition to any vote of the holders of any class or
series of stock of the Corporation required by law or by this Fourth Amended and
Restated Certificate of Incorporation, the affirmative vote of the holders of at
least seventy-five percent (75%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
24
<PAGE> 25
class, shall be required to adopt, amend or repeal any provision of the by-laws
of the Corporation.
Section 3. Stockholder Action.
Stockholders of the Corporation may not take any action by written
consent in lieu of a meeting.
Section 4. Special Stockholder Meetings.
Special meetings of stockholders may be called at any time
only by the Chief Executive Officer, the President, the Chairman of the Board of
Directors (if any) or a majority of the Board of Directors. Business transacted
at any special meeting of stockholders shall be limited to matters relating to
the purpose or purposes stated in the notice of meeting.
Section 5. Location of Books.
The books of the Corporation may be kept at such place within
or without the State of Delaware as the by-laws of the Corporation may provide
or as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH:
Section 1. Number of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be determined by resolution of a majority of the Board of
Directors, but in no event shall the number of directors be less than three. The
number of directors may be decreased at any time and from time to time by a
majority of the directors then in office, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the term
of one or more directors. The directors shall be elected at the annual meeting
of stockholders by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the Corporation.
Section 2. Classes of Directors.
The Board of Directors shall be and is divided into three classes:
Class I, Class II and Class III. No one class shall have more than one director
more than any other class.
Section 3. Election of Directors.
Elections of directors need not be by written ballot except as and to
the extent provided in the by-laws of the Corporation.
25
<PAGE> 26
Section 4. Terms of Office.
Each director shall serve for a term ending on the date of the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall serve for a term
ending on the date of the annual meeting next following the end of the
Corporation's fiscal year ending December 31, 2000; each initial director in
Class II shall serve for a term ending on the date of the annual meeting next
following the end of the Corporation's fiscal year ending December 31, 2001; and
each initial director in Class III shall serve for a term ending on the date of
the annual meeting next following the end of the Corporation's fiscal year
ending December 31, 2002.
Section 5. Allocation Of Directors Among Classes In The Event Of
Increases Or Decreases In The Number Of Directors.
In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue as
director of the class of which he or she is a member until the expiration of
such director's current term or his or her prior death, removal or resignation
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, though less
than a quorum. No decrease in the number of directors constituting the whole
Board of Directors shall shorten the term of an incumbent director.
Section 6. Tenure.
Notwithstanding any provisions to the contrary contained herein, each
director shall hold office until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal.
Section 7. Vacancies.
Unless and until filled by the stockholders, any vacancy in the Board
of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board of Directors, may be filled only by vote of a majority
of the directors then in office, even if less than a quorum, or by a sole
remaining director, and not by the stockholders. A director elected to fill a
vacancy shall be elected for the unexpired term of his or her predecessor in
office, if applicable, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation or removal.
26
<PAGE> 27
Section 8. Quorum.
A majority of the total number of the whole Board of Directors shall
constitute a quorum at all meetings of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third (1/3) of the number
so fixed constitute a quorum. In the absence of a quorum at any such meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Action at Meeting.
At any meeting of the Board of Directors at which a quorum is present,
the vote of a majority of those present shall be sufficient to take any action,
unless a different vote is specified by law or the Corporation's by-laws.
Section 10. Removal.
Any one or more or all of the directors may be removed with cause only
by the holders of at least seventy-five percent (75%) of the shares then
entitled to vote at an election of directors. Directors may not be removed
without cause.
Section 11. Stockholder Nominations and Introduction of Business, Etc.
Advance notice of stockholder nominations for election of directors and
other business to be brought by stockholders before a meeting of stockholders
shall be given in the manner provided in the by-laws of the Corporation.
Section 12. Rights of Preferred Stock.
The provisions of this Article are subject to the rights of the holders
of any series of Preferred Stock from time to time outstanding.
EIGHTH: No director (including any advisory director) of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director notwithstanding
any provision of law imposing such liability; provided, however, that, to the
extent provided by applicable law, this provision shall not eliminate the
liability of a director (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 which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
27
<PAGE> 28
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another party (a) to make a tender or exchange offer for any equity
security of the Corporation or (b) to effect a business combination, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation as whole, be authorized to give due consideration
to any such factors as the Board of Directors determines to be relevant,
including, without limitation:
(i) the interests of the Corporation's stockholders, including
the possibility that these interests might be best served by
the continued independence of the Corporation;
(ii) whether the proposed transaction might violate federal or
state laws;
(iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for
the outstanding capital stock of the Corporation, but also to
the market price for the capital stock of the Corporation over
a period of years, the estimated price that might be achieved
in a negotiated sale of the Corporation as a whole or in part
or through orderly liquidation, the premiums over market price
for the securities of other corporations in similar
transactions, current political, economic and other factors
bearing on securities prices and the Corporation's financial
condition and future prospects; and
(iv) the social, legal and economic effects upon employees,
suppliers, customers, creditors and others having similar
relationships with the Corporation, upon the communities in
which the Corporation conducts its business and upon the
economy of the state, region and nation. In connection with
any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal
proceedings as the Board of Directors may determine.
TENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Fourth Amended and Restated Certificate of
Incorporation in the manner prescribed by the laws of the State of Delaware and
all rights conferred upon stockholders are granted subject to this reservation,
provided, however, that in addition to any vote of the holders of any class or
series of stock of the Corporation required by law, this Fourth Amended and
Restated Certificate of Incorporation or a Certificate of Designation with
respect to a series of Preferred Stock, the affirmative vote of the holders of
shares of voting stock of the Corporation representing at least seventy-five
percent (75%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal, or adopt any provision inconsistent with, Articles SIXTH, SEVENTH,
EIGHTH, NINTH and this Article TENTH of this Fourth Amended and Restated
Certificate of Incorporation.
28
<PAGE> 29
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made in this Fourth Amended and Restated Certificate
of Incorporation are true under the penalties of perjury this 20th day of March,
2000.
By:
/s/ Joseph A. Forgione
-------------------------------------
Joseph A. Forgione
President and Chief Executive Officer
[SEAL]
29
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF EPRISE CORPORATION
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE, Eprise Corporation (hereinafter called the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
By written consent of the Board of Directors of the Corporation dated
March 6, 2000, a resolution was duly adopted, pursuant to Section 242 of the
General Corporation Law of the State of Delaware, setting forth an amendment to
the Fifth Amended and Restated Certificate of Incorporation of the Corporation
and declaring said amendment to be advisable. The stockholders of the
Corporation duly approved said proposed amendment by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware. The resolution setting forth the amendment is as follows:
That the board of directors recommend and declare advisable to the
stockholders of the Corporation that Article FOURTH of the Fifth
Amended and Restated Certificate of Incorporation of the Corporation be
further amended (the "Amendment"), such Amendment to be effective
immediately prior to the effectiveness of the registration statement on
Form S-1 filed by the Corporation with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, by
inserting two new paragraphs before the first paragraph currently set
forth therein:
"That upon the filing date of this Certificate of Amendment to
the Fifth Amended and Restated Certificate of Incorporation
(the "Effective Date"), a one (1) for two point fifty-five
(2.55) reverse stock split of the Corporation's Common Stock
shall become effective, pursuant to which each two point
fifty-five (2.55) shares of Common Stock, $.001 par value,
outstanding and held of record by each stockholder of the
Corporation (including treasury shares) immediately prior to
the Effective Date shall be reclassified and combined into one
(1) share of Common Stock, $.001 par value, automatically and
without any action by the holder thereof upon the Effective
Date and shall represent one share of Common Stock from and
after the Effective Date. No fractional shares of Common Stock
shall be issued as a result of such reclassification and
combination. In lieu of any fractional shares to which the
<PAGE> 2
stockholder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then fair
market value of the Common Stock, as determined by the Board
of Directors of the Corporation.
Unless otherwise noted below, each of the per share Conversion
Prices and/or values, liquidation preferences and other
amounts set forth below which are adjustable in the manner and
upon the events as set forth herein do not reflect the
adjustments required by the one (1) for two point fifty-five
(2.55) reverse stock split effected upon the Effective Date
and shall be subject to such adjustment."
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 20th day of March, 2000.
EPRISE CORPORATION
By: /s/ Joseph A. Forgione
-----------------------
Joseph A. Forgione
President
- 2 -
<PAGE> 1
EXHIBIT 3.4
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF EPRISE CORPORATION
Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware
The undersigned, Joseph A. Forgione, certifies that he is President of
Eprise Corporation, a corporation organized and existing under the laws of the
State of Delaware, and does hereby further certify as follows:
1. The name of the corporation is Eprise Corporation (the "Corporation").
The name of the Corporation at the time of its incorporation was Inner Circle
Technologies, Inc. The Certificate of Incorporation of the Corporation, as
subsequently amended, was filed in the office of the Secretary of State of the
State of Delaware on September 24, 1992.
2. By written consent dated March 6, 2000, the Board of Directors
recommended this Amended and Restated Certificate of Incorporation to the
stockholders for approval as being advisable and in the best interests of the
Corporation.
3. In accordance with Section 228 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
has been duly approved by written consent of the holders of not less than (i)
a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote thereon and (ii) a majority of the issued and
outstanding shares of each series entitled to vote thereon as a class.
4. This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended or supplemented.
The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, is amended and restated in its entirety as follows:
FIRST: The name of the Corporation is Eprise Corporation.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
<PAGE> 2
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 100,000,000 shares, consisting
of (i) 90,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per
share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
Section 1. General. All shares of Common Stock will be identical and will
entitle the holders thereof to the same rights, powers and privileges. The
voting, dividend and liquidation rights of the holders of the Common Stock are
subject to and qualified by the rights of the holders of the Preferred Stock of
any series as may be designated by the Board of Directors upon any issuance of
the Preferred Stock of any series.
Section 2. Voting. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders. There shall be no
cumulative voting.
Section 3. Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the
Board of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
Section 4. Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the
Corporation may be reissued except as otherwise provided by law. Different
series of Preferred Stock shall not be construed to constitute different
classes of shares for the purposes of voting by classes unless expressly
provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing
for the issue of the shares thereof, to determine and fix such voting powers,
full or limited, or no voting powers, and such
<PAGE> 3
designations, preferences and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including
without limitation thereof, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be stated and expressed in
such resolutions, all to the full extent now or hereafter permitted by the
General Corporation Law of Delaware. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by
law. Except as otherwise provided in this Certificate of Incorporation, no vote
of the holders of the Preferred Stock or Common Stock shall be a prerequisite
to the designation or issuance of any shares of any series of the Preferred
Stock authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all
present and future holders of the capital stock of the Corporation.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The following provisions are included for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and stockholders:
Section 1. Board of Directors.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors of the Corporation.
Section 2. Amendment of By-Laws.
The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the by-laws of the Corporation, subject to any
limitation thereof contained in the by-laws. The stockholders shall also have
the power to adopt, amend or repeal the by-laws of the Corporation; PROVIDED,
however, that, in addition to any vote of the holders of any class or series of
stock of the Corporation required by law or by this Fifth Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
seventy-five percent (75%) of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to adopt, amend or repeal any provision of the by-laws of the Corporation.
Section 3. Stockholder Action.
Stockholders of the Corporation may not take any action by written consent
in lieu of a meeting.
Section 4. Special Stockholder Meetings.
<PAGE> 4
Special meetings of stockholders may be called at any time only by the
Chief Executive Officer, the President, the Chairman of the Board of Directors
(if any) or a majority of the Board of Directors. Business transacted at any
special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
Section 5. Location of Books.
The books of the Corporation may be kept at such place within or without
the State of Delaware as the by-laws of the Corporation may provide or as may
be designated from time to time by the Board of Directors of the Corporation.
SEVENTH:
Section 1. Number of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be determined by resolution of a majority of the Board of
Directors, but in no event shall the number of directors be less than three.
The number of directors may be decreased at any time and from time to time by
a majority of the directors then in office, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the term
of one or more directors. The directors shall be elected at the annual meeting
of stockholders by such stockholders as have the right to vote on such
election. Directors need not be stockholders of the Corporation.
Section 2. Classes of Directors.
The Board of Directors shall be and is divided into three classes: Class I,
Class II and Class III. No one class shall have more than one director more than
any other class.
Section 3. Election of Directors.
Elections of directors need not be by written ballot except as and to the
extent provided in the by-laws of the Corporation.
Section 4. Terms of Office.
Each director shall serve for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall serve for a term
ending on the date of the annual meeting next following the end of the
Corporation's fiscal year ending December 31, 2000; each initial director in
Class II shall serve for a term ending on the date of the annual meeting next
following the end of the Corporation's fiscal year ending December 31, 2001; and
each initial director in Class III shall serve for a term ending on the date of
<PAGE> 5
the annual meeting next following the end of the Corporation's fiscal year
ending December 31, 2002.
Section 5. Allocation Of Directors Among Classes In The Event of Increases
Or Decreases In The Number Of Directors.
In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue
as director of the class of which he or she is a member until the expiration of
such director's current term or his or her prior death, removal or resignation
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, though less
than a quorum. No decrease in the number of directors constituting the whole
Board of Directors shall shorten the term of an incumbent director.
Section 6. Tenure.
Notwithstanding any provisions to the contrary contained herein, each
director shall hold office until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal.
Section 7. Vacancies.
Unless and until filled by the stockholders, any vacancy in the Board of
Directors, however occurring, including a vacancy resulting from an enlargement
of the Board of Directors, may be filled only by vote of a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director, and not by the stockholders. A director elected to fill a vacancy
shall be elected for the unexpired term of his or her predecessor in office, if
applicable, and a director chosen to fill a position resulting from an increase
in the number of directors shall hold office until the next election of the
class for which such director shall have been chosen and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation or removal.
Section 8. Quorum.
A majority of the total number of the whole Board of Directors shall
constitute a quorum at all meetings of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case
<PAGE> 6
shall less than one-third (1/3) of the number so fixed constitute a quorum. In
the absence of a quorum at any such meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice other
than announcement at the meeting, until a quorum shall be present.
Section 9. Action at Meeting.
At any meeting of the Board of Directors at which a quorum is present, the
vote of a majority of those present shall be sufficient to take any action,
unless a different vote is specified by law or the Corporation's by-laws.
Section 10. Removal.
Any one or more or all of the directors may be removed with cause only by
the holders of at least seventy-five percent (75%) of the shares then entitled
to vote at an election of directors. Directors may not be removed without cause.
Section 11. Stockholder Nominations and Introduction of Business, Etc.
Advance notice of stockholder nominations for election of directors and
other business to be brought by stockholders before a meeting of stockholders
shall be given in the manner provided in the by-laws of the Corporation.
Section 12. Rights of Preferred Stock.
The provisions of this Article are subject to the rights of the holders of
any series of Preferred Stock from time to time outstanding.
EIGHTH: No director (including any advisory director) of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any provision
of law imposing such liability; provided, however, that, to the extent provided
by applicable law, this provision shall not eliminate the liability of a
director (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 which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another party (a) to make a tender or exchange offer for any equity security
of the Corporation or (b) to effect a business combination, shall, in connection
with the exercise of its judgment in determining what is in the best interests
of the Corporation as a whole,
<PAGE> 7
By:
---------------------------------
Joseph A. Forgione
President and Chief Executive
Officer
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NUMBER Eprise SHARES
- ------------------- Corporation -------------------
EPRS EPRISE CORPORATION
- ------------------- COMMON STOCK -------------------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 294352 10 9
THIS CERTIFIES THAT
SEE REVERSE FOR
CERTIFICATE DEFINITIONS
COUNTERSIGNED AND REGISTERED
EQUISERVE TRUST COMPANY, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ [illegible]
AUTHORIZED SIGNATURE
is the owner of
fully paid and non-assessable shares of the COMMON STOCK, $.001 par value, of
======================================================== EPRISE CORPORATION ========================================================
(hereinafter called the Corporation) transferable on the books of the Corporation by the holder hereof in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and held subject to the laws of the State of Delaware, the
Certificate of Incorporation and the By-Laws of the Corporation and all amendments thereto.
This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by the facsimile signatures of its duly
authorized officers and sealed with the facsimile seal of the Corporation.
Dated
/s/ J. G. Forgione EPRISE CORPORATION /s/ M. Gray
CORPORATE
PRESIDENT SEAL SECRETARY
1992
DELAWARE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
THE CORPORATION HAS MORE THAN ONE CLASS OR SERIES OF STOCK AUTHORIZED TO BE
ISSUED, THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER UPON
WRITTEN REQUEST A COPY OF THE FULL TEXT OF THE PREFERENCES, VOTING POWERS,
QUALIFICATIONS AND SPECIAL AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR
SERIES OF STOCK AUTHORIZED TO BE ISSUED BY THE CORPORATION AS SET FORTH IN THE
CERTIFICATE OF INCORPORATION OF THE CORPORATION AND AMENDMENTS THERETO FILED
WITH THE SECRETARY OF STATE OF DELAWARE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as they were written out in full according
to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT --________Custodian_______
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received,_______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------- Shares of
the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated________________________
(Signature)___________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY OTHER CHANGE WHATEVER.
Signature(s) Guaranteed:
By_______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
ANDREA M. TEICHMAN
DIRECT LINE: 617-428-3540
[email protected]
March ___, 2000
VIA COURIER
Eprise Corporation
1671 Worcester Road
Framingham, MA 01701
Attn.: Joseph A. Forgione, President
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-94777) (as amended, the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of 4,600,000 shares of Common Stock, $.001 par value per share (the
"Shares"), of Eprise Corporation, a Delaware corporation (the "Company"),
including 600,000 Shares issuable upon exercise of an over-allotment option
granted by the Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Deutsche Banc Alex. Brown, Dain Rauscher Wessels and SoundView
Technology Group, Inc., as representatives of the several underwriters named in
the Underwriting Agreement, the form of which has been filed as Exhibit 1.1 to
the Registration Statement.
We are acting as counsel for the Company in connection with the issue
and sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the Board of Directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to
<PAGE> 2
Eprise Corporation
March ___, 2000
Page 2
original documents of all documents submitted to us as copies, the authenticity
of the originals of such latter documents and the legal competence of all
signatories of such documents.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of The Commonwealth of Massachusetts, the
Delaware General Corporation Law statute and the federal laws of the United
States of America.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of law or subsequent legal or factual developments which
might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
HILL & BARLOW,
a Professional Corporation
By:
Andrea M. Teichman
A member of the firm
/nmg
<PAGE> 1
EXHIBIT 10.1
LEASE
by and between
NDNE 9/90 200 Crossing Boulevard LLC
or assignee
as Landlord and
EPRISE CORPORATION
as Tenant
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 - Reference Data 1
Section 1.1 Reference Information .................
Section 1.2 Exhibits ..............................
SECTION 2 - Premises and Term 5
Section 2.1 Premises ..............................
Section 2.2 Term ..................................
Section 2.3 Appurtenant Rights and Reservations....
SECTION 3 - Commencement Date; Improvements 7
Section 3.1 Commencement Date .....................
Section 3.2 Construction of Building ..............
Section 3.3 Preparation of Premises...............
Section 3.4 Conclusiveness of Landlord's Performance
Section 3.5 Tenant's Delays........................
Section 3.6 General Provisions Applicable to ......
Construction...........................
Section 3.7 Construction Representatives...........
Section 3.8 Changes in Building or Lot.............
Section 3.9 Tenant's Early Access..................
SECTION 4 - Annual Rent
Section 4.1 The Annual Rent ....................... 11
SECTION 5 - Operating Cost Escalation 11
Section 5.1 Operating Cost Escalation .............
Section 5.2 Estimated Operating Cost...............
Escalation Payments ...................
Section 5.3 Audit..................... ............
SECTION 6 - Real Estate Tax Escalation 15
Section 6.1 Real Estate Tax Escalation ............
Section 6.2 Estimated Real Estate Tax Escalation...
Payments ..............................
SECTION 7 - Insurance 17
Section 7.1 Tenant's Insurance ....................
Section 7.2 Requirements Applicable to Insurance...
Policies...............................
Section 7.3 Waiver of Subrogation .................
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
SECTION 8 - Landlord's Covenants 18
Section 8.1 Quiet Enjoyment .......................
Section 8.2 Maintenance and Repair ................
Section 8.3 Electricity............................
Section 8.4 HVAC. ..................................
Section 8.5 Cleaning ...............................
Section 8.6 Interruptions ..........................
SECTION 9 - Tenant's Covenants 20
Section 9.1 Use ...................................
Section 9.2 Repair and Maintenance ...............
Section 9.3 Compliance with Law and Insurance
Requirements ..........................
Section 9.4 Tenant's Work..........................
Section 9.5 Indemnity .............................
Section 9.6 Landlord's Right to Enter .............
Section 9.7 Personal Property at Tenant's Risk ....
Section 9.8 Yield Up ..............................
Section 9.9 Estoppel Certificate ..................
Section 9.10 Landlord's Expenses Re Consents .......
Section 9.11 Rules and Regulations .................
Section 9.12 Holding Over ..........................
Section 9.13 Assignment and Subletting .............
Section 9.14 Overloading and Nuisance ..............
Section 9.15 Tenant's Financial Statements .........
SECTION 10 - Casualty or Taking 27
Section 10.1 Abatement of Rent......................
Section 10.2 Landlord's Right of Termination........
Section 10.3 Restoration ...........................
Section 10.4 Award .................................
Section 10.5 Temporary Taking.................. ....
Section 10.6 No Liability On Account of Injury
To Business, Etc. ....................
SECTION 11 - Default 30
Section 11.1 Events of Default .....................
Section 11.2 Remedies ..............................
Section 11.3 Remedies Cumulative ...................
Section 11.4 Landlord's Right to Cure Defaults .....
Section 11.5 Effect of Waivers of Default ..........
Section 11.6 No Accord and Satisfaction ............
Section 11.7 Interest on Overdue Sums ..............
Section 11.8 Costs and Expenses ...................
SECTION 12 - Mortgages 33
Section 12.1 Rights of Mortgage Holders ............
Section 12.2 Lease Subordinate......................
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
SECTION 13 - Miscellaneous Provisions 34
Section 13.1 Notices from One Party to the Other ...
Section 13.2 Lease Not to be Recorded;..............
Notice of Lease .......................
Section 13.3 Bind and Inure; Limitation of..........
Landlord's Liability ..................
Section 13.4 Acts of God ...........................
Section 13.5 Landlord's Default ....................
Section 13.6 Brokerage .............................
Section 13.7 Miscellaneous .........................
Section 13.8 Security Deposit ......................
Section 13.9 Intentionally Omitted..................
Section 13.10 Leasehold Parking Area.................
Section 13.11 Hazardous Materials....................
Section 13.12 Signs .................................
SECTION 14 n Tenant's Early Termination Right 41
Section 14.1 Tenant's Early Termination Right ...
SECTION 15 n Option to Extend 42
Section 15.1 Option to Extend .....................
Section 15.2 Extended Term Rent ...................
</TABLE>
<PAGE> 5
LEASE
SECTION 1
Reference Data
Section 1.1. Reference Information. Reference in this Lease to any of the
following shall have the meaning set forth below:
Date of this Lease: As of February 22, 2000
Premises: That portion (shown as outlined on Exhibit A attached
hereto) of the Building on the Lot known as Lot 3 and
to be numbered 200 Crossing Boulevard in Framingham,
Massachusetts, consisting of approximately 78,280
rentable square feet of the Building which space is
comprised of (i) 26,136 rentable square feet on the
third (3rd) floor, (ii) 26,072 rentable square feet
on the fourth (4th) floor and (iii) 26,072 rentable
square feet on the fifth (5th) floor.
Landlord: NDNE 9/90 200 Crossing Boulevard LLC or assignee
Address of Landlord: c/o National Development
2310 Washington Street
Newton Lower Falls, Massachusetts 02462
Tenant: Eprise Corporation
Address of Tenant: 1671 Worcester Road
Framingham, Massachusetts 01701
Landlord's Construction Representative: Mark L. Paris
Tenant's Construction Representative: Milton A. Alpern
Additional Rent: Any sum or payment designated under this Lease as constituting
"Additional Rent" including, without limitation, payments by Tenant on account
of (i) Operating Cost Escalation under Section 5 and (ii) Real Estate Tax
Escalation under Section 6.
Affiliate: Any corporation or business entity controlled by, controlling or
under common control with Tenant. For this purpose, "control" shall mean direct
or indirect beneficial ownership of 50% or more of the voting stock of, or a 50%
or greater interest in the income
<PAGE> 6
of such corporation or other business entity or such other relationship as in
fact constitutes actual control.
Annual Base Operating Costs: An amount equal to Landlord's Operating Costs for
the Property during the calendar year January 1, 2001 through December 31, 2001.
Annual Base Real Estate Taxes: An amount equal to the Real Estate Taxes for the
Property applicable to the fiscal tax year July 1, 2001 to June 30, 2002.
Annual Fixed Rent (includes Annual Base Operating Costs and Annual Base Real
Estate Taxes):
Lease Years 1 - 3 inclusive: $2,113,560.00 per annum,
$176,130.00 per month,
$27.00 per rentable square foot
Lease Years 4 - 6 inclusive: $2,250,550.00 per annum,
$187,545.83 per month,
$28.75 per rentable square foot
Lease Years 7 - 10 inclusive: $2,407,110.00 per annum,
$200,592.50 per month,
$30.75 per rentable square foot
As used above, the term "Year" or "Lease Year" shall mean the one year period
ending on the first anniversary of the Term Commencement Date and each period of
like duration thereafter.
Annual Rent: Annual Fixed Rent, Additional Rent and any other charge payable in
accordance with the terms and provisions of this Lease.
Anticipated Construction Completion Date: September 30, 2000
Anticipated Term Commencement Date: October 1, 2000.
Base Building: The building erected or to be erected on the Lot by Landlord in
accordance with Exhibit D attached hereto at such time as Landlord substantially
completes "Landlord's Building Construction Work", as defined in Section 3.2.
Broker: Trammell Crow Company
Building: The building erected or to be erected on the Lot by Landlord and all
alterations and additions thereto and replacements thereof as described in
Exhibit D.
- 2 -
<PAGE> 7
Business Day: All days except Sundays and legal holidays.
Business Hours: 8:00 a.m. to 6:00 p.m. on all Business Days except Saturdays
from 8:00 a.m. to 1:00 p.m.
Commencement Date: As defined in Section 3.1.
Cross Easement: The Cross Easement attached hereto as Exhibit M together with
any amendments thereto as are permitted thereunder.
Efficiency Factor: 91.5%.
Entire Leasehold Lot: As defined in Section 6.1 hereof. The Leasehold Lot is
part of the Entire Leasehold Lot.
Force Majeure: Collectively and individually, strike or other labor trouble,
fire or other casualty, governmental preemption of priorities or other controls
in connection with a national or other public emergency or shortages of, or
inability to obtain, fuel, supplies or labor resulting therefrom, or acts of
God, or any other cause, whether similar or dissimilar, beyond Landlord's
reasonable control.
Ground Lease: The Indenture of Lease dated as of August 15, 1980, between the
Inhabitants of The Town of Framingham (the "Town"), as landlord, and The First
National Bank of Boston (the "Bank of Boston"), as tenant, notice of which is
recorded with the Middlesex South District Registry of Deeds (the "Registry") in
Book 14036, Page 282 (the "Original Ground Lease"). The interest of the Bank of
Boston as tenant under the Original Ground Lease was assigned to 9/90 Crossing
Associates Limited Partnership ("9/90") pursuant to that certain Lease
Assignment dated as of July 29, 1987, and recorded with the Registry in Book
18428, Page 050. The interest of "9/90" as tenant under the Original Ground
Lease was further assigned by "9/90" to Rose Holding, Inc. ("Rose") pursuant to
that certain Lease Assignment dated as of June 10, 1994, recorded with the
Registry in Book 24620, Page 63. The Original Ground Lease was amended by
Amendment to Lease dated August, 1996 by and between the Town and Rose. All
references herein to the Original Ground Lease shall mean the Original Ground
Lease as so assigned and amended. The interest of Rose as tenant under the
Ground Lease and under the Original Ground Lease insofar as it relates to Parcel
B-2 was assigned to the Landlord hereunder by Assignment and Assumption of Lease
and Collateral Agreement with respect to Parcel B-2 dated January 21, 1998,
recorded with the Registry in Book 28104, Page 101 from BA Properties, Inc.
(successor to Rose) to Landlord. All references in this Lease to the Ground
Lease shall mean the Original Ground Lease and any future amendments and any
future assignments and, for purposes hereof, the premises thereunder shall be
deemed to include only the Leasehold Parking Area and all obligations of
Landlord as tenant thereunder related solely to the Leasehold Parking Area.
- 3 -
<PAGE> 8
Landfill Lot: The lot or parcel of land on which the Leasehold Parking Area is
located as more particularly set forth in Exhibit H attached hereto.
Landlord's Insurance:
Landlord: All risk fire and casualty insurance on
To maintain on Building a full replacement value basis, exclusive
of and Lot footings and foundations.
Leasehold Lot: Parcel B-2 as shown on Exhibit G attached hereto, subject to
adjustments in the Lot boundaries from time to time.
Leasehold Parking Area: The areas designated as the Leasehold Parking Area on
Exhibit C attached hereto and any alteration or replacement (with any such
replacement being in close proximity to the Building) thereof designated by
Landlord in writing to Tenant.
Lot or Lots: The lot or parcel of land on which the Building is or will be
located as more particularly set forth in Exhibit B attached hereto.
Lot's Allocable Share: As defined in Section 5.1.
Measurement Method: The Modified New York BOMA Measurement Method 1980,
Reaffirmed 1989.
Park: The term "Park" shall mean the land described in Exhibits A-1 and A-2 of
the Park Covenants together with other land hereafter added thereto under the
Park Covenants and together with the buildings, structures and other
improvements as may, from time to time, be constructed thereon, and all of which
are referred to in the Park Covenants as "9/90 Crossing".
Park Common Expenses: As defined in Section 5.1.
Park Common Property: As defined in Section 5.1.
Park Covenants: The Amended and Restated Covenants, Restrictions, Development
Standards and Easements, attached hereto as Exhibit J together with any
amendments thereto as are permitted thereunder.
Permitted Uses: General Office (including sales, service, training and
demonstrations).
Premises' Square Footage: Approximately 78,280 rentable square feet (to be
confirmed by Landlord and Tenant) as determined by the Measurement Method,
except as follows: (i) measurements will be taken
- 4 -
<PAGE> 9
to the inside face of glass on exterior walls, even if the glass is not the
dominant portion of the exterior wall, (ii) measurements to common areas, halls,
etc. will be to the center line of the partition, (iii) common areas such as the
first floor lobby, elevator lobbies, cafeteria, locker room/shower facilities,
common corridors, etc. will be included in rentable area, and (iv) rentable area
to be determined by utilizing the following formula:
Rentable Area = Usable Area of Premises
Efficiency Factor
Property: The Building (including the Premises), the Lot, the Leasehold Lot and
the Leasehold Parking Area.
Public Liability Insurance Limit:
Tenant:
Bodily Injury Combined single limit of
and Property Damage $2,000,000, or greater amount as
reasonably required by Landlord
from time to time.
Rentable Square Feet in the Building: Approximately 123,750 rentable square feet
as determined by using the Measurement Method, except as follows: (i)
measurements will be taken to the inside face of glass on exterior walls, even
if the glass is not the dominant portion of the exterior walls, (ii)
measurements to common areas, halls, etc. will be to the center line of the
partition and (iii) common areas such as the first floor lobby, elevator
lobbies, cafeteria, locker room/shower facilities, common corridors, etc. will
be included in rentable area.
Security Deposit: $2,113,560.00 (subject to the terms and provisions of Section
13.8 hereof).
Tenant's Proportionate Share: Sixty Three and 26/100ths (63.26%) Percent,
subject to Section 2.3 (measurement).
Title Exceptions: The matters set forth on Exhibit K attached hereto and any
other rights, easements, encumbrances and reservations which shall not
materially interfere with Tenant's rights under this Lease.
Section 1.2. Exhibits. The following Exhibits are attached to and incorporated
in this Lease:
Exhibit A: Plan of Premises
Exhibit B: Lot
Exhibit C: Leasehold Parking Area
Exhibit D: Base Building Plans and Specifications
Exhibit E: Tenant Plans and Specifications
- 5 -
<PAGE> 10
Exhibit F: Rules and Regulations
Exhibit G: Leasehold Lot
Exhibit H: Landfill Lot
Exhibit I: Cleaning Specifications
Exhibit J: Park Covenants
Exhibit K: Title Exceptions
Exhibit L: Landlord's Building Standards
Exhibit M: Cross Easement
SECTION 2
Premises and Term
Section 2.1. Premises. Landlord hereby leases and demises the Premises
to Tenant and Tenant hereby leases the Premises from Landlord subject, in all
events, to (i) all rights reserved to Landlord under this Lease, (ii) the Title
Exceptions and (iii) the terms and provisions of this Lease. Tenant may use (a)
the driveways and walkways located on the Lot and the Leasehold Parking Area
only for pedestrian and vehicular ingress and egress to and from the Building
and parking areas and other lawful purposes incidental to Tenant's business; (b)
the parking areas located on the Lot and the Leasehold Parking Area only for
parking purposes and other lawful purposes incidental to Tenant's business.
Tenant may use any other landscaped or undeveloped portions of the Lot only for
lawful purposes which are incidental to Tenant's business. Tenant shall not
alter, or construct any improvements on, the driveways, parking areas, parking
spaces, landscaped areas, open areas, entry ways, curb cuts, drainage facilities
or utilities located in, on or under the Lot or the Leasehold Parking Area. All
rights of Tenant in and to the Lot and the Leasehold Parking Area are subject,
in all events, to all of the rights reserved to Landlord under this Lease The
Premises are demised to Tenant together with the benefit of the Cross Easement
and all other appurtenances and easements including, but not limited to,
non-exclusive easements for access and egress and for connection to utilities
serving the Premises and other recorded easements now or hereafter appurtenant
to the Premises and together with the non-exclusive right to use all parking
spaces from time to time located on the Lot and the Leasehold Parking Area.
Section 2.2. Term. TO HAVE AND TO HOLD for a term beginning on the
Commencement Date and ending on the close of the day immediately preceding the
tenth (10th) anniversary of the Commencement Date (the "Term") unless sooner
terminated as hereinafter provided.
Section 2.3. Appurtenant Rights and Reservations.
- 6 -
<PAGE> 11
(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 common
walkways necessary for access to the Building, 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 this
Lease and to the right of Landlord to reasonably designate and change from time
to time areas and facilities so to be used provided such changes do not
materially affect Tenant's access to or use of the Premises. Tenant and its
employees shall also have the non-exclusive right to use, in common with others
entitled thereto, such other common areas and facilities in or appurtenant to
the Building as Landlord may from time to time designate and provide. Subject to
the Title Exceptions and subject to the terms and provisions of this Lease,
Tenant shall have the non-exclusive right to use, in common with others entitled
thereto, the parking spaces on the Leasehold Parking Area. At Tenant's option,
Tenant shall have the right to use up to twelve (12) reserved parking spaces in
the covered parking area located on the Property at $100.00 per month per space.
(b) Excepted and excluded from the Premises are exterior faces of
exterior walls, the common stairways and stairwells, elevators and elevator
shafts, fan rooms, mechanical, freight elevator vestibules and pipes, ducts,
conduits, wires and appurtenant fixtures serving exclusively or in common with
other parts of the Building, but included in the Premises are all entry doors to
the Premises and all special installations of Tenant, such as interior stairs,
special flues and special air conditioning facilities. Landlord reserves the
right from time to time, without unreasonable interference with Tenant's use:
(a) to install, use, maintain, repair, replace and relocate for service to the
Premises and other parts of the Building, or either, pipes, ducts, conduits,
shafts, wires and appurtenant fixtures, wherever located in the Premises or
Building, and (b) to alter or relocate any other common facility, provided that
substitutions are substantially equivalent or better and (c) to maintain,
repair, alter and replace (with any such replacement being in the same proximity
to the Building) the Leasehold Parking Area and the parking spaces located
thereon. Landlord reserves the exclusive use of all fan rooms, electric and
telephone closets, janitor closets, freight elevator vestibules, pipes, ducts,
conduits, wires and appurtenant fixtures located within the Premises which serve
exclusively or in common other parts of the Building.
(c) Notwithstanding anything to the contrary contained in this Lease,
the Premises shall be measured using the Measurement Method, except as follows:
(i) measurements will be taken to the inside face of glass on exterior walls,
even if the glass is not the dominant portion of the exterior wall, (ii)
measurements to common areas, halls, etc. will be to the center line of the
partition, (iii) common areas such as the first floor lobby, elevator lobbies,
cafeteria, locker
- 7 -
<PAGE> 12
room/shower facilities, common corridors, etc. will be included in rentable
area, and (iv) rentable area to be determined by utilizing the following
formula:
Rentable Area = Usable Area of Premises
Efficiency Factor.
(d) Within thirty (30) days after the completion of the Base Building Plans and
Specifications, Landlord shall deliver the same to Tenant for its review and
Tenant shall have thirty (30) days to agree or disagree with the measurement of
the usable square footage of the Premises by Landlord's architect. If Tenant
disagrees with the square footage area shown, then Landlord shall engage an
independent third party architect mutually acceptable to the parties to measure
the Premises, whose determination of the usable square footage shall be final.
Upon Landlord's completion of construction of the Premises, Landlord shall
deliver to Tenant an affidavit from Landlord's architect certifying that the
Building has been built substantially in accordance with the Base Building Plans
and Specifications and the Tenant Plans and Specifications (together, the
"Plans") upon which the measurement under the first two sentences of this
paragraph was based. If the Premises were not built substantially in accordance
with such Plans, then within thirty (30) days after completion of construction
of the Premises, Landlord shall provide Tenant with a certification from
Landlord's architect as to the usable square footage of the Premises. Tenant
shall have thirty (30) days to review such certification. If Tenant is not in
agreement with such certification, then the determination shall be made by an
independent third party architect mutually acceptable to the parties, whose
determination shall be final. The only measurement that either party is entitled
to undertake under this paragraph is the amount of usable square footage of the
Premises, the Efficiency Factor being agreed upon by the parties. If the
Premises Square Footage increases or decreases based upon a remeasurement under
this paragraph (d), then Landlord and Tenant shall enter into an amendment to
this Lease for the purpose of restating the rentable square feet of the
Premises, the Annual Fixed Rent, the Premises Square Footage, the Tenant's
Proportionate Share and attaching Exhibit A n Plan of Premises.
SECTION 3
Commencement Date; Improvements
Section 3.1 Commencement Date. Subject to any Force Majeure event or
Tenant's Delays, the Commencement Date shall be the later of (i) October 1, 2000
or (ii) the "Substantial Completion Date", as said term is defined in Section
3.3(b) of this Lease. Each of the parties hereto agrees to, upon demand of the
other, execute a declaration
- 8 -
<PAGE> 13
expressing the Commencement Date as soon as the Commencement Date has been
determined.
Section 3.2 Construction of Building.
(a) Landlord, at its expense, shall diligently construct the Building
substantially in accordance with Exhibit D (as the same may be amended in
connection with the permit approval process for the Premises provided that no
such amendment affecting the Premises shall be made without the approval of
Tenant, which approval shall not be unreasonably withheld or delayed) (the
"Landlord's Building Construction Work") and all laws, codes, ordinances and
other applicable governmental requirements. Landlord hereby agrees that no
change to the Base Building which directly, materially and substantially affects
the Premises shall be made to the Base Building without Tenant's approval, which
approval shall not be unreasonably withheld or delayed. Landlord's Building
Construction Work shall be done in a good and workmanlike manner using first
quality materials and shall be accomplished in accordance with the plans and
specifications set forth in Exhibit D. Tenant shall respond promptly to all
communications from Landlord and shall cooperate with Landlord throughout the
construction process. Notwithstanding anything contained in Exhibit D to the
contrary, in no event shall Landlord be obligated to perform (or pay for the
cost of) the moving or installation of any of Tenant's equipment. Tenant shall
pay to Landlord, within ten (10) days of billing therefor, any costs of
construction resulting from changes in Exhibit D requested in writing by Tenant,
it being understood that such costs shall be equal to the aggregate of (a) the
"Cost of the Work", as defined in American Institute of Architects Document A111
(1987 Edition), and (b) Landlord's contractor's overhead and profit in the total
amount equal to eight percent (8%) of such cost.
(b) Landlord shall procure all necessary permits before undertaking
Landlord's Building Construction Work; do all of such work in a good and
workmanlike manner, employing materials of first quality and complying with all
governmental requirements. Landlord shall cause contractors employed by Landlord
to carry Workmen's Compensation Insurance in accordance with statutory
requirements and Comprehensive Public Liability Insurance covering such
contractors on or about the Building.
Section 3.3 Preparation of the Premises.
(a) Landlord shall exercise all reasonable efforts to complete the work
("Landlord's Work") necessary to prepare the Premises for Tenant's occupancy
pursuant to the Plans and Specifications attached hereto as Exhibit E, and in
accordance with Landlord's Building Standards attached hereto as Exhibit L, but
Tenant shall have no claim
- 9 -
<PAGE> 14
against Landlord for failure to complete Landlord's Work. Tenant hereby approves
all matters set forth in Exhibit E. To the extent that the Total Cost of
Landlord's Work (as hereafter defined) is increased over and above the cost of
the scope of work presently contemplated by Exhibit E due to any change in
Exhibit E requested by Tenant and approved by Landlord, Tenant shall pay such
excess costs (the "tenant's Share") as an additional charge hereunder within
thirty (30) days after Tenant's receipt of Landlord's invoice relating to
Tenant's Share. Tenant shall, if requested by Landlord, execute a work letter
confirming Tenant's Share prior to the time Landlord shall be required to
commence work.
As used herein, the term "Total Cost of Landlord's Work" shall mean the
aggregate cost of all permits, governmental approvals, demolition work, labor,
materials, work, alterations and improvements including, without limitation, the
Cost of the Work plus a fee of eight percent (8%) of such cost and architectural
and engineering fees incurred by Landlord in connection with preparing Exhibit E
and construction documents and plans ("Tenant's Plans").
(b) The Premises shall be deemed "ready for occupancy" on the
occurrence of both (i) the first Business Day (the "Substantial Completion
Date") as of which Landlord's Work has been completed except for items of work
(and, if applicable, adjustment of equipment and fixtures) which can be
completed after occupancy has been taken without causing undue interference with
Tenant's use of the Premises (i.e., so called "punch list" items) and (ii) the
date that the Town of Framingham Building Department issues a Certificate of
Occupancy (temporary or otherwise), and Tenant shall afford Landlord access to
the Premises for such purposes. Landlord shall provide Tenant with a schedule of
"punch list" items which, subject to Force Majeure or Tenant's Delays, Landlord
shall complete within thirty (30) days of the Substantial Completion Date.
Landlord will reimburse Tenant from time to time upon ten (10) days prior
written notice for all holdover premiums payable by Tenant (i) under that
certain Sublease Agreement dated _________________, 1997 by and between Merkert
Enterprises, Inc., as sublessor, and Nova Link USA Corporation, as sublessee,
relating to 12,399 rentable square feet of premises located at 1671 Worcester
Road, Framingham, Massachusetts and (ii) under that certain Sublease dated June
9, 1999 by and between Aquila Biopharmaceuticals, Inc., as sublandlord, and
Eprise Corporation, as subtenant, relating to 4,300 rentable square feet of
premises located at 175 Crossing Boulevard, Framingham, Massachusetts on account
of any holdover by Tenant in such premises because of Landlord's failure to
deliver the Premises, subject to the terms and provisions of this Lease, on or
before October 1, 2000. Notwithstanding anything to the contrary contained in
this Lease, if Landlord has not completed Landlord's Work and delivered the
Premises within one hundred eighty (180) days after the Anticipated
- 10 -
<PAGE> 15
Term Commencement Date, then Tenant shall have the right to terminate this Lease
by written notice to Landlord.
Section 3.4 Conclusiveness Of Landlord's Performance. Unless Tenant
shall have given Landlord written notice by the end of the twelfth (12th) full
calendar month after the Commencement Date of specific respects in which (a)
Landlord has not performed Landlord's Work in compliance with the matters set
forth in Exhibit E or (b) systems or facilities serving the Premises are not in
good working condition, Tenant shall have no claim that Landlord has failed to
perform any of Landlord's Work.
Section 3.5 Tenant's Delays.
(a) If a delay shall occur in the Substantial Completion Date as the
result of:
(i) any request by Tenant that Landlord delay in the
commencement or completion of Landlord's Work for any reason; or
(ii) any change requested by Tenant (and approved by Landlord)
in Exhibit E once approved by Landlord and Tenant; or
(iii) any other act or omission of Tenant or its officers,
partners, agents, servants or contractors; or
(iv) any reasonably necessary displacement of any of
Landlord's Work from its place in Landlord's construction schedule resulting
from any of the causes for delay referred to in clauses (i), (ii) or (iii) of
this paragraph and the fitting of such Work back into the schedule;
then, in any such event, Tenant shall, from time to time and within ten
(10) days after demand therefor, pay to Landlord for each day the Substantial
Completion Date is delayed by reason of the delays referred to in clauses (i),
(ii), (iii) and (iv) above, an amount equal to one day of Annual Rent (pro-rated
on a daily basis) for each such day of delay.
(b) The delays referred to in paragraph (a) are herein referred to
collectively and individually as "Tenant's Delay". Landlord shall use good faith
efforts to give Tenant prompt written notice of any claimed Tenant's Delay.
(c) If, as a result of Tenant's Delay, the Substantial Completion Date
is delayed in the aggregate for more than sixty (60) days, Landlord may (but
shall not be required to) at any time thereafter terminate this Lease by giving
written notice of such termination to Tenant and thereupon this Lease shall
terminate without
- 11 -
<PAGE> 16
further liability or obligation on the part of either party, except that Tenant
shall pay to Landlord the actual and reasonable cost theretofore incurred by
Landlord in performing Landlord's Work, plus an amount equal to Landlord's
out-of-pocket expenses incurred in connection with this Lease, including,
without limitation, brokerage and reasonable legal fees, together with any
amount required to be paid pursuant to paragraph (a) through the effective
termination date.
(d) The Anticipated Construction Completion Date shall automatically be
extended for the period of any delays caused by Tenant's Delay.
Section 3.6. General Provisions Applicable to Construction. All
construction work required or permitted by this Lease, whether performed by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws, ordinances, regulations, codes and orders
of any governmental authority.
Section 3.7. Construction Representatives. Each party authorizes the
other to rely in connection with plans and construction upon approval and other
actions on the party's behalf by any Construction Representative of the party
named in Section 1.1 or any person hereafter designated in substitution or
addition by notice to the party relying.
Section 3.8. Changes In Building or Lot. Landlord shall have the right,
prior to or during construction of the Building, to redesign the Building and/or
floors within the Building to the extent made necessary by field conditions, by
requirement of any applicable law, by-law, ordinance or municipal authority or
otherwise; provided, however, that no such redesign shall relieve Landlord of
its obligation to deliver the Premises, or any portion thereof, in accordance
with the foregoing provisions of this Section 3 of the Lease and further
provided that no such redesign shall be made without the approval of Tenant,
which approval shall not be unreasonably withheld or delayed. In the event any
such redesign shall be implemented, Landlord shall keep Tenant fully advised as
to the changes made to the floor plans attached hereto as Exhibit A and the
parties shall enter promptly into an amendment to this Lease reflecting any
increase or decrease in the area of the Premises, change in the Annual Rent and
the like resulting from any such redesign. Landlord also reserves the right to
change its layout, design and plans for the Lot and Leasehold Parking Area and
for parking and roadways thereon at any time and to add to or reduce the size of
the Lot and the Leasehold Parking Area; provided that no reduction in the size
of the Lot may adversely affect the Building or the number of parking spaces
made available to Tenant under this Lease or access ways serving the Building.
- 12 -
<PAGE> 17
Section 3.9. Tenant's Early Access. Subject to the terms, provisions,
covenants, agreements and conditions of this Lease, and provided that Landlord
has completed the Base Building and the Town of Framingham Building Department
has issued a Certificate of Occupancy for the same, Tenant shall be allowed
early access for the purpose of installing Tenant's furniture, racking equipment
and telecommunications systems at least fifteen (15) days prior to Commencement
Date. Any failure by Landlord to provide such early access shall postpone the
Commencement Date by one (1) day for each day of delay.
SECTION 4
Annual Rent
Section 4.1. The Annual Rent. Commencing on the Commencement Date,
Tenant shall pay the Annual Rent to Landlord at the Address of Landlord or at
such other place or to such other person or entity as Landlord may by notice to
Tenant from time to time direct, at the Annual Fixed Rent set forth in Section
1, in equal installments equal to 1/12th of the Annual Fixed Rent in advance on
the first day of each calendar month included in the Term, and for any portion
of a calendar month at the beginning or end of the Term, at that pro-rated rate
payable in advance for such portion, and the Additional Rent in accordance with
the terms and provisions of this Lease. In the event that any installment of
Annual Rent is not paid within five (5) days after the due date thereof, Tenant
shall pay a late charge equal to five (5%) percent of the amount of any Annual
Rent payment which is not paid when due. The five (5) day grace period set forth
in the immediately preceding sentence shall only apply to the first two (2)
instances of failure to pay Annual Rent in any twelve (12) month period, and
thereafter, beginning with the third (3rd) such occasion in any twelve month
period, the 5% late charge shall be payable immediately without any grace period
if Annual Rent payments are not paid when due. Except for the period of any
Tenant Delays, Tenant shall receive the first six (6) months' rental abatement
on 26,136 rentable square feet on the third floor of the Premises.
Notwithstanding the foregoing to the contrary, for each day of any Tenant Delay,
Tenant shall pay Annual Rent on a per diem basis for that portion of the
Premises located on the fourth (4th) and fifth (5th) floors of the Building and
Tenant shall forfeit free rent on a per diem basis for that portion of the
Premises located on the third (3rd) floor of the Building.
SECTION 5
Operating Cost Escalation
- 13 -
<PAGE> 18
Section 5.1. Operating Cost Escalation. Tenant shall pay to Landlord,
as Additional Rent, Operating Cost Escalation (as defined below) on or before
the 30th day following receipt by Tenant of Landlord's Operating Cost Statement
(as defined below). After the end of each calendar year during the term and
after Lease termination, Landlord shall render a statement ("Landlord's
Operating Cost Statement") in reasonable detail and according to usual
accounting practices, certified by Landlord, and showing for the preceding
calendar year or fraction thereof, as the case may be, Landlord's Operating
Costs (as defined below). Landlord's Operating Costs shall include, without
limitation, premiums for insurance covered by Landlord with respect to the
Property; compensation and all customary and reasonable fringe benefits,
worker's compensation, insurance premiums and payroll taxes paid by Landlord to,
for or with respect to all persons engaged in the managing, operating,
maintaining or cleaning of the Property; water and sewer use charges for the
Property; all utility charges not billed directly to tenants by Landlord or the
utility; payments to contractors and management companies under service or
management contracts (or other costs incurred directly by Landlord or its
agents) for operating, managing, cleaning, maintaining and repairing the
Property, including, without limitation, management fees (in an amount equal to
2 1/2% of gross revenues derived from the Property), Building cleaning, window
cleaning, pest extermination, trash removal, landscaping, snow removal and
repair and maintenance to elevators, the HVAC, electric and plumbing systems and
parking areas (which payments may be to affiliates of Landlord, provided the
same are at reasonable rates), and all other reasonable and necessary expenses
paid in connection with the cleaning, operating, managing, maintaining,
replacing, repairing of the Building or any portion of the Property; all costs
and expenses allocated to the Property under the Cross Easement; all costs and
expenses allocated to the Property under the Park Covenants, including, without
limitation, the annual amount of the "Lot's Allocable Share", as said term is
defined below; the cost of any insurance required to be carried by Landlord
under the Ground Lease or which Landlord carries under the Ground Lease; it
being agreed that if Landlord shall install a new or replacement capital item
for the purpose of reducing Landlord's Operating Costs, the annual amortization
(determined by Landlord) of the cost thereof, with interest thereon at an annual
rate equal to two (2%) percent above the base rate (prime rate) of BankBoston
(or any other bank having offices in Boston, Massachusetts chosen by Landlord)
from time to time, shall be included in Landlord's Operating Costs.
The annual amount of the "Lot's Allocable Share" of the "Park
Common Expenses" (as said term is hereinafter defined) is included in Landlord's
Operating Costs above. As used herein, the term "Park Common Expenses" shall
mean "Common Expenses" as said term is defined in the Park Covenants; provided,
however, the term "Park Common Expenses" shall not include any costs relating to
the remediation of
- 14 -
<PAGE> 19
any hazardous materials on the Lot and the Leasehold Parking Area in connection
with closure of the landfill on the Landfill Lot. Landlord shall use diligent
efforts to cause the owner of the Park Common Property to maintain and repair
the Park Common Property insofar as it services the Premises in good operating
condition and repair. As used herein, the term "Park Common Property" shall mean
the "Infrastructure Easement Areas" and the "Common Land", as such terms are
defined in the Park Covenants. As used in this Lease, the term "Lot's Allocable
Share" shall mean a percentage equal to that percentage which is attributable to
the Property under the Park Covenants in determining the Property's share of
Common Expenses under the Park Covenants.
Landlord's Operating Costs shall not include (a) any costs or
expenses incurred by Landlord in the construction and development of the
Building (including repair of defects in construction and legal expenses for
construction or financing); (b) payments of principal, interest or other charges
on mortgages; (c) costs of financing or refinancing or costs incurred in
connection with any other financing, sale or syndication of the Building; (d)
any rent paid on any ground or underlying lease; (e) taxes (other than Real
Estate Taxes) imposed on Landlord; (f) costs relating to maintaining Landlord's
existence as a limited liability company, corporation, limited partnership or
other entity or other corporate overhead of Landlord; (g) costs of leasing other
rentable areas in the Building, including advertising, leasing commissions,
public relations expenses, and legal expenses related to lease negotiations and
enforcement of leases; (h) costs of improvements or alterations to other
tenants' space; (i) costs of services or items furnished to other tenants in the
Building but not furnished to Tenant hereunder; (j) the incremental additional
cost of any work or service performed for any other tenant to a greater extent
or in a materially more favorable manner than that furnished to Tenant; (k) any
costs to the extent specifically allocable to any retail space; (l) the
incremental increases in premiums for insurance required to be carried by
Landlord pursuant to this Lease when such increases are caused by any special or
hazardous use of the Property by Landlord or other tenants; (m) costs paid
directly by individual tenants to suppliers, including tenant electricity and
telephone costs; (n) costs incurred by Landlord relating to any violation by
Landlord or any other tenant of the terms and conditions of any lease of space
to the extent that such costs would not otherwise have been incurred by Landlord
but for such breach; (o) the cost of making installations, alterations or
replacements to the Building that under generally accepted accounting principles
are properly classified as capital expenditures, except to the extent the
amortized costs may be charged as set forth above; (p) depreciation; (q)
reserves for bad debts or capital improvements; (r) the costs of environmental
testing and of complying with applicable federal, state and local laws dealing
with the handling, storage and disposal of hazardous materials or substances
including, without limitation, assessment and clean-up costs; (s) the cost of
installing
- 15 -
<PAGE> 20
or subsidizing a parking facility or athletic or recreational club; (t) the cost
of any items for which Landlord is reimbursed by insurance, condemnation,
refund, rebate or otherwise (which Landlord shall use commercially reasonable
efforts to obtain); (u) any expenses for repairs or maintenance to the extent
recovered under warranties and guarantees (which Landlord shall use commercially
reasonable efforts to enforce); (v) damages, penalties or fines which Landlord
is obligated to pay by reason of Landlord's violation of applicable law or
failure to comply with its lease obligations; (w) costs required to remedy any
noncompliance as of the Commencement Date of the Lease, of the Premises or the
common areas of the Building with applicable laws in effect as of such date
(including, without limitation, the Americans with Disabilities Act); (x) costs
of purchasing paintings or other works of art; (y) chargeable contributions; (z)
the cost of any services or materials provided for the maintenance, repair and
operation of the Property by any affiliate of Landlord to the extent such costs
exceed the costs that would have been paid by Landlord in an arm's length
transaction; and (aa) any capital costs related to the roof, foundation and
structure of the Building.
In determining Landlord's Operating Costs, if less than 95% of the
Building shall have been occupied by tenants and fully used by them, at any time
during the year, Landlord's Operating Costs shall be extrapolated to an amount
equal to the like operating expenses that would normally be expected to be
incurred had such occupancy been 95% and had such full utilization been made
during the entire period.
"Operating Cost Escalation" shall be equal to Tenant's Proportionate
Share of the excess, if any, of:
(a) Landlord's Operating Costs for each calendar year as indicated by
Landlord's Operating Cost Statement; over
(b) The Annual Base Operating Costs, all of which shall be adjusted to
reflect 100% occupancy.
Notwithstanding the above calculation, in no event shall Operating Cost
Escalation be less than zero.
Tenant acknowledges that Landlord's formula for sharing of Landlord's
Operating Costs stated in this Lease is based on the assumption that Landlord
will be providing substantially similar services to all tenants in the Property
from year to year. If this assumption is not, in fact, correct, that is, if
Landlord is not furnishing any particular work or service (the cost of which, if
performed by Landlord, would be included in Landlord's Operating Costs) to a
tenant who has undertaken to perform such work or service in lieu of the
performance thereof by Landlord, Operating Costs shall be deemed, for purposes
of this paragraph, to be adjusted by an amount
- 16 -
<PAGE> 21
equal to the additional Operating Costs which would reasonably have been
incurred during such period by Landlord if it had, at its own expense, furnished
such work or service to such tenant.
Operating Cost Escalations shall be apportioned for any calendar year
in which the Term of this Lease commences or ends. Notwithstanding any other
provision of this Section 5.1, if the term expires or is terminated as of a date
other than the last day of a calendar year, then for such fraction of a calendar
year at the end of the term, Tenant's last payment to Landlord under this
Section 5.1 shall be made on the basis of Landlord's best estimate of the items
otherwise includable in Landlord's Operating Cost Statement and shall be made on
or before the later of (a) 30 days after Landlord delivers such estimate to
Tenant, or (b) the last day of the term, with an appropriate payment or refund
to be made upon submission of Landlord's Operating Cost Statement.
Section 5.2. Estimated Operating Cost Escalation Payments. If, with
respect to any calendar year or fraction thereof during the Term of this Lease,
Landlord reasonably estimates that Tenant shall be obligated to pay Operating
Cost Escalation, then Tenant shall pay, as Additional Rent, on the first day of
each month of such calendar year and each ensuing calendar year thereafter,
estimated monthly escalation payments equal to 1/12th of the estimated Operating
Cost Escalation for the respective calendar year, with an appropriate additional
payment or refund to be made within 30 days after Landlord's Operating Cost
Statement is delivered to Tenant. Landlord may adjust such estimated monthly
escalation payment from time to time and at any time during a calendar year, and
Tenant shall pay, as Additional Rent, on the first day of each month following
receipt of Landlord's notice thereof (which notice shall be accompanied by
appropriate documentation supporting such adjustment), the adjusted estimated
monthly escalation payment.
Section 5.3. Audit. Provided that Tenant shall have first paid all
amounts due and payable by Tenant pursuant to Section 5 and Section 6 and upon
the written request of Tenant (but not more than once with respect to any
Operating Year), Tenant shall be permitted to inspect Landlord's books and
records pertaining to Operating Expenses applicable to the Property for such
Operating Year. Such inspection shall take place at a mutually agreeable time at
the location where such books and records are kept in the greater Boston area by
the Landlord in the ordinary course. Tenant shall keep the results of any such
inspection strictly confidential and shall not be permitted to use any third
party to perform such audit or inspection, other than an independent firm of
certified public accountants (A) reasonably acceptable to Landlord, (B) which is
not compensated on a contingency fee basis or in any other manner which is
dependent upon the results of such audit or inspection (and Tenant shall deliver
the fee agreement or other similar evidence of such fee arrangement to Landlord
upon
- 17 -
<PAGE> 22
request), and (C) which agrees with Landlord in writing to maintain the results
of such audit or inspection confidential. Tenant may not conduct an inspection
or have an audit performed more than once during any Operating Year. Provided
Landlord's accounting for Operating Expenses is consistent with the terms of
this Lease, Landlord's good faith judgment regarding the proper interpretation
of this Lease and the proper accounting for Operating Expenses shall be binding
on Tenant in connection with any such audit or inspection. In the event of any
dispute between Landlord and Tenant regarding the proper treatment of an
accounting item, the dispute shall be resolved, at Tenant's sole cost and
expense, by an independent certified public accounting firm mutually acceptable
to the parties. Failure of Tenant to provide Landlord with a written request to
review such books and records and to commence said review within nine (9) months
after receipt of a final statement pursuant to this Section 5.3 with respect to
each respective Operating Year shall be deemed a waiver of Tenant's rights
hereunder with respect to such Operating Year. If Tenant's audit discloses any
error greater than 3% of the total Operating Costs, Landlord shall reimburse
Tenant's reasonable audit costs not to exceed $2,500.00. Landlord shall refund
any overpayment of Operating Costs within 30 days after the audit is completed.
SECTION 6
Real Estate Tax Escalation.
Section 6.1. Real Estate Tax Escalation. Tenant shall pay to Landlord,
as Additional Rent, Real Estate Tax Escalation (as defined below) on or before
the thirtieth (30th) day following billing therefor by Landlord.
As used herein, the term "Real Estate Taxes" shall mean all taxes,
assessments (special, betterment or otherwise), levies, fees, water and sewer
rents and charges, and all other government levies and charges, general and
special, ordinary and extraordinary, foreseen and unforeseen, which are
allocable to the term hereof and imposed or levied upon or assessed against the
Property or any rent or other sums payable by any tenants or occupants thereof.
Nothing herein shall, however, require Tenant to pay any income taxes, excess
profits taxes, excise taxes, franchise taxes, estate, succession, inheritance or
transfer taxes, provided, however, that if at any time during the term the
present system of ad valorem taxation of real property shall be changed so that
in lieu of the whole or any part of the ad valorem tax on real property, or in
lieu of increases therein, there shall be assessed on Landlord a capital levy or
other tax on the gross rents received with respect to the Property or a federal,
state, county, municipal, or other local income, franchise, excise or similar
tax, assessment, levy or charge (distinct from any now in effect) measured by or
based, in whole or in part, upon gross rents, then any and all of
- 18 -
<PAGE> 23
such taxes, assessments, levies or charges, to the extent so measured or based
("Substitute Taxes"), shall be included as real estate taxes hereunder,
provided, however, that Substitute Taxes shall be limited to the amount thereof
as computed at the rates that would be payable if the Property were the only
property of Landlord. The term "Real Estate Taxes" shall also mean all real
estate taxes and assessments (or any substitute therefor) which are allocated to
the Property under the Park Covenants. The term "Real Estate Taxes" shall also
mean and include the "Lot's Pro Rata Share" (as said term is hereinafter
defined) of all "Ground Lease Taxes" (as said term is hereinafter defined) on
the Entire Leasehold Lot. The term Entire Leasehold Lot shall mean the entire
Lot B (of which the Leasehold Lot forms a part) as Lot B is shown on that
certain plan entitled Subdivision Plan of Land in Framingham, Massachusetts,
prepared for Rose Holding, Inc. by Vanasse Hangen Brustlin, Inc., Scale: 1 Inch
= 60 Feet, dated June 5, 1996, revised June 13, 1996. As used herein, the term
"Ground Lease Taxes" shall mean all Taxes (said term is defined in the Ground
Lease) with respect to the Entire Leasehold Lot (of which the Leasehold Lot is a
part) as set forth in Article 4 of the Ground Lease. If by reason of the fact
that the Town of Framingham is the owner of Entire Leasehold Lot or just the
Leasehold Lot, taxes are not assessed, levied, confirmed or imposed on or with
respect to the Entire Leasehold Lot or the Leasehold Lot, then for the period
between the Commencement Date and the expiration of the term of the Ground
Lease, Ground Lease Taxes shall include such amounts ("Alternative Taxes") as
the tenant under the Ground Lease would have been obligated to pay with respect
to the Entire Leasehold Lot had Landlord, as the tenant under the Ground Lease,
been the owner of the Entire Leasehold Lot. If taxes and assessments should ever
be assessed against the Leasehold Lot separate and apart from the Entire
Leasehold Lot or if the "Alternative Taxes" are separately payable under the
Ground Lease with respect only to the Leasehold Lot separate and apart from the
Entire Leasehold Lot, then the term "Real Estate Taxes" during such period shall
include 100% of such taxes and assessments or Alternative Taxes allocable to the
Leasehold Lot. As used herein, the term "Lot's Pro Rata Share" shall mean the
quotient derived by dividing the square footage of the Leasehold Lot by the
square footage of the Entire Leasehold Lot. At Tenant's request, Landlord shall
file and diligently prosecute an abatement of real estate taxes.
"Real Estate Tax Escalation" shall be equal to Tenant's Proportionate
Share of the excess, if any, of:
(a) Real Estate Taxes for the applicable tax fiscal year occurring
during the term; over
(b) the Annual Base Real Estate Taxes, all of which shall be adjusted
to reflect 100% occupancy and assessment.
- 19 -
<PAGE> 24
Notwithstanding the above calculation, in no event shall Real Estate
Tax Escalation be less than zero.
Notwithstanding any other provision of this Section 6.1, if the Term of
this Lease expires or is terminated as of a date other than the last date of a
tax fiscal year, then for such fraction of a tax fiscal year at the end of the
term, Tenant's last payment to Landlord under this Section 6.1 shall be made to
reflect that only a portion of such tax fiscal year falls within the term of
this Lease and shall be made within 10 days after Landlord bills Tenant
therefor.
Section 6.2 Estimated Real Estate Escalation Payments. If, with respect
to any tax fiscal year or fraction thereof during the term, Landlord reasonably
estimates that Tenant shall be obligated to pay Real Estate Tax Escalation,
Tenant shall pay, as Additional Rent, on the first day of each month of such tax
fiscal year and each ensuing tax fiscal year thereafter, estimated monthly
escalation payments equal to 1/12th of the estimated Real Estate Tax Escalation
for the respective tax fiscal year, with an appropriate additional payment or
refund to be made within 30 days after Landlord's delivery of the tax bills for
such period to Tenant. Landlord may adjust such estimated monthly escalation
payment from time to time and at any time during a tax fiscal year, and Tenant
shall pay, as Additional Rent, on the first day of each month following receipt
of Landlord's notice thereof, the adjusted estimated monthly escalation payment.
SECTION 7
Insurance
Section 7.1. Tenant's Insurance. Tenant shall, as additional rent,
maintain throughout the Term the following insurance:
(a) Commercial general liability insurance for any injury to
person or property occurring on the Premises, naming as insureds Tenant,
Landlord and such persons, including, without limitation, Landlord's managing
agent, as Landlord shall designate from time to time, in amounts which shall, at
the beginning of the Term, be at least equal to the limits set forth in Section
1, and, from time to time during the Term, shall be for such higher limits as
are reasonably required by Landlord; and
(b) Worker's compensation insurance with statutory limits
covering all of Tenant's employees working at the Premises.
Section 7.2. Requirements Applicable to Insurance Policies. All
policies for insurance required under the provisions of Section 7.1 shall be
obtained from responsible companies qualified to do business
- 20 -
<PAGE> 25
in the Commonwealth of Massachusetts and in good standing therein, which
companies and the amount of insurance allocated thereto shall be subject to
Landlord's approval, which approval shall not be unreasonably withheld or
delayed. Tenant agrees to furnish Landlord with insurance company certificates
of all such insurance and copies of the policies therefor prior to the beginning
of the Term hereof and of each renewal policy at least thirty (30) days prior to
the expiration of the policy it renews. Each such policy shall be noncancellable
with respect to the interest of Landlord and such mortgagees without at least
thirty (30) days' prior written notice thereto.
Section 7.3. Waiver of Subrogation. All insurance which is carried by
either party with respect to the Property, the Premises or to furniture,
furnishings, fixtures or equipment therein or alterations or improvements
thereto, whether or not required, shall include provisions which either
designate the other party as one of the insureds or deny to the insurer
acquisition by subrogation of rights of recovery against the other party to the
extent such rights have been waived by the insured party prior to occurrence of
loss or injury, insofar as, and to the extent that such provisions may be
effective without making it impossible to obtain insurance coverage from
responsible companies qualified to do business in the Commonwealth of
Massachusetts (even though extra premium may result therefrom) and without
voiding the insurance coverage in force between the insurer and the insured
party. On reasonable request, each party shall be entitled to have duplicates or
certificates of policies containing such provisions. Each party hereby waives
all rights of recovery against the other for loss or injury against which the
waiving party is protected by insurance containing said provisions, reserving,
however, any rights with respect to any excess of loss or injury over the amount
recovered by such insurance.
SECTION 8
Landlord's Covenants
Section 8.1. Quiet Enjoyment. Tenant, on paying the rent and performing
its obligations hereunder, shall peacefully and quietly have, hold and enjoy the
Premises throughout the Term without any manner of hindrance or molestation from
Landlord or anyone claiming under Landlord, subject, however, to all the terms
and provisions hereof.
Section 8.2. Maintenance and Repair. Subject to the provisions of
Section 10, Landlord shall maintain the roof, structural supports, foundation
and exterior of the Building and all standard plumbing, electrical, mechanical,
heating, ventilating and air conditioning systems installed by Landlord (but
excluding all special systems
- 21 -
<PAGE> 26
installed by Tenant or by Landlord at Tenant's request) in good condition and
shall maintain and clean the common areas of the Building and the Lot, the cost
of which shall be included in Landlord's Operating Costs.
Section 8.3. Electricity. Electricity to the Premises shall be
separately metered and all utility charges for lights and plugs only shall be
paid by Tenant. If in Landlord's reasonable judgment, Tenant's use of
electricity in excess of normal office usage (six (6) watts per square foot)
shall result in an additional burden on the Building's utility systems or
additional cost on account thereof, as the case may be, Tenant shall upon demand
reimburse Landlord for all additional costs related thereto. Landlord, at
Tenant's expense, shall replace and install all ballasts, lamps and bulbs
(including, but not limited to, incandescent and fluorescent) used in the
Premises. All such replacements shall be of a type, color and size as shall be
designated by Landlord. Landlord shall not in any way be liable or responsible
to Tenant for any loss, damage or expense which Tenant may sustain or incur if
the quantity, character, or supply of electricity is changed or is no longer
available or suitable for Tenant's requirements.
Section 8.4. HVAC. Landlord shall, on Business Days and generally
during 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 (1) person per 150 square feet of usable floor area. If Tenant
shall require air-conditioning, heating or ventilation outside the hours and
days above specified, Landlord shall furnish such service and Tenant shall pay
to Landlord the actual cost of such service as Additional Rent. 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, or which affects the
temperature otherwise maintained by the air-conditioning system, supplementary
systems may, if and as needed, at Landlord's option, be provided by Landlord, at
Tenant's expense.
Section 8.5. Cleaning. With respect to the common areas of the Building
and the Premises, Landlord shall provide nightly cleaning services as more
particularly described in Exhibit I attached hereto for said portions of the
Building (Mondays through Fridays only) including removal and disposal of usual
office trash and refuse.
Section 8.6. Interruptions.
(a) Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from power losses or shortages or from the
- 22 -
<PAGE> 27
necessity of Landlord's entering the Premises for any of the purposes authorized
by this Lease or for repairing the Premises or any portion of the Building or
Lot or Leasehold Parking Area. In case Landlord is prevented or delayed from
making any repairs, alterations or improvements, or furnishing any service or
performing any other obligation to be performed on Landlord's part, by reason of
any cause, Landlord shall not be liable to Tenant therefor, nor shall Tenant be
entitled to any abatement or reduction of rent by reason thereof, nor shall the
same give rise to any claim by Tenant that such failure constitutes actual or
constructive, total or partial, eviction from the Premises. Landlord reserves
the right to stop any service or utility system when necessary by reason of
accident or emergency or until necessary repairs have been completed. Except in
case of emergency repairs, Landlord will give Tenant reasonable advance notice
of any contemplated stoppage and will use reasonable efforts to avoid
unnecessary inconvenience to Tenant by reason thereof. Landlord also reserves
the right to institute such policies, programs and measures as may be necessary,
required or expedient for the conservation or preservation of energy or energy
services or as may be necessary or required to comply with applicable codes,
rules, regulations or standards. In so doing, Landlord shall make reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
(b) Notwithstanding anything contained in this Lease to the contrary,
if (i) an interruption or curtailment, suspension or stoppage of an Essential
Service (as said term is hereinafter defined) shall occur (any such interruption
of an Essential Service being hereinafter referred to as a "Service
Interruption"), (ii) such Service Interruption occurs or continues as a result
of an involuntary interruption, stoppage or suspension of Essential Services by
Landlord or as the result of any circumstance which is subject to the control of
Landlord, (iii) such Service Interruption continues for more than fifteen (15)
consecutive calendar days after Landlord shall have received notice thereof from
Tenant, (which notice shall specifically refer to the provisions of this
paragraph) and (iv) as a result of such Service Interruption, the conduct of
Tenant's normal operations in the Premises are materially and adversely
affected, then there shall be an abatement of one day's Annual Fixed Rent for
each day during which such Service Interruption continues provided, further,
that if any part of the Premises is reasonably useable for Tenant's operations
or if Tenant conducts all or any part of its operations in the Premises
notwithstanding such Service Interruption, then the amount of each daily
abatement of Annual Fixed Rent shall only be proportionate to the nature and
extent of the interruption of Tenant's normal operations. If Landlord fails to
perform its repair obligations within the timeframes allowed by this Section 8.6
and provided that no Event of Default has occurred under this Lease, Tenant
shall have the right to make any necessary repairs and bill Landlord the actual
cost of said repairs up to a maximum amount of five percent (5%) of the Annual
Fixed Rent for
- 23 -
<PAGE> 28
the applicable Lease Year in which said repairs were made. For purposes hereof,
the term "Essential Services" shall mean the following services, to the extent
that Landlord has agreed to provide any of them to Tenant pursuant to this
Lease: elevator service, heating, air-conditioning, water and electricity. Any
abatement of Annual Fixed Rent under this paragraph shall apply only with
respect to Annual Fixed Rent allocable to the period after each of the
conditions set forth in subsections (i) through (iv) hereof shall have been
satisfied.
SECTION 9
Tenant's Covenants
Section 9.1. Use. Tenant shall use the Premises only for the Permitted
Uses and shall from time to time procure all licenses and permits necessary
therefor at Tenant's sole expense.
Section 9.2. Repair and Maintenance. Except as otherwise provided in
Sections 8 and 10, Tenant shall keep the Premises, including all plumbing,
electrical, heating, air conditioning and other systems therein serving the
Premises, in good order, condition and repair and in at least as good order,
condition and repair as they are in on the Commencement Date or may be put in
during the Term, reasonable use and wear and fire or other casualty only
excepted. Tenant shall make all repairs and replacements and do all other work
necessary for the foregoing purposes whether the same may be ordinary or
extraordinary, foreseen or unforeseen. Tenant shall keep in a safe, secure and
sanitary condition all trash and rubbish temporarily stored at the Premises.
Section 9.3. Compliance with Law and Insurance Requirements. After
Landlord's completion of Landlord's Work, Tenant shall make all repairs,
alterations, additions or replacements to the Premises required by any law or
ordinance or any order or regulation of any public authority arising from
Tenant's use of the Premises and shall keep the Premises equipped with all
safety appliances so required. Tenant shall not dump, flush, or in any way
introduce any hazardous substances or any other toxic substances into the
septic, sewage or other waste disposal system serving the Premises, or generate,
store or dispose of hazardous substances in or on the Premises or dispose of
hazardous substances from the Premises to any other location without the prior
written consent of Landlord and then only in compliance with the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901 et seq., the
Massachusetts Hazardous Waste Management Act, M.G.L. c.21C, as amended, the
Massachusetts Oil and Hazardous Material Release Prevention and Response Act,
M.G.L. c.21E, as amended, and all other applicable codes, regulations,
ordinances and laws. Tenant shall notify Landlord of any incident which would
require the filing of a
- 24 -
<PAGE> 29
notice under Chapter 232 of the Acts of 1982 and shall comply with the orders
and regulations of all governmental authorities with respect to zoning,
building, fire, health and other codes, regulations, ordinances or laws
applicable to the Premises. "Hazardous substances" as used in this Section shall
mean "hazardous substances" as defined in the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 and
regulations adopted pursuant to said Act.
Upon twenty four (24) hours telephonic notice to Tenant (except in the
case of any emergency), Landlord may, if it so elects, make any of the repairs,
alterations, additions or replacements referred to in this Section which affect
the Building structure or the Building systems, and Tenant shall reimburse
Landlord for the reasonable cost thereof within thirty (30) days.
Tenant will provide Landlord, from time to time upon Landlord's
request, with all records and information regarding any Hazardous Materials
maintained on the Premises by Tenant.
Landlord shall have the right to make such inspections upon reasonable
notice during Business Hours as Landlord shall reasonably elect from time to
time to determine if Tenant is complying with this Section and if any of such
inspections reveals contamination by Hazardous Materials of the Property as a
result of Tenant's operations or actions or the actions of Tenant's agents,
contractors or employees, Tenant shall reimburse Landlord for the cost of
performing (or contracting for) such inspections.
In no event shall any activity be conducted by Tenant on the Property
which may give rise to any cancellation of any insurance policy or make any
insurance unobtainable.
Section 9.4. Tenant's Work. Except for any non-structural alterations
which, in each instance cost less than $25,000.00, Tenant shall not make any
installations, alterations, additions or improvements in or to the Premises,
including, without limitation, any apertures in the walls, partitions, ceilings
or floors, without on each occasion obtaining the prior written consent of
Landlord not to be unreasonably withheld. Any such work so consented to by
Landlord shall be performed only in accordance with plans and specifications
therefor approved by Landlord. Tenant shall procure at Tenant's sole expense all
necessary permits and licenses before undertaking any work on the Premises and
shall perform all such work in a good and workmanlike manner employing materials
of good quality and so as to conform with all applicable zoning, building, fire,
health and other codes, regulations, ordinances and laws and with all applicable
insurance requirements. If requested by Landlord, Tenant shall furnish to
Landlord prior to the commencement of any such work a bond or other
- 25 -
<PAGE> 30
security acceptable to Landlord assuring that any work by Tenant will be
completed in accordance with the approved plans and specifications. Tenant shall
keep the Premises at all times free of liens for labor and materials. Tenant
shall employ for such work only contractors approved by Landlord and shall
require all contractors employed by Tenant to carry worker's compensation
insurance in accordance with statutory requirements and comprehensive general
liability insurance covering such contractors, and naming Landlord and Tenant as
additional insureds, on or about the Premises in amounts at least equal to the
limits set forth in Section 1 and to submit certificates evidencing such
coverage to Landlord prior to the commencement of such work. Tenant shall save
Landlord harmless and indemnified from all injury, loss, claims or damage to any
person or property occasioned by or growing out of such work. Landlord may
inspect the work of Tenant at reasonable times and give notice of observed
defects.
Section 9.5. Indemnity. Tenant shall defend, with counsel reasonably
approved by Landlord, all actions against Landlord, any member, partner,
trustee, stockholder, officer, director, employee or beneficiary of Landlord,
holders of mortgages secured by the Building and any other party having an
interest in the Premises ("Indemnified Parties") with respect to, and shall pay,
protect, indemnify and save harmless, to the extent permitted by law, all
Indemnified Parties from and against, any and all liabilities, losses, damages,
costs, expenses (including reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature arising from (a)
injury to or death of any person, or damage to or loss of property, occurring in
the Premises unless caused by the negligence or willful misconduct of Landlord
or its servants, contractors or agents, (b) violation of this Lease by Tenant,
or (c) any wrongful act or other misconduct of Tenant or its agents,
contractors, subcontractors, licensees, sublessees or invitees. Landlord shall
defend, with counsel reasonably approved by Tenant, all actions against Tenant,
any member, partner, trustee, stockholder, officer, director, employee or
beneficiary of Tenant, holders of mortgages secured by the Building and any
other party having an interest in the Premises ("Indemnified Parties") with
respect to, and shall pay, protect, indemnify and save harmless, to the extent
permitted by law, all Indemnified Parties from and against, any and all
liabilities, losses, damages, costs, expenses (including reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments of any
nature arising from (a) injury to or death of any person, or damage to or loss
of property, occurring in the Premises unless caused by the negligence or
willful misconduct of Tenant or its servants, contractors or agents, (b)
violation of this Lease by Landlord, or (c) any wrongful act or other misconduct
of Landlord or its agents, contractors, subcontractors, licensees, sublessees or
invitees. The indemnities contained in this Section 9.5 shall survive any
expiration or earlier termination of this Lease.
- 26 -
<PAGE> 31
Section 9.6. Landlord's Right to Enter. Tenant shall permit Landlord
and its agents to enter into the Premises at reasonable times and upon
reasonable notice (except that in emergencies no notice shall be required) to
examine the Premises, make such repairs and replacements as Landlord may elect,
without however, any obligation to do so, and show the Premises to prospective
purchasers and lenders, and, during the last year of the Term, to show the
Premises to prospective tenants and to keep affixed in suitable places notices
of availability of the Premises.
Section 9.7. Personal Property at Tenant's Risk. All furnishings,
fixtures, equipment, effects and property of every kind of Tenant and of all
persons claiming by, through or under Tenant which may be on the Premises, shall
be at the sole risk and hazard of Tenant and if the whole or any part thereof
shall be destroyed or damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, by theft or from any other
cause, no part of said loss or damage shall be charged to or to be borne by
Landlord, except that Landlord shall in no event be indemnified or held harmless
or exonerated from any liability to Tenant for any injury, loss, damage or
liability not covered by Tenant's insurance to the extent prohibited by law.
Tenant shall insure Tenant's personal property.
Section 9.8. Yield Up. At the expiration of the term or earlier
termination of this Lease, Tenant shall surrender all keys to the Premises,
remove all of its trade fixtures and personal property in the Premises, remove
such installations and improvements made by Tenant as Landlord may request at
the time of Landlord's approval of Tenant's Plans, repair all damage caused by
such removal and yield up the Premises (including all installations and
improvements made by Tenant which Landlord shall not request Tenant to remove)
broom-clean and in the same good order and repair, normal wear and tear and fire
or other casualty excepted in which Tenant is obliged to keep and maintain the
Premises under this Lease. Any property not so removed shall be deemed abandoned
and may be removed and disposed of by Landlord in such manner as Landlord shall
determine, and Tenant shall pay Landlord the entire cost and expense incurred by
it in effecting such removal and disposition and in making any incidental
repairs and replacements to the Premises and for use and occupancy during the
period after the expiration of the term and prior to Tenant's performance of its
obligations under this Section 9.8.
Section 9.9. Estoppel Certificate. Upon not less than ten (10) business
days' prior notice by Landlord, Tenant shall execute, acknowledge and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect and that, except as stated therein, Tenant has no
knowledge of any defenses, offsets or counterclaims against its obligations to
pay the Annual Rent
- 27 -
<PAGE> 32
and any other charges and to perform its other covenants under this Lease (or,
if there have been any modifications that the same is in full force and effect
as modified and stating the modifications and, if there are any defenses,
offsets or counterclaims, setting them forth in reasonable detail), the dates to
which the Annual Rent and other charges have been paid and a statement that
Landlord is not in default hereunder (or if in default, the nature of such
default, in reasonable detail). Any such statement delivered pursuant to this
Section 9.9 may be relied upon by any prospective purchaser or mortgagee of the
Building.
Section 9.10. Landlord's Expenses Re Consents. Tenant shall reimburse
Landlord promptly on demand for all reasonable legal and other expenses incurred
by Landlord in connection with all requests by Tenant for consent or approval
hereunder. + Landlord shall reimburse Tenant promptly on demand for all
reasonable legal and other expenses incurred by Tenant in connection with all
requests by Landlord for consent or approval hereunder.
Section 9.11. Rules and Regulations. Tenant shall comply with the Rules
and Regulations attached hereto as Exhibit F attached hereto and such additional
reasonable rules and regulations as may be adopted from time to time by Landlord
to provide for the beneficial operation of the Property. Landlord shall enforce
rules and regulations in a nondiscriminatory manner.
Section 9.12. Holding Over. Tenant shall vacate the Premises
immediately upon the expiration or sooner termination of this Lease. If Tenant
retains possession of the Premises or any part thereof after the termination of
the term without Landlord's express consent, Tenant shall pay Landlord rent at
one hundred fifty (150%) percent the monthly rate specified in Section 1 for the
time Tenant thus remains in possession and, in addition thereto, shall pay
Landlord for all direct damages (including, without limitation, any direct
damages related to Landlord's loss of any tenant, user or occupier) sustained by
reason of Tenant's retention of possession. The provisions of this Section do
not exclude Landlord's rights of re-entry or any other right hereunder,
including without limitation, the right to remove Tenant through summary
proceedings for holding over beyond the expiration of the term of this Lease.
Section 9.13. Assignment and Subletting.
(a) Tenant covenants and agrees that, except as otherwise expressly
permitted under this Section 9.13, neither this Lease nor the 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
- 28 -
<PAGE> 33
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, without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed. Any merger,
consolidation or other similar reorganization involving Tenant shall be deemed
to be an assignment for purposes of this Section 9.13. The foregoing
restrictions shall not be applicable to an assignment of this Lease or a
subletting of the Premises by Tenant to a subsidiary wholly-owned by Tenant or
to a controlling corporation, the stock of which is wholly-owned by the
stockholders of Tenant. Notwithstanding anything to the contrary contained
herein, it shall be a condition of the validity of any assignment, whether with
the consent of Landlord or to a subsidiary or controlling corporation, that the
assignee agree 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. Notwithstanding anything to the contrary contained herein, no
assignment or subletting shall relieve Tenant from its obligations hereunder and
Tenant shall remain fully and primarily liable therefor.
(b) If this Lease be assigned, or if the Premises or any part thereof
be sublet or occupied by anyone other than Tenant, Landlord may, whether or not
it has consented to any such assignment, subletting or occupancy, at any time
and from time to time, following any Event of Default under this Lease, 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 or collection shall be deemed a waiver of any
breach under this Lease, or the acceptance of the assignee, subtenant or
occupant as a tenant or a release of Tenant from the further performance by
Tenant of its obligations hereunder. The consent by Landlord to an assignment or
subletting shall in no way be construed to relieve Tenant or any successor from
obtaining the express consent in writing of Landlord to any further assignment
or subletting nor shall any such consent release, diminish or impair Tenant's
continuing primary liability for performance of this Lease. No assignment or
subletting and no use of the Premises by a subsidiary wholly-owned by Tenant or
controlling corporation of Tenant shall affect the Permitted Uses.
(c) In connection with any request by Tenant for consent to assignment
or subletting, Tenant shall first submit to Landlord in writing: (i) the name of
the proposed assignee or subtenant, (ii) such information as to its financial
responsibility and standing as Landlord may reasonably require, and (iii) all
terms and provisions upon which the proposed subletting is to be made. If the
request is to sublet ninety (90%) or more of the Premises, upon receipt from
Tenant of such
- 29 -
<PAGE> 34
request and information, the Landlord shall have an option (sometimes
hereinafter referred to as the "option" or "Take Back Option") to be exercised
in writing within thirty (30) days after its receipt from Tenant of such request
and information, to cancel or terminate this Lease with respect to such portion
as of the date set forth in Landlord's notice of exercise of such option, which
shall be not less than sixty (60) nor more than one hundred twenty (120) days
following the giving of such notice; in the event Landlord shall exercise such
option, Tenant shall surrender possession of the entire Premises, or the portion
which is the subject of the option, as the case may be, on the date set forth in
such notice in accordance with the provisions of this Lease relating to
surrender of Premises at the expiration of the Term. If this Lease shall be
cancelled as to a portion of the Premises only, Annual Fixed Rent and Additional
Rent shall thereafter be abated proportionately according to the ratio the
number of square feet of the portion of the space surrendered bears to the size
of the Premises. As Additional Rent, Tenant shall reimburse Landlord promptly
for reasonable legal and other expenses incurred by Landlord in connection with
any request by Tenant for consent to assignment or subletting.
If Landlord shall not exercise its option pursuant to the foregoing
provisions, Landlord will not unreasonably delay or withhold its consent to the
assignment or subletting to the party referred to upon all the terms and
provisions set forth in Tenant's notice to Landlord, provided that the terms and
provisions of such assignment or subletting shall specifically make applicable
to the assignee or sublessee all of the provisions of this Section 9.13 of the
Lease so that Landlord shall have against the assignee or sublessee all rights
with respect to any further assignment or subletting which are set forth in
Section 9.13 of this Lease as amended hereby except that no such assignee or
sublessee shall have any right to further assign or sublet the Premises without
the prior written consent of Landlord, which consent shall be in Landlord's sole
and absolute discretion. In any case where Landlord consents to an assignment or
a subletting, Landlord shall be entitled to receive 50% of any Subleasing
Overages (as said term is hereinafter defined). As used herein, the term
"Subleasing Overages" shall mean, for each period in question, all amounts
received by Tenant in excess of Annual Fixed Rent and Additional Rent reserved
under this Lease attributable to the space sublet (including, without
limitation, all lump sum payments made in connection therewith) after deducting
all sublease costs (including, without limitation, all brokerage commissions,
tenant improvement costs, tenant improvement allowances, concessions and
reasonable legal fees). Notwithstanding anything to the contrary contained
herein, termination of this Lease shall terminate all rights of Tenant to share
in or receive any Subleasing Overages and Landlord, alone, shall be entitled to
receive and retain one hundred (100%) percent of all such Overages, sublease
rents and other payments.
- 30 -
<PAGE> 35
Any such assignment or subletting shall nevertheless be subject to all
the terms and provisions of this Section 9.13 and no assignment shall be binding
upon Landlord or any of Landlord's mortgagees, unless Tenant shall deliver to
Landlord an instrument in recordable form which contains a covenant of
assumption by the assignee running to Landlord and all persons claiming by,
through or under Landlord. The failure or refusal of the assignee to execute
such instrument of assumption shall not release or discharge the assignee from
its liability as Tenant hereunder. In addition, Tenant shall furnish to Landlord
a conformed copy of any sublease effected under terms of this Section 9.13. In
no event shall the Tenant hereunder be released from its liability under this
Lease.
If Tenant desires to sublease any portion of the Premises to any
existing tenant of Landlord in the Park and Landlord does not have any
available, competing space in the Park which would satisfy the requirements of
Tenant's proposed sublease, then, provided that Tenant has submitted to Landlord
the information required under the first sentence of subparagraph (c) above in
connection with the proposed sublease, Landlord shall not unreasonably withhold
its consent to any such proposed sublease.
After the earlier to occur of (i) May 1, 2001 or (ii) the date on which
Landlord has no competitive space available for lease in the Building provided
that no Event of Default has occurred under this Lease and, further provided,
that Tenant complies with the terms and provisions of this Section 9.13, Tenant
shall be free to sublease any or all of the Premises. Prior to the earlier to
occur of (i) May 1, 2001 or (ii) the date on which Landlord leases up any
available space in the Building, any sublease by Tenant shall be subject to the
terms and provisions of this Lease and shall be limited to a term of three (3)
years or less, including any option(s) to extend. Landlord shall be entitled to
receive fifty (50%) percent of any profits arising from any sublease equally
after deducting all of Tenant's reasonable costs associated with any such
sublease.
Provided that no Event of Default has occurred under this
Lease, Landlord agrees that it will consent to an assignment of this Lease (i)
by operation of law as a result of the merger or consolidation of Tenant into an
entity which, after giving effect to such merger and consolidation, has a net
worth (computed in accordance with generally accepted accounting principles) and
financial condition at least equal to the net worth (computed in accordance with
generally accepted accounting principles) and financial condition of Tenant
immediately prior to such merger or consolidation, but in no event less than
$20,000,000.00 and (ii) to any entity which simultaneously therewith acquires
all of the assets of Tenant for the purpose of continuing Tenant's business as a
going concern engaged in the business that is being conducted on the Premises by
Tenant immediately prior to
- 31 -
<PAGE> 36
such acquisition and which has a net worth (computed in accordance with
generally accepted accounting principles) and financial condition which, after
giving effect to such acquisition, is at least equal to the net worth (computed
in accordance with generally accepted accounting principles) and financial
condition of Tenant immediately prior to such acquisition, but in no event less
than $20,000,000.00, provided that any such assignee (whether by merger,
consolidation or assignment) first assumes in full the obligations of Tenant
under this Lease. It shall be a condition of the validity of any assignment that
the assignee agree 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 or subletting, except pursuant to the terms, provisions and
conditions of this Section 9.13. No assignment shall relieve Tenant from its
obligations hereunder and Tenant shall remain fully and primarily liable
therefor.
A transfer or assignment of 49% (computed on a cumulative, aggregate basis) or
more of the stock, equity or other indicia of ownership of Tenant (excluding any
transfers made in connection with any so called "initial public offering" or
made on any nationally recognized stock exchange or over-the-counter market)
shall be deemed to constitute an assignment and Landlord agrees that it will
consent to such an assignment provided that the following conditions are
satisfied: (i) no Event of Default has occurred under this Lease and (ii) the
Tenant has a net worth (computed in accordance with generally accepted
accounting principles) and financial condition at least equal to the net worth
(computed in accordance with generally accepted accounting principles) and
financial condition of Tenant immediately prior to such assignment. No
assignment shall relieve Tenant from its obligations hereunder and Tenant shall
remain fully and primarily liable therefor.
Notwithstanding anything to the contrary contained herein, Tenant shall
reimburse Landlord for all reasonable costs and expenses including, without
limitation, reasonable attorneys' fees sustained or incurred by Landlord in
connection with any request by Tenant for Landlord's consent to any assignment
or subletting.
Section 9.14. Overloading and Nuisance. Tenant shall not injure,
overload, deface or otherwise harm the Premises, commit any nuisance, permit the
emission of any objectionable noise, vibration or odor, make, allow or suffer
any waste or make any use of the Premises which is improper, offensive or
contrary to any law or ordinance or which will invalidate any of Landlord's
insurance.
Section 9.15. Tenant's Financial Statements. Upon Landlord's request,
Tenant shall promptly provide Landlord with updated, unaudited quarterly
financial statements within forty five (45) days after the end of each quarter
during Tenant's fiscal year. Tenant shall also
- 32 -
<PAGE> 37
provide Landlord on an annual basis with an audited financial statement prepared
by an independent, certified public accountant within ninety (90) days after the
end of Tenant's fiscal year.
SECTION 10
Casualty or Taking
Section 10.1 Abatement of Rent. If the Premises shall be damaged by
fire or casualty or by action of public or other authority in consequence
thereof, Annual Fixed 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 to 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 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, Annual Fixed 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.
Section 10.2 Landlord's Right Of Termination. If (a) the Premises or
the Building are substantially damaged by fire or other casualty or by action of
public or other authority in consequence thereof (the term "substantially
damaged" meaning damage of such a character that the same cannot, in ordinary
course, reasonably be expected to be repaired within one hundred eighty (180)
days from the time that repair work would commence), or (b) any mortgagee then
holding a mortgage on the Property, or on any interest of Landlord therein,
should require that insurance proceeds payable as a result of a casualty be
applied to the payment of the mortgage debt or (c) a material (greater than 5%
of replacement cost of the Building) uninsured fire or other casualty or loss to
the Building should occur or (d) if any part of the entire Building or any
substantial portion thereof preventing access to the Building is taken by any
exercise of the right of eminent domain or should be sold in lieu thereof or
Landlord receives compensable damage by reason of anything lawfully done in
pursuance of public or other authority, 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 90
days after the occurrence of such casualty or the effective date of such taking,
whereupon this Lease shall terminate 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.
- 33 -
<PAGE> 38
Section 10.3 Restoration. If this Lease shall not be terminated
pursuant to Section 10.2, Landlord shall thereafter use due diligence to restore
the Premises to proper condition for Tenant's use and occupation, provided that
Landlord's obligation shall be limited to the amount of insurance proceeds or
condemnation awards made available to Landlord therefor. Subject to Force
Majeure, if such restoration shall not be substantially completed within six
months after the date of the casualty or taking, 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. Provided that no Event of Default has
occurred under this Lease, (i) if the entire Premises are taken by any exercise
of the right of eminent domain or (ii) if more than thirty three (33%) percent
of the Premises are so taken and such taking materially interferes with Tenant's
ability to use the Premises for the Permitted Uses, Tenant shall have the right
to terminate this Lease by giving written notice to Landlord, 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. Upon the giving of such notice, this Lease shall
cease and come to an end without further liability or obligation on the part of
either party unless, within such thirty (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 to complete such
restoration.
Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from damage from
fire or other casualty or the repair thereof other than abatement of rent.
Tenant understands that Landlord will not carry insurance of any kind on
Tenant's improvements, alterations, furniture or furnishings or on any fixtures
or equipment removable by Tenant under the provisions of this Lease, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same. If Tenant desires any other or additional repairs for restoration and if
Landlord consents thereto, the same shall be done at Tenant's expense. Tenant
acknowledges that Landlord shall be entitled to the full proceeds of any
insurance coverage, whether carried by Landlord or Tenant, for damage to
alterations, additions, improvements or decorations provided by Landlord either
directly or through an allowance to Tenant.
Section 10.4 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 any taking by exercise
of the power of eminent domain or any sale in lieu thereof or by reason of
anything done in pursuance of public or other authority, 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.
- 34 -
<PAGE> 39
Nothing contained herein shall be construed to prevent Tenant from prosecuting
in any separate 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 and shall be prosecuted in a proceeding separate and apart from
Landlord.
Section 10.5 Temporary Taking. In the event of taking of the Premises
or Property or any part thereof for temporary use by the exercise of any
governmental power, (i) this Lease shall be and remain unaffected thereby and
rent shall not abate, and (ii) Tenant shall be entitled to receive for itself
such portion or portions of any award made for such use with respect to the
period of the taking which is within the Term, provided that if such taking
shall remain in force at the expiration or earlier termination of this Lease,
Tenant shall then pay to Landlord a sum equal to the reasonable cost of
performing Tenant's obligations under this Lease with respect to surrender of
the Premises and upon such payment shall be excused from such obligations.
Section 10.6 No Liability On Account Of Injury To Business, Etc.
Landlord shall not be liable for any inconvenience or annoyance to Tenant or
injury to the business of Tenant or resulting in any way from damage from fire
or other casualty or the repair thereof and Tenant understands and agrees that
Landlord shall in no event be responsible for the repair or replacement of any
furniture or furnishings or any fixtures or equipment removable by Tenant under
the provisions of this Lease. If Tenant desires any other or additional repairs
or restoration and if Landlord consents thereto, the same shall be done at
Tenant's expense. Tenant acknowledges that Landlord shall be entitled to the
full proceeds of any insurance coverage whether carried by Landlord or Tenant,
for damage to the Premises and any alterations or improvements thereto. Upon any
expiration or earlier termination of this Lease, any insurance proceeds payable
to Landlord not theretofore applied to the cost of restoration shall be paid to
Landlord. Tenant acknowledges that the fire and extended coverage insurance
carried by Landlord shall not extend to Tenant's personal property, including
inventory, trade fixtures, floor coverings, furniture and other property
removable by Tenant and that Tenant shall be responsible for carrying all risk
insurance on all such personal property, trade fixtures, floor coverings,
furniture and other property removable by it.
SECTION 11
Default
Section 11.1. Events of Default.
- 35 -
<PAGE> 40
If any of the following ("Event of Default") shall occur: (a) Tenant
shall default in the performance of any of its obligations to pay the Annual
Rent or any other sum payable hereunder and if such default shall continue for
ten (10) days after notice from Landlord designating such default;
(b) if within thirty (30) days after notice from Landlord to
Tenant specifying any other default or defaults Tenant has not commenced
diligently to correct the default or defaults so specified or has not thereafter
diligently pursued such' correction to completion;
(c) if any assignment for the benefit of creditors shall be
made by Tenant;
(d) if Tenant's leasehold interest shall be taken on execution
or other process of law in any action against Tenant;
(e) if a lien or other involuntary encumbrance is filed
against Tenant's leasehold interest, and is not discharged within ten (10) days
thereafter;
(f) if a petition is filed by Tenant for liquidation, or for
reorganization or an arrangement or any other relief under any provision of the
Bankruptcy Code as then in force and effect; or
(g) if an involuntary petition under any of the provisions of
said Bankruptcy Code is filed against Tenant and such involuntary petition is
not dismissed within sixty (60) days thereafter,
then, and in any of such cases, Landlord and the agents and servants of Landlord
lawfully may, in addition to and not in derogation of any remedies for any
preceding breach of covenant, immediately or at any time thereafter and without
demand or notice and with or without process of law (forcibly, if necessary)
enter into and upon the Premises or any part thereof in the name of the whole,
or mail a notice of termination addressed to Tenant, and repossess the same as
of Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove its and their effects without being deemed guilty of any
manner of trespass and without prejudice to any remedies which might otherwise
be used for arrears of rent or prior breach of covenant, and upon such entry or
mailing as aforesaid this Lease shall terminate, Tenant hereby waiving all
statutory rights (including, without limitation, rights of redemption, if any)
to the extent such rights may be lawfully waived. Landlord, without notice to
Tenant, may store Tenant's effects, and those of any person claiming through or
under Tenant at the expense and risk of Tenant, and, if Landlord so elects, may
sell such effects at public auction or private sale and
- 36 -
<PAGE> 41
apply the net proceeds to the payment of all sums due to Landlord from Tenant,
if any, and pay over the balance, if any, to Tenant.
Section 11.2. Remedies. In the event that this Lease is terminated
under any of the provisions contained in Section 11.1, Tenant shall pay
forthwith to Landlord, as compensation, the excess of the total rent reserved
for the residue of the term over the fair market rental value of the Premises
for the residue of the term. In calculating the rent reserved there shall be
included, in addition to the Annual Rent, the value of all other considerations
agreed to be paid or performed by Tenant during the residue. As additional and
cumulative obligations after any such termination, Tenant shall also pay
punctually to Landlord all the sums and shall perform all the obligations which
Tenant covenants in this Lease to pay and to perform in the same manner and to
the same extent and at the same time as if this Lease had not been terminated.
In calculating the amounts to be paid by Tenant pursuant to the preceding
sentence, Tenant shall be credited with any amount paid to Landlord pursuant to
the first sentence of this Section 11.2 and also with the net proceeds of any
rent obtained by Landlord by reletting the Premises, after deducting all
Landlord's reasonable expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, fees for
legal services and expenses of preparing the Premises for such reletting, it
being agreed by Tenant that Landlord may (i) relet the Premises or any part or
parts thereof for a term or terms which may at Landlord's option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the term hereof and may grant such concessions and free rent as
Landlord in its reasonable judgment considers advisable or necessary to relet
the same and (ii) make such alterations, repairs and decorations in the Premises
as Landlord in its reasonable judgment considers advisable or necessary to relet
the same, and no action of Landlord in accordance with the foregoing or failure
to relet or to collect rent under reletting shall operate or be construed to
release or reduce Tenant's liability as aforesaid.
Section 11.3. Remedies Cumulative. Except as otherwise expressly
provided herein, any and all rights and remedies which Landlord may have under
this Lease and at law and equity shall be cumulative and shall not be deemed
inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time to the greatest extent permitted by
law.
Section 11.4. Landlord's Right to Cure Defaults. At any time following
ten (10) days' prior notice to Tenant (except in cases of emergency when no
notice shall be required), Landlord may (but shall not be obligated to) cure any
default by Tenant under this Lease unless Tenant is diligently and continuously
acting to cure any such default, and whenever Landlord so elects, all costs and
expenses incurred by
- 37 -
<PAGE> 42
Landlord, including reasonable attorneys' fees, in curing a default shall be
paid by Tenant to Landlord as Additional Rent on demand, together with interest
thereon at the rate provided in Section 11.7 from the date of payment by
Landlord to the date of payment by Tenant.
Section 11.5. Effect of Waivers of Default. Any consent or permission
by Landlord to any act or omission which otherwise would be a breach of any
covenant or condition herein, or any waiver by Landlord of the breach of any
covenant or condition herein, shall not in any way be held or construed (unless
expressly so declared) to operate so as to impair the continuing obligation of
any covenant or condition herein, or otherwise operate to permit the same or
similar acts or omissions except as to the specific instance. The failure of
Landlord to seek redress for violation of, or to insist upon the strict
performance of, any covenant or condition of this Lease shall not be deemed a
waiver of such violation nor prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by Landlord of rent with knowledge of the breach
of any covenant of this Lease shall not be deemed to have been a waiver of such
breach by Landlord or of any of Landlord's remedies on account thereof,
including its right of termination for such default.
Section 11.6. No Accord and Satisfaction. No acceptance by Landlord of
a lesser sum than the Annual Rent or any other sum then due shall be deemed to
be other than on account of the earliest installment of such rent or charge due,
unless Landlord elects by notice to Tenant to credit such sum against the most
recent installment due. Any endorsement or statement on any check or any letter
accompanying any check or payment as rent or other charge shall not be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy under this Lease or otherwise.
Section 11.7. Interest on Overdue Sums. If Tenant fails to pay Annual
Rent or other sums payable by Tenant to Landlord within ten (10) days of the due
date thereof (i.e., the due date disregarding any requirement of notice from
Landlord), the amount so unpaid shall bear interest at a variable rate (the
"Delinquency Rate") equal to four percent (4%) in excess of the base rate (prime
rate) of BankBoston from time to time in effect commencing with the eleventh
(11th) day after the due date and continuing through the day on which payment of
such delinquent payment with interest thereon is paid. If such rate is in excess
of any maximum interest rate permissible under applicable law, the Delinquency
Rate shall be the maximum interest rate permissible under applicable law.
Section 11.8. Costs and Expenses: All costs and expenses incurred by or
on behalf of Landlord (including, without limitation,
- 38 -
<PAGE> 43
attorneys' fees and expenses) in enforcing its rights hereunder or occasioned by
any default of Tenant shall be paid by Tenant. All costs and expense incurred by
or on behalf of Tenant (including, without limitation, attorneys' fees and
expenses) in enforcing its rights hereunder or occasioned by any default of
Landlord shall be paid by Landlord.
SECTION 12
Mortgages
Section 12.1. Rights of Mortgage Holders. No Annual Rent or any other
charge which is paid more than one month prior to the due date thereof and
payments made in violation of this provision shall (except to the extent that
such payments are actually received by a mortgagee in possession or in the
process of foreclosing its mortgage) be a nullity as against such mortgagee and
Tenant shall be liable for the amount of such payments to such mortgagee.
In the event of any act or omission by Landlord which would give Tenant
the right to terminate this Lease or to claim a partial or total eviction,
Tenant shall not exercise any such right (a) until it shall have given notice,
in the manner provided in Section 13.1, of such act or omission to the holder of
any mortgage encumbering the Premises whose name and address shall have been
furnished to Tenant in writing, at the last address so furnished, and (b) until
a reasonable period of time for remedying such act or omission shall have
elapsed following the giving of such notice, provided that following the giving
of such notice, Landlord or such holder shall, with reasonable diligence, have
commenced and continued to remedy such act or omission or to cause the same to
be rendered.
In the event any proceedings are brought for the foreclosure of, or in
the event of exercise of the power of sale under, any mortgage now or hereafter
encumbering the Premises, Tenant shall attorn to the purchaser upon such
foreclosure or sale or upon any grant of a deed in lieu of foreclosure and
recognize such purchaser as Landlord under this Lease.
Section 12.2. Lease Subordinate. At Landlord's election, this Lease
shall be subject and subordinate to any mortgage now or hereafter on the
Property, and to each advance made or hereafter to be made under any mortgage,
and to all renewals, modifications, consolidations, replacements and extensions
thereof and all substitutions therefor; provided, however, with respect to any
such mortgage hereafter placed on the Property, as a condition to such
subordination, Landlord shall deliver to Tenant an agreement on the mortgagee's
form, reasonably approved by Tenant, to the effect that, subject to the
condition that
- 39 -
<PAGE> 44
no Event of Default exists under this Lease, all of Tenant's rights hereunder
shall be recognized by the mortgagee. This Section 12.2 shall be self-operative
and no further instrument of subordination shall be required. In the event that
any mortgagee or its respective successor in title shall succeed to the interest
of Landlord, then, subject to the condition that no Event of Default exists
under this Lease, this Lease shall nevertheless continue in full force and
effect and Tenant shall and does hereby agree to attorn to such mortgagee or
successor and to recognize such mortgagee or successor as its Landlord. The word
"mortgagee" as used in this Lease shall include the holder for the time being
whenever the context permits. Within ninety (90) days of the date of this Lease
(the "90 Day Period"), Landlord shall obtain either (i) discharges (the
"Discharges") of the fee mortgage and the leasehold mortgage held by Natural
MicroSystems Corporation ("NMS") and encumbering the Lot and the Leasehold Lot,
respectively or (ii) a subordination, non-disturbance and attornment agreement
(the "SNDA") from NMS, which agreement shall be in form reasonably approved by
Tenant. If Landlord is unable to obtain the Discharges or the SNDA from NMS
within the 90 Day Period, then, following the expiration of the 90 Day Period,
Tenant shall have the right to notify Landlord of Tenant's intent to terminate
this Lease (the "Tenant's Notice of Intent"). Landlord and Tenant hereby agree
that upon Landlord's receipt of the Tenant's Notice of Intent, Landlord shall
have thirty (30) calendar days (the "30 Day Period") to continue its efforts to
obtain the Discharges or the SNDA from NMS. Tenant's Notice of Intent and any
termination of this Lease thereunder shall only be deemed effective on the 30th
calendar day following Landlord's receipt of such notice. If Landlord obtains
the Discharges or the SNDA from NMS within the 30 Day Period, then Tenant's
Notice of Intent and any termination of this Lease thereunder shall
automatically be null and void and this Lease shall remain in full force and
effect and binding on the parties hereto. If Landlord fails to obtain the
Discharges or the SNDA within the 30 Day Period, then Tenant's Notice of Intent
shall be deemed effective at 5:00 p.m. on the last day of the 30 Day Period.
SECTION 13
Miscellaneous Provisions
Section 13.1. Notices from One Party to the Other. Whenever, by the
terms of this Lease, notices, consents or approvals shall or may by given either
to Landlord or to Tenant, such notices, consents or approvals shall be in
writing and shall be delivered in hand, sent by registered or certified mail,
return receipt requested, postage prepaid or sent by an overnight express
courier service which provides evidence of delivery or attempted delivery;
- 40 -
<PAGE> 45
If intended for Landlord, delivered or addressed to Landlord
at the Original Address of Landlord (or to such other address as may from time
to time hereafter be designated by Landlord by like notice).
If intended for Tenant, delivered or addressed to Tenant at
the Original Address of Tenant until the Commencement Date and thereafter to the
Premises (or to such other address or addresses as may from time to time
hereafter be designated by Tenant by like notice).
All such notices shall be effective when delivered or tendered
for delivery at the address to which the same were sent.
Section 13.2. Lease Not to be Recorded; Notice of Lease. Tenant agrees
that it will not record this Lease. If the Term of this Lease, including
options, exceeds seven years, Landlord and Tenant agree that, on the request of
either, they will enter and record a notice of lease in form reasonably
acceptable to both parties.
Section 13.3. Bind and Inure; Limitation of Landlord's Liability. The
obligations of this Lease shall run with the land, and this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No owner of the Lot shall be liable under this Lease
except for breaches of Landlord's obligations occurring while owner of the Lot.
The obligations of Landlord shall be binding upon the assets of Landlord which
comprise the Lot but not upon other assets of Landlord. No individual, member,
partner, trustee, stockholder, officer, director, employee or beneficiary of
Landlord shall be personally liable under this Lease and Tenant shall look
solely to Landlord's interest in the Lot in pursuit of its remedies upon an
event of default hereunder, and the general assets of Landlord and its members,
partners, trustees, stockholders, officers, employees or beneficiaries of
Landlord shall not be subject to levy, execution or other enforcement procedure
for the satisfaction of the remedies of Tenant.
Section 13.4. Acts of God. In any case where either party hereto is
required to do any act, delays caused by or resulting from acts of God, war,
civil commotion, fire, flood or other casualty, labor difficulties, shortages of
labor, materials or equipment, government regulations, unusually severe weather,
or other causes beyond such party's reasonable control shall not be counted in
determining the time during which work shall be completed, whether such time be
designated by a fixed date, a fixed time or a "reasonable time", and such time
shall be deemed to be extended by the period of such delay.
Section 13.5. Landlord's Default. Landlord shall not be deemed to be in
default in the performance of any of its obligations hereunder unless it shall
fail to perform such obligations and unless within
- 41 -
<PAGE> 46
thirty (30) days after notice from Tenant to Landlord specifying such default
Landlord has not commenced diligently to correct the default so specified or has
not thereafter diligently pursued such correction to completion. Tenant shall
have no right, for any default by Landlord, to offset or counterclaim against
any rent due hereunder.
Section 13.6. Brokerage. Landlord shall pay a brokerage commission to
Trammell Crow Company for the brokerage services rendered in connection with
this Lease. Tenant and Landlord warrant and represent to the other that neither
has had any dealings with any broker or agent in connection with this Lease
other than Trammell Crow Company. Tenant and Landlord agree to defend with
counsel reasonably approved by the other, hold harmless and indemnify the other
from and against any and all cost, expense or liability for any compensation,
commissions and charges which may be asserted against the other as a result of
the other's breach of this warranty.
Section 13.7. Miscellaneous. This Lease shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
There are no prior oral or written agreements between Landlord and Tenant
affecting this Lease.
Section 13.8. Security Deposit. In order to provide security against
any Event of Default, Tenant shall, upon the date of execution of this Lease,
furnish Landlord with, and shall maintain in force and effect throughout the
Term of this Lease, an irrevocable "clean" Letter of Credit which may provide
for multiple draws, reductions and reinstatement of the stated amounts
(hereinafter together with any renewal or substitution thereof in accordance
with the provisions hereof referred to as "Letter") or cash ("Cash") in an
amount equal to the "Applicable Amount" (as said term is hereinafter defined)
from time to time required hereunder in the case of a Letter issued by Fleet
Bank or a similar financial institution ("Issuer") in the greater Boston,
Massachusetts area which is approved and accepted by Landlord (an "Approved
Issuer"). Landlord shall notify Tenant of the date of Landlord's construction
loan closing at least twenty one (21) days prior to said closing and, upon
Tenant's receipt of such notice, Tenant shall have seven (7) days to deliver to
Landlord an amendment to the Letter, which shall increase the Applicable Amount
to $2,113,560.00 or Cash which shall increase the Applicable Amount to
$2,113,560.00 as required by this Section with the actual date of Tenant's
delivery of the amended Letter or the additional Cash being herein referred to
as the "Delivery Date". Each of the parties hereto agrees to, upon demand of the
other, execute a declaration expressing the Delivery Date as soon as the
Delivery Date has been determined. Landlord, at its option, shall deliver the
Security Deposit to the holder of any first mortgage encumbering the Property
and the Security Deposit will be held by the holder of any mortgage encumbering
the Property for and during the Term and shall be returned to Tenant, within
thirty (30) days after
- 42 -
<PAGE> 47
the expiration of the Term of this Lease provided there exists no Event of
Default. As used herein, the term "Applicable Amount" shall mean (i)
$1,056,780.00 beginning on the date of execution of this Lease by Tenant through
the Delivery Date and (ii) $2,113,560.00 beginning on the Delivery Date through
the end of the 24th full calendar month immediately following the Commencement
Date, (ii) provided that no Event of Default has occurred under this Lease as of
the commencement of the third (3rd) lease year of the Term of this Lease,
$1,506,780.00 during months 25 through 48 of the Term, and (iii) provided that
no Event of Default has occurred under this Lease as of the commencement of the
fifth (5th) lease year of the Term of this Lease, $352,260.00 through the end of
Lease Year 10 under the initial Term of this Lease. Notwithstanding anything to
the contrary contained herein, provided that no Event of Default has occurred
under this Lease, if Tenant raises Thirty Million and No/100ths ($30,000,000.00)
Dollars or more in a public offering, the Security Deposit shall be held in
accordance with the terms and provisions of this Lease pursuant to the following
schedule: Lease Year 1: (i) $1,056,780.00 beginning on the date of execution of
this Lease by Tenant through the Delivery Date; (ii) $2,113,560.00 beginning on
the Delivery Date through the end of the 12th full calendar month immediately
following the Commencement Date; (iii) provided that no Event of Default has
occurred under this Lease as of the commencement date of the second (2nd) lease
year of the Term of this Lease, $1,056,780.00 during the months 13 through 36 of
the Term and (iv) provided that no Event of Default has occurred under this
Lease as of the commencement of the fourth (4th) lease year of the Term of this
Lease, $352,260.00 through the end of Lease Year 10 under the initial Term of
this Lease. No Security Deposit shall be required for any extension of the Term.
If all or any part of the Security Deposit is applied to cure the Event
of Default, Tenant shall within thirty (30) days from any request by Landlord
restore the Security Deposit to the Applicable Amount.
The Security Deposit shall be delivered by Landlord to Landlord's
successor in interest under the Lease and upon any such delivery and the
acknowledgment of such successor that such successor holds the Security Deposit
under the terms and conditions of the Lease, Tenant shall release Landlord
herein named of any and all liability with respect to the Security Deposit, its
application and return.
The Letter shall be addressed to and for the benefit of the Landlord
under this Lease from time to time and be in form and substance satisfactory to
Landlord in its reasonable discretion. In the event of any Event of Default by
Tenant under this Lease, Landlord may draw upon an amount necessary to cure the
Event of Default upon certification by Landlord to the Issuer that Landlord is
entitled to apply all or any part of the proceeds of the Letter to the extent
required to cure the Event of Default.
- 43 -
<PAGE> 48
In the event of any Event of Default under this Lease, if Landlord
applies any part of the proceeds of the Letter or the Cash to cure any default
of Tenant, Tenant shall, upon demand, cause the Letter or the Cash to be
replenished and reinstated to the extent of the amount so drawn upon and applied
in order that Landlord shall, at all times, have the full Applicable Amount of
the Letter or the Cash available for the purposes hereof during the Term of this
Lease. The Letter shall, in each instance, and for each year of the Term of this
Lease, be in effect and, at Tenant's sole cost and expense, be renewed by Tenant
and decreased to the required Applicable Amount in no event later than sixty
(60) days prior to its date of expiration. Tenant's failure to maintain the
Letter in force and effect in the Applicable Amounts during the periods of time
required hereunder shall, constitute a default under this Lease. If, on or
before the thirtieth (30th) day prior to the expiration date of a Letter, Tenant
shall have failed to deliver to Landlord an original fully executed renewal or
extension of the Letter (or a substitute letter of credit from an Approved
Issuer), in each case, having a term of at least one year, Landlord, at its
option, may draw down upon the Letter in its entirety in which event Landlord
may, in addition to all other rights and remedies which it may have on account
of such default, treat all sums drawn under such Letter as a Cash Security
Deposit governed by and to be applied and/or retained by Landlord pursuant to
the provisions of this paragraph. All references herein to the Letter shall also
mean and include all renewals and replacements thereof and all modifications and
extensions thereof. Any renewal, extension or substitution of a Letter shall be
in form and substance satisfactory to Landlord, in its reasonable discretion,
and shall be issued by an Approved Issuer. Landlord will not unreasonably delay
or withhold approval of the form of any substitute Letter which is in the same
form as that previously approved by Landlord. If the Property is sold and if the
purchaser and seller together request in writing that Tenant obtain a
modification to a Letter designating the purchaser as the "beneficiary"
thereunder in substitution for the then named beneficiary, Tenant agrees to
promptly obtain and deliver such amendment to such purchaser at purchaser's sole
cost and expense. Tenant hereby agrees that all costs and expenses involved in
obtaining and maintaining the Letters contemplated by this paragraph shall be
borne solely and exclusively by Tenant.
Section 13.9. Intentionally Omitted.
Section 13.10. Leasehold Parking Area. It is expressly understood and
agreed by and between Landlord and Tenant that this Lease, as and in to the
extent that it grants Tenant the appurtenant right to use the Leasehold Parking
Area, is a sublease and is subject and subordinate to the Ground Lease with
respect to the Leasehold Parking Area and that no right, power or privilege
granted to Tenant hereunder with respect to the Leasehold Parking Area may be
exercised
- 44 -
<PAGE> 49
or enjoyed by Tenant and no term, covenant or condition of this Lease
insofar as it relates to the Leasehold Parking Area benefiting Tenant shall be
operative if and to the extent that such exercise, enjoyment or operation would
not be permitted by or would violate or be in conflict with any term, covenant
or condition of the Ground Lease. Without limiting the generality of the
foregoing, it is expressly understood and agreed that all rights of Tenant in
and to any eminent domain awards in any way related to the Leasehold Parking
Area shall be, and is hereby expressly made, subject and subordinate to the
rights of the Landlord under the Ground Lease. The cost of any and all insurance
required to be carried by Landlord under the Ground Lease or which Landlord
carries in connection with the Ground Lease shall be included in the Landlord's
Operating Costs under Section 5.1 of this Lease. From and after the Term
Commencement Date and to the maximum extent, this agreement may be made
effective according to law, Tenant agrees to indemnify and save harmless the
Town of Framingham, as landlord under the Ground Lease (the "Ground Lease
Landlord") from and against all claims of whatever nature arising from any
negligence or willful misconduct of Tenant, Tenant's contractors, licensees,
agents, servants, employees or customers, or anyone claiming by, through or
under Tenant so long as Tenant or any occupant claiming under Tenant is in
occupancy or is using any part of the entire Leasehold Parking Area where such
accident, injury or damage results or is claimed to have resulted from any
negligence or willful misconduct on the part of Tenant or Tenant's contractors,
licensees, agents, servants, employees or customers or anyone claming by,
through or under Tenant. The foregoing indemnity and hold harmless agreement
shall include indemnity against all costs and expenses and liabilities incurred
in or in connection with any claim or proceeding brought thereon and the defense
thereof with counsel acceptable to the Ground Lease Landlord. To the maximum
extent, this agreement may be made effective according to law, Tenant agrees to
use and occupy the Leasehold Parking Area and any other part of the entire
Leasehold Parking Area which the Tenant is permitted to use hereunder at
Tenant's own risk and the Ground Lease Landlord shall have no responsibility or
liability for any loss or damage to fixtures or other personal property of
Tenant or any person claiming by, through or under Tenant.
Section 13.11. Hazardous Materials. To the best of Landlord's
knowledge, there are no Hazardous Materials on the Lot as of the Commencement
Date. Tenant shall not (either with or without negligence) cause or permit the
escape, disposal, release or threat of release of any biologically or chemically
active or other Hazardous Materials (as said term is hereafter defined) on, in,
upon or under the Property or the Premises except in compliance with all laws,
rules, regulations, ordinances and codes, including, without limitation, the
Environmental Laws. Tenant shall not allow the generation, storage, use,
disposal or transfer of such Hazardous Materials in any manner not sanctioned by
law or by the highest standards prevailing in the industry for the
- 45 -
<PAGE> 50
generation, storage, use, disposal and transfer of such Hazardous Materials, nor
allow to be brought into the Property any such Hazardous Materials except for
those certain chemicals used in the ordinary course of Tenant's business. If any
lender or governmental agency shall ever require testing to ascertain whether or
not there has been any release of Hazardous Materials, then the reasonable costs
thereof shall be reimbursed by Tenant to Landlord upon demand as additional
charges but only if such requirement applies to the Premises or may be the
result of the acts or omissions of Tenant. In addition, Tenant shall execute
affidavits, representations and the like, from time to time, at Landlord's
request concerning Tenant's best knowledge and belief regarding the presence of
Hazardous Materials on the Premises.
The Tenant shall, at its own expense, remove, clean up, remedy and
dispose of (in compliance with all applicable laws, rules and regulations) all
Hazardous Materials generated or released by the Tenant or its officers,
directors, employees, contractors, servants, invitees, agents or any other
person acting under Tenant during the Term of this Lease (or during such term as
the Tenant is in occupancy or possession of any part of the Premises, the
Building or the Property) at or from the Premises, the Building or the Property
in compliance with all Environmental Laws (as said term is hereafter defined)
and further, shall remove, clean up, remedy and dispose of all Hazardous
Materials located at, upon, under, within or in the Premises, the Building or
the Property generated by or resulting from its operations, activities or
processes during the term of this Lease (or such other periods of time as the
Tenant may be in occupancy or in possession of the Premises or any portion of
the Property or Building), in compliance with all Environmental Laws. In
performing its obligations hereunder, the Tenant shall use best efforts to avoid
interference with the use and enjoyment of the Building and the Property by
other tenants and occupants thereof. The provisions hereof shall survive
expiration or termination of this Lease.
The Tenant shall indemnify, defend and save harmless the Landlord and
its members, officers, directors, shareholders, employees, contractors,
servants, invitees, representatives and agents from and against all loss, costs,
damages, claims, proceedings, demands, liabilities, penalties, fines and
expenses, including without limitation, reasonable fees and costs for attorney's
fees, consultants' fees, litigation costs and clean-up costs asserted against or
incurred by the Landlord, its members, officers, directors, shareholders,
employees, contractors, servants, invitees representatives or agents at any time
by reason of or arising out of (i) any release or threat of release of any
Hazardous Materials at, in, upon, under or from the Premises, the Building or
the Property where such release or threat of release is the result of or alleged
to result from the acts or omissions of the Tenant or its agents, servants,
employees, contractors or invitees, or (ii) any violation or alleged violation
of any
- 46 -
<PAGE> 51
Environmental Laws governing Hazardous Materials where such violation or alleged
violation is the result of or alleged to result from the acts or omissions of
the Tenant or its agents, servants, employees, contractors, invitees, or any
other person acting under Tenant. The Landlord shall indemnify, defend and save
harmless the Tenant and its members, officers, directors, shareholders,
employees, contractors, servants, invitees, representatives and agents from and
against all loss, costs, damages, claims, proceedings, demands, liabilities,
penalties, fines and expenses, including without limitation, reasonable fees and
costs for attorney's fees, consultants' fees, litigation costs and clean-up
costs asserted against or incurred by the Tenant, its members, officers,
directors, shareholders, employees, contractors, servants, invitees
representatives or agents at any time by reason of or arising out of (i) any
release or threat of release of any Hazardous Materials at, in, upon, under or
from the Premises, the Building or the Property where such release or threat of
release is the result of or alleged to result from the acts or omissions of the
Landlord or its agents, servants, employees, contractors or invitees, or (ii)
any violation or alleged violation of any Environmental Laws governing Hazardous
Materials where such violation or alleged violation is the result of or alleged
to result from the acts or omissions of the Landlord or its agents, servants,
employees, contractors, invitees, or any other person acting under Landlord.
The indemnities set forth in this Section shall survive expiration or
termination of this Lease.
In addition to the requirements set forth above, the Tenant shall,
within ten (10) days of receipt, provide to the Landlord copies of any
inspection or other reports, correspondence, documentation, orders, citations,
notices, directives, or suits from or by any governmental authority or insurer
regarding non-compliance with or potential or actual violation of Environmental
Laws. The Landlord hereby expressly reserves the right to enter the Premises and
all other portions of the Building and the Property in order to perform
inspections and testing of the air, soil and groundwater for the presence or
existence of Hazardous Materials.
As used herein, the term "Hazardous Materials" shall mean and include,
without limitation, any material or substance which is (i) petroleum, (ii)
asbestos, (iii) designated as a "hazardous substance" pursuant to Section 311 of
the Federal Water Pollution Control Act, 33 U.S.C. SS 1251 et seq. (33 U.S.C. SS
1321) or listed in SS 307 of the Federal Water Pollution Control Act (33 U.S.C.
SS 1317), (iv) defined as a "hazardous waste" pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 U.S.C. SS 6901 et seq. (42 U.S.C. SS
6903), (v) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
SS 9601 et seq. (42 U.S.C. SS 9601), as
- 47 -
<PAGE> 52
amended and regulations promulgated thereunder, or (vi) defined as "oil" or a
"hazardous waste", a "hazardous substance", a "hazardous material" or a "toxic
material" under any other law, rule or regulation applicable to the Property,
including, without limitation, Chapter 21E of the Massachusetts General Laws, as
amended and the regulations promulgated thereunder. As used herein, the term
"Environmental Laws" shall mean, without limitation, each and every law, rule,
order, statute or regulation described above in this Section, together with (i)
any amendments thereto, or regulations promulgated thereunder and (ii) any other
laws pertaining to the protection of the environment or governing the use,
release, storage, generation or disposal of Hazardous Materials, whether now
existing or hereafter enacted or promulgated.
Section 13.12. Signs. The Building shall be identified as "200 Crossing
Boulevard" on a monument sign at the entrance to the Property. Tenant's
identification shall be prominently displayed on the Building's directory in the
main lobby, at the entry to the Premises and on the exterior monument sign
(non-exclusive). Tenant, at its expense, shall have the exclusive right to place
a sign on the exterior of the Building and the type, design and location of any
such sign shall be subject to Landlord's reasonable approval and in compliance
with all laws, rules, regulations, codes and ordinances.
SECTION 14
Tenant's Early Termination Right
Section 14.1. Tenant's Early Termination Right. Subject to the terms
and conditions hereafter set FORTH, Tenant shall have the right and option (the
"Early Termination Option") to terminate this Lease effective as of the last day
of the seventh (7th) Lease Year of the initial Term of this Lease (the "Early
Termination Date") provided that each of the "Termination Conditions" (as said
term is hereafter defined) are satisfied as and when required by this Section
14.1. As used herein, the term "Termination Conditions" shall mean that (i)
Tenant shall provide Landlord with written notice (an "Early Termination
Notice") of its exercise of the Early Termination Option not later than the last
day of the third (3rd) month of the seventh (7th)Lease Year of the initial Term
of this Lease, (ii) simultaneously with the giving of an Early Termination
Notice to Landlord, Tenant shall deliver to Landlord the Termination Fee (as
said term is hereinafter defined) in good and sufficient funds and (iii) there
shall exist no Event of Default which remains uncured at the time of the giving
of the Early Termination Notice by Tenant or upon the Early Termination Date.
Failure of Tenant to timely exercise the Early Termination Option specifically
in accordance with the terms and provisions of this Section 14.1 or any failure
of Tenant to comply with any of the Termination Conditions within the time and
manner provided
- 48 -
<PAGE> 53
herein, time being of the essence, shall be deemed a waiver of the Early
Termination Option by Tenant unless Landlord, in its discretion, shall waive any
of such conditions in writing. It is agreed and understood that the Early
Termination Option may be exercised only once by Tenant and in no event shall
the Early Termination Date be other than the last day of the seventh (7th) Lease
Year of the initial Term, time being of the essence, of all of the provisions of
this Section 14.1. Landlord hereby reserves the right, exercisable by Landlord
at any time in its sole and absolute discretion to waive the requirement of
compliance with any or all of the Termination Conditions or any other matter
contained in this Section 14.1.
If Tenant shall timely and properly exercise the Early Termination
Option, Tenant shall surrender and deliver up the Premises to Landlord on the
Early Termination Date as if such date were the date originally specified in
this Lease as the last day of the Term of this Lease. As used herein, the term
"Termination Fee" shall mean that certain amount equal to six (6) months of
Annual Rent payable during the seventh (7th) Lease Year of the initial Term of
this Lease.
SECTION 15
Option to Extend
Section 15.1. Tenant's Right. Provided that both at the time of
Tenant's giving "Tenant's Notice of Intent" and at the time of commencement of
the "Extended Term", as said terms are hereinafter defined, (i) no Event of
Default exists and (ii) this Lease is still in full force and effect, Tenant
shall have the right which right shall not be severed from this Lease or
separately assigned, mortgaged or transferred, to extend the Term of this Lease
for one extended term (the " Extended Term") of five (5) years. The Extended
Term shall commence on the day immediately following the expiration date of the
initial Term, and shall end on the day immediately preceding the fifth
anniversary of the first day of the Extended Term. Not later than twelve (12)
months prior to the expiration of the initial Term, Tenant may give Landlord
notice (which shall not be binding on Tenant) of Tenant's intent to so extend
the Term ("Tenant's Notice of Intent"). From the last day on which Tenant would
be entitled to give such notice of intent, Landlord shall have thirty (30) days
to advise Tenant of Landlord's then good faith estimate ("Landlord's
Determination Notice") of the "Fair Market Rental Value" (as said term is
hereinafter defined) of the Premises for the Extended Term. Thereafter, from the
day on which Tenant receives Landlord's Determination Notice, if Tenant does not
agree with Landlord's Determination Notice, Landlord and Tenant shall negotiate
in good faith during the ensuing 30-day period. On or before the expiration of
the 30-day negotiation period, Tenant may give Landlord notice ("Tenant's
Extension Notice") that Tenant irrevocably elects to extend the Term of this
Lease for the Extended Term in
- 49 -
<PAGE> 54
question it being agreed that time shall be of the essence with respect to the
giving of any such notices. At the time that Tenant gives Tenant's Extension
Notice, Tenant shall advise Landlord of whether (i) Tenant accepts the Fair
Market Rental Value set forth in Landlord's Determination Notice (or such other
figure as Landlord and Tenant may have agreed upon during the negotiation
period), or (ii) Tenant disputes such value and elects to have the issue
arbitrated as provided below. Failure by Tenant to dispute Landlord's
determination of Fair Market Rental Value at the time of Tenant's Extension
Notice shall be deemed conclusively to be Tenant's acceptance thereof. The
giving of Tenant's Extension Notice shall automatically extend the Term of this
Lease for the applicable Extended Term, and no instrument of Renewal need be
executed. In the event that Tenant fails to give either Tenant's Notice of
Intent or Tenant's Extension Notice to Landlord, the Term of this Lease shall
automatically terminate at the end of the initial Term and Tenant shall have no
further right or option to extend the Term of this Lease. The Extended Term
shall be on all the terms and conditions of this Lease, except that the Annual
Fixed Rent for the Extended Term shall be determined in accordance with section
15.2.
Section 15.2 Extended Term Rent. (a) The Annual Fixed Rent payable for
each twelve (12) month period during the Extended Term shall be the Fair Market
Rental Value (as said term is hereinafter defined) as of commencement of the
Extended Term. "Fair Market Rental Value" shall be computed as of the beginning
of the Extended Term at the then current annual rental charges, including
provisions for subsequent increases and other adjustments, for extensions of
existing leases then currently being negotiated or executed in comparable space
and buildings located in the so-called Metro-West Boston area. In determining
Fair Market Rental Value, the following factors, among others, shall be taken
into account and given effect: size of the premises, escalation charges then
payable under the Lease, location of the premises, location of the building,
allowances or lack of allowances (if any) and lease term. If Tenant has disputed
the Fair Market Rental Value stated in Landlord's Determination Notice, Tenant
shall give to Landlord at the time of the giving of Tenant's Extension Notice,
Tenant's then good faith estimate ("Tenant's Determination Notice") of the Fair
Market Rental Value of the Premises for the Extended Term. If Landlord and
Tenant shall fail to agree upon the Fair Market Rental Value within six (6)
months before the first day of the applicable Extended Term, then subject to the
provisions of Section (b) below, either party may apply to the American
Arbitration Association or any successor thereto for the designation of an
arbitrator satisfactory to both parties to render a final determination of the
Fair Market Rental Value. The arbitrator shall be a real estate appraiser or
consultant who shall have at least ten (10) years' continuous experience as a
commercial real estate broker or appraiser, and having significant experience
with property similar to the Building in the so-called Metro-West Boston area.
The arbitrator shall conduct
- 50 -
<PAGE> 55
such hearings and investigations as the arbitrator shall deem appropriate and
shall, within thirty (30) days after having been appointed, choose one of the
determinations set forth in either Landlord's or Tenant's Determination Notice
and that choice by the arbitrator shall be binding upon Landlord and Tenant.
Each party shall pay its own counsel fees and expenses, if any, in connection
with any arbitration under this Section (a), and the parties shall share equally
all other expenses and fees of any such arbitration. The determination rendered
in accordance with the provisions of this Section (a) shall be final and binding
in fixing the Fair Market Rental Value. The arbitrator shall not have the power
to add to, modify, or change any of the provisions of this Lease.
(b) In the event that the determination of the Fair Market
Rental Value set forth in the Landlord's and Tenant's Determination Notices
shall differ by less than five percent (5%) per square foot of Premises rentable
area per annum for each year during the Extended Term, then the Fair Market
Rental Value shall not be determined by arbitration, but shall instead be set by
taking the average of the determination set forth in Landlord's and Tenant's
Determination Notices. Only if the determination set forth in Landlord's and
Tenant's Determination Notices shall differ by more than 5% per square foot of
Premises rentable area per annum for any year during the Extended Term shall the
actual determination of Fair Market Rental Value be made by an arbitrator as set
forth in Section (a) above.
(c) If for any reason the Fair Market Rental Value shall not
have been determined prior to the commencement of the Extended Term, then, until
the Fair Market Rental Value and accordingly, the Annual Fixed Rent, shall have
been finally determined, Tenant shall pay Annual Fixed Rent at the rate quoted
by Landlord in Landlord's Determination Notice. Upon final determination of the
Fair Market Rental Value, an appropriate adjustment to the Annual Fixed Rent
theretofore paid by Tenant during the Extended Term shall be made reflecting
such final determination, and Landlord or Tenant, as the case may be, shall
promptly credit or pay, respectively, to the other any overpayment or
deficiency, as the case may be, in the payment of Annual Fixed Rent from the
commencement of the Extended Term to the date of such final determination.
- 51 -
<PAGE> 56
WITNESS the execution hereof under seal as of the day and year first
above written.
Landlord: NDNE 9/90 200 CROSSING BOULEVARD LLC
By: NDNE 9/90, Inc.
Its: Manager
By: /s/ John O'Neill
Its: Executive Vice President
Tenant: EPRISE CORPORATION
By: /s/ Milton Alpern
Its: Vice President, Finance and Chief
Financial Officer
- 52 -
<PAGE> 1
Exhibit 10.10
EPRISE CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
(as Amended Through 3/22/00)
---------------------------------
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Eprise Corporation.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Subsidiaries with an opportunity to purchase Common Stock of the
Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS.
(a) "ADMINISTRATOR" shall mean the person, committee or entity
appointed by the Board to administer the Plan as provided herein. If no
Administrator is in office from time to time, the Board shall serve as
Administrator until the effective date of any successor's appointment.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" shall mean the Common Stock, $0.001 par value, of
the Company.
(e) "COMPANY" shall mean Eprise Corporation, a Delaware corporation.
(f) "COMPENSATION" shall mean all base pay, salary, bonuses and
commissions, including payments for overtime and sales commissions and elective
contributions to 401(k) plans, health and dependent care benefits plans and
non-qualified pay deferral plans.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) a leave of
absence either (A) agreed to in writing by the Company, provided that such leave
is for a period of not more than 90 days, or (B) if reemployment upon the
expiration of such leave is guaranteed by contract or statute and provided
further that the Employee returns to service upon the expiration of such leave;
or (ii) a single interruption in service for any other reason of up to 30 days.
(h) "CONTRIBUTIONS" shall mean all amounts credited to the account of a
participant pursuant to the Plan.
<PAGE> 2
(i) "EMPLOYEE" shall mean any person, including an officer, who is an
employee of the Company or one of its Subsidiaries, as determined pursuant to
Treasury Regulation Section 1.421-7(h) or any successor thereto.
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "EXERCISE DATE" shall mean the last business day of each Offering
Period of the Plan.
(l) "OFFERING DATE" shall mean the first business day of each Offering
Period of the Plan.
(m) "OFFERING PERIOD" shall mean a period of six (6) months, unless
otherwise determined by the Board with respect to any one or more Offering
Periods.
(n) "PLAN" shall mean this Employee Stock Purchase Plan.
(o) "SUBSIDIARY" shall mean a corporation, domestic or foreign, defined
as such in Section 424(f) of the Code, whether or not such corporation now
exists or is hereafter organized or acquired by the Company or a Subsidiary.
3. ELIGIBILITY.
(a) SERVICE REQUIREMENT. Any Employee who (i) customarily works more
than twenty (20) hours per week for the Company and (ii) has had Continuous
Status as an Employee for at least three (3) months as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code. Notwithstanding the foregoing, for the
first Offering Period only, any person who (x) is an Employee on the first day
of such Offering Period and (y) satisfies clause (i) of this Section 3(a) shall
be eligible to participate in such Offering Period under the Plan, subject to
the requirements of Section 5(a) and the limitations imposed by Section 423(b)
of the Code.
(b) RESTRICTIONS ON ELIGIBILITY. Any provisions of the Plan to the
contrary notwithstanding, no Employee shall be granted an option under the Plan
(i) if, immediately after the grant, such Employee (either individually or
together with any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
subsidiary of the Company, or (ii) to the extent that such option would permit
his or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time (as further
described in Section 6(c)).
4. OFFERING PERIODS. The Plan shall be implemented by a series of Offering
Periods, with new Offering Periods commencing on or about March 1 and September
1 of each year (or at such other time or times as may be determined by the
Board). The first Offering Period shall commence on the first business day on
which price quotations for the Company's Common Stock are available on the
Nasdaq National Market or on such other date the Board shall
2
<PAGE> 3
determine. The Plan shall continue until terminated in accordance with Section
19 hereof. The Board shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
5. PARTICIPATION.
(a) SUBSCRIPTION AGREEMENTS; RANGE OF CONTRIBUTIONS. An eligible
Employee may become a participant in the Plan by completing a subscription
agreement on the form provided by the Company and filing it with the
Administrator (or its designee) prior to the applicable Offering Date, unless an
earlier or a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than the percentage that will result in a
minimum Contribution of $150 per Offering Period and not more than 10% of the
Employee's Compensation) to be paid as Contributions pursuant to the Plan.
(b) ENTRY DATE; TERMINATION. Payroll deductions shall commence on the
first payroll on or following the Offering Date and shall end on the last
payroll paid on or prior to the Exercise Date of the offering to which the
subscription agreement is applicable, unless sooner terminated by the
participant as provided in Section 10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) PAYROLL DEDUCTIONS. Subject to the limitations of Section 423(b) of
the Code and Section 3(b) herein and subject to the terms and conditions of the
subscription agreement referred to in Section 5(a) above, the participant shall
elect to have payroll deductions made on each payday during the Offering Period
in any amount permitted pursuant to the subscription agreement. All payroll
deductions made by a participant shall be credited to his or her account under
the Plan. A participant may not make any additional payments into such account.
(b) CHANGES IN CONTRIBUTION RATE. A participant may discontinue his or
her participation in the Plan as provided in Section 10, or, on one occasion
only during the Offering Period, may increase or decrease the rate of his or her
Contributions during the Offering Period by completing and filing with the
Administrator (or its designee) a new subscription agreement. The change in rate
shall be effective as of the beginning of the calendar quarter following the
date of filing of the new subscription agreement or as soon thereafter as is
administratively practicable.
(c) APPLICATION OF $25,000 ANNUAL LIMIT. Notwithstanding the foregoing,
to the extent necessary to comply with Section 423(b)(8) of the Code and Section
3(b) herein, a participant's payroll deductions shall be decreased to 0%.
Payroll deductions shall re-commence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10.
3
<PAGE> 4
7. GRANT OF OPTION; OPTION PRICE.
(a) GRANT OF OPTION; NUMBER OF OPTION SHARES. On the Offering Date of
each Offering Period, each eligible Employee participating in such Offering
Period shall be granted an option to purchase on the Exercise Date a number of
shares which shall be determined by dividing such Employee's Contributions
accumulated prior to such Exercise Date and retained in the participant's
account as of the Exercise Date by the option price per share of the shares of
Common Stock offered in the Offering Period, determined as provided in Section
7(b); PROVIDED however, that such purchase shall be subject to the limitations
set forth in Sections 3(b) and 12. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 7(b).
(b) DETERMINATION OF OPTION PRICE; FAIR MARKET VALUE. The option price
per share of the shares offered in a given Offering Period shall be the lower
of: (i) 85% of the fair market value of a share of the Common Stock of the
Company on the Offering Date; or (ii) 85% of the fair market value of a share of
the Common Stock of the Company on the Exercise Date. The fair market value of
the Company's Common Stock on a given date shall be determined by the Board
based on (i) the average of the high and low prices of the Common Stock on such
date on the principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities exchange; or
(ii) the last reported sale price of the Common Stock on the Nasdaq National
Market System on such date, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price or the average of bid prices
last quoted on such date by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market System or on a national securities exchange. Notwithstanding the
foregoing, in the case of the first Offering Period, the fair market value of
the Common Stock will be the price per share at which shares of the Company's
Common Stock are initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC under the Securities
Act. If the Common Stock is not publicly traded at the time a right is granted
under this Plan, "fair market value" shall mean the fair market value of the
Common Stock as determined by the Board in its discretion after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the Offering Period, and the
number of full shares subject to option (but in no event more than the maximum
amount permitted pursuant to Section 7(a) and the other provisions of the Plan,
subject to adjustment as provided in Section 18(a) hereof) will be purchased at
the applicable option price with the accumulated Contributions in the
participant's account. The shares purchased upon exercise of an option hereunder
shall be deemed to be transferred to the participant on the Exercise Date.
During his or her lifetime, a participant's option to purchase shares hereunder
is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option. Any cash remaining to the
4
<PAGE> 5
credit of a participant's account under the Plan after a purchase by him or her
of shares at the termination of each Offering Period, or which is insufficient
to purchase a full share of Common Stock of the Company, shall be returned to
said participant, without interest.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) VOLUNTARY WITHDRAWAL. A participant may withdraw all but not less
than all the Contributions credited to his or her account under the Plan at any
time prior to the Exercise Date of the Offering Period by giving written notice
to the Administrator (or its designee), provided that such notice must be
received prior to the Exercise Date to be effective. All of the participant's
Contributions credited to his or her account will be paid without interest to
him or her promptly after timely receipt of his or her notice of withdrawal and
his or her option for the current period will be automatically terminated, and
no further Contributions for the purchase of shares will be made during the
Offering Period.
(b) TERMINATION OF EMPLOYMENT. Upon termination of the participant's
Continuous Status as an Employee prior to the Exercise Date of the Offering
Period for any reason, including retirement, disability or death, the
participant's option shall terminate and the Contributions credited to his or
her account will be returned without interest to him or her or, in the case of
his or her death, to his or her designated beneficiary hereunder (or as
otherwise provided in Section 14(b) herein).
(c) RESUMPTION OF PARTICIPATION IN SUBSEQUENT OFFERING PERIODS. A
participant's withdrawal from an offering will not have any effect upon his or
her eligibility to participate in a succeeding offering or in any similar plan
which may hereafter be adopted by the Company except to the extent set forth in
Rule 16b-3 under the Exchange Act.
11. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.
12. STOCK.
(a) AGGREGATE LIMITATION ON OPTIONS: PRO-RATA ALLOCATIONS. The maximum
number of shares of the Company's Common Stock which shall be made available for
sale under the Plan shall be 588,235 shares (after the reverse stock split
effective March 21, 2000), subject to adjustment upon changes in capitalization
of the Company as provided in subsection 18(a) hereof. Such number shall
increase automatically on January 1 of each year beginning in 2001 by a number
of shares equal to the lesser of (i) 1% of the Common Stock issued and
outstanding (including shares convertible into Common Stock, counted on an
as-converted basis) and shares held in treasury as of December 31 of the
preceding year and (ii) 294,118 shares (after the reverse stock split effective
March 21, 2000), subject to adjustment as provided in subsection 18(a). If the
total number of shares which would otherwise be subject to options granted
pursuant to Section 7(a) on the Offering Date of an Offering Period exceeds the
number of shares then available under the Plan (after deduction of all shares
for which options have been exercised or are then outstanding), the Company
shall make a pro rata allocation of the shares remaining available for option
grant in as uniform a manner as shall be practicable and as it shall determine
to be equitable and consistent with the requirements of Section 423(b)(5) of the
Code. In such event, the Company shall give written notice of such reduction of
the number of shares subject to the
5
<PAGE> 6
option to each Employee affected thereby and shall similarly reduce the rate of
Contributions, if necessary.
(b) STATUS OF OPTIONED SHARES. The participant will have no interest or
voting right in shares covered by his or her option until such option has been
exercised.
(c) REGISTRATION OF PURCHASED SHARES. Shares to be delivered to a
participant under the Plan will be registered in the name of the participant or
in the name of the participant and his or her spouse, at the participant's
election.
13. ADMINISTRATION. The Administrator shall supervise and administer the
Plan and shall have full power to adopt, amend and rescind any rules deemed
desirable and appropriate for the administration of the Plan and not
inconsistent with the Plan, to construe and interpret the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.
The composition of any committee appointed to administer the Plan shall be in
accordance with the requirements to obtain or retain any available exemption
from the operation of Section 16(b) of the Exchange Act pursuant to Rule 16b-3
promulgated thereunder.
14. DESIGNATION OF BENEFICIARY.
(a) MANNER AND EFFECT OF DESIGNATION. A participant may file a written
designation of a beneficiary who is to receive any shares and cash, if any, from
the participant's account under the Plan in the event of such participant's
death subsequent to the end of the Offering Period but prior to delivery to him
or her of such shares and cash.
(b) CHANGES IN BENEFICIARIES; EFFECT OF NO BENEFICIARY. Such
designation of beneficiary may be changed by the participant at any time by
written notice, provided that such notice shall not be effective until actually
received by the Administrator (or its designee). In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate. To the
extent of any such delivery of shares and/or cash hereunder, the Company's
obligation under the Plan with respect to the participant shall be discharged.
15. TRANSFERABILITY. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
6
<PAGE> 7
16. USE OF FUNDS. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. REPORTS. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given by January 31 of each year to each
participating Employee who transferred during the prior year any shares of
Common Stock acquired at a price less than fair market value pursuant to the
exercise of an option under this Plan. Each such statement of account shall
contain the information required by Section 6039(a)(2) of the Code, including
but not limited to the date that the shares were originally acquired by the
participating Employee and the number of shares the participating Employee has
transferred.
18. ADJUSTMENTS.
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The number of shares of
Common Stock covered by each option under the Plan which has not yet been
exercised and the number of shares of Common Stock which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company. Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) EFFECT OF DISSOLUTION, LIQUIDATION, SALE OF ASSETS OR MERGER OF THE
COMPANY. In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, the options granted during such Offering Period shall terminate
and each participant's Contributions shall be returned without interest, unless
otherwise provided by the Board. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Board shortens the Offering
Period then in progress in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify each participant in writing, at
least ten (10) days prior to the New Exercise Date, that the Exercise Date for
his or her option has been changed to the New Exercise Date and that his or her
option will be exercised automatically on the New Exercise Date, unless prior to
such date he or she has withdrawn from the Offering Period as provided in
Section 10. For purposes of this paragraph, an option granted under the Plan
shall be deemed to be assumed if, following the sale of assets or merger, the
option confers the right to purchase, for each share of option stock
7
<PAGE> 8
subject to the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property) received in
the sale of assets or merger by holders of Common Stock for each share of Common
Stock held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the sale of assets or merger.
(c) OTHER ADJUSTMENTS. The Board may, if it so determines in the
exercise of its sole discretion but subject to the requirements of Section 423
of the Code, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the event
that the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock not covered by subsection (a) hereof, and in the event of the Company
being consolidated with or merged into any other corporation.
19. AMENDMENT OR TERMINATION.
(a) RIGHT OF COMPANY TO AMEND OR TERMINATE PLAN; LIMITATIONS. The Board
may at any time terminate or amend the Plan. Except as provided in Section 18,
no such termination may affect options previously granted, nor may an amendment
make any change in any option theretofore granted which adversely affects the
rights of any participant without the written consent of such participant. In
addition, to the extent necessary to comply with Rule 16b-3 under the Exchange
Act or Section 423 of the Code (or any successor rules or provisions or any
other applicable laws or regulations), the Company shall obtain stockholder
approval in such a manner and to such a degree as so required.
(b) ADDITIONAL RIGHTS OF THE COMPANY. Without stockholder consent and
without regard to whether any participant rights may be considered to have been
adversely affected, the Board (or its committee) shall be entitled to change the
duration of future Offering Periods (subject to Section 4 hereof), limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form
8
<PAGE> 9
specified by the Company at the location, or by the person, designated by the
Company for the receipt thereof.
21. CONDITIONS UPON ISSUANCE OF SHARES.
(a) COMPLIANCE WITH LAW. Shares shall not be issued with respect to an
option unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
option, the Company may require the person exercising such option to represent
and warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.
22. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19.
23. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
24. WITHHOLDING OF ADDITIONAL INCOME TAXES. By electing to participate in
the Plan, each participant acknowledges that the Company and its Subsidiaries
are required to withhold taxes with respect to the amounts deducted from the
participant's Compensation and accumulated for the benefit of the participant
under the Plan, and each participant agrees that the Company and its
Subsidiaries may deduct additional amounts from the participant's Compensation,
when amounts are added to the participant's account, used to purchase Common
Stock or refunded, in order to satisfy such withholding obligations. Each
participant further acknowledges that when Common Stock is purchased under the
Plan, the Company and its Subsidiaries may be required to withhold taxes with
respect to all or a portion of the difference between the fair market value of
the Common Stock purchased and its purchase price, and each participant agrees
that such taxes may be withheld from compensation otherwise payable to such
participant. It is intended that tax withholding will be accomplished in such a
manner that the full amount of payroll deduction elected by the participant
under Section 6 will be used to purchase Common Stock. However, if amounts
sufficient to satisfy applicable tax withholding obligations have not been
withheld from Compensation otherwise payable to any participant, then,
notwithstanding any other provision of the Plan, the Company may withhold such
taxes from the participant's accumulated payroll deductions and apply the net
amount to the purchase of Common Stock, unless the participant pays
9
<PAGE> 10
to the Company, prior to the exercise date, an amount sufficient to satisfy such
withholding obligations. Each participant further acknowledges that the Company
and its Subsidiaries may be required to withhold taxes in connection with the
disposition of stock acquired under the Plan and agrees that the Company or any
Subsidiary may take whatever action it considers appropriate to satisfy such
withholding requirements, including deducting from any amount otherwise payable
to such participant an amount sufficient to satisfy such withholding
requirements or conditioning any disposition of Common Stock by the participant
upon the payment to the Company or such Subsidiary of an amount sufficient to
satisfy such withholding requirements.
10
<PAGE> 11
New Election _____
Change of Election _____
EPRISE CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I, ________________________, hereby elect to participate in the Eprise
Corporation 2000 Employee Stock Purchase Plan (the "Plan") for the Offering
Period ________________, 20____ to ______________, 20___ and for all subsequent
Offering Periods under the Plan, and subscribe to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and the
Plan.
2. I elect to have Contributions in the amount of ___% of my Compensation,
as those terms are defined in the Plan, applied to this purchase. I understand
that this amount must be not less than the percentage that will result in
Contributions of at least $150 per Offering Period and not more than 10% of my
Compensation during the Offering Period.
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Section 2 of this Subscription Agreement.
I understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I understand that, except as otherwise set forth in
the Plan, shares will be purchased for me automatically on the Exercise Date of
the Offering Period unless I withdraw from the Plan by giving timely written
notice for such purpose to the Administrator appointed pursuant to the Plan.
4. I understand that I may discontinue at any time prior to the Exercise
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that on one occasion only during the Offering Period I may increase
or decrease the rate of my Contributions during the Offering Period by
completing and filing with the Administrator a new Subscription Agreement. The
change in rate shall be effective as of the beginning of the calendar quarter
following the date of filing of the new Subscription Agreement or as soon
thereafter as is administratively practicable.
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete Plan document. I understand that my
participation in the Plan is in all respects subject to the terms of the Plan.
<PAGE> 12
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
- ----------------------------------
- ----------------------------------
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
------------------------------------------
(First) (Middle) (Last)
- ----------------------------- ----------------------------------------
(Relationship) (Address)
----------------------------------------
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the last day
of the Offering Period, I will be treated for federal income tax purposes as
having received ordinary compensation income at the time of such disposition in
an amount equal to the excess of the fair market value of the shares at the time
such shares were transferred to me over the price which I paid for the shares,
regardless of whether I disposed of the shares at a price less than their fair
market value at such transfer to me. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER
THE DATE OF ANY SUCH DISPOSITION, AND I WILL MAKE ADEQUATE PROVISION FOR
FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON
THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (a) the excess, if any, of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares under the option, or (b) the difference between the
fair market value of the shares on the Offering Date and the Option Price on the
Offering Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I UNDERSTAND THAT THIS TAX SUMMARY IS ONLY A SUMMARY AND IS SUBJECT TO
CHANGE.
2
<PAGE> 13
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE:_______________________
SOCIAL SECURITY #:_______________
DATE:____________________________
3
<PAGE> 14
EPRISE CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________, hereby elect to withdraw my participation in the
Eprise Corporation 2000 Employee Stock Purchase Plan (the "Plan") for the
Offering Period ending _________________. The withdrawal covers all
Contributions credited to my account and is effective when actually received by
the Administrator appointed pursuant to the Plan.
I understand that all Contributions credited to my account will be paid
to me without interest within ten (10) business days of timely receipt by the
Administrator of this Notice of Withdrawal and that my option for the current
period will automatically terminate, and that no further Contributions for the
purchase of shares can be made by me during the Offering Period.
I understand that my withdrawal from this Offering will not affect my
eligibility to participate in a succeeding Offering Period or in any similar
plan that may hereafter be adopted by the Company. I understand and agree,
however, that I will be eligible to participate in succeeding Offering Periods
only by delivering to the Company a new Subscription Agreement.
Dated:___________________ __________________________________
Signature of Employee
__________________________________
Social Security Number
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Eprise Corporation
Framingham, Massachusetts
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-94777 of Eprise Corporation on Form S-1 of our report dated January 21, 2000
(March 21, 2000, as to the effects of the stock split described in Note 2 and
the restatement described in Note 10) (which expresses an unqualified opinion
and includes an explanatory paragraph relating to the restatement of the 1999
consolidated financial statements), appearing in the Prospectus, which is a part
of this Registration Statement, and to the references to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 22, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated December 18, 1997 (except with respect to the disclosure of the issuance
of Series A Redeemable Preferred Stock (Note 5) as to which the date is January
28, 1998) on the Company's financial statements as of and for the year ended
August 31, 1997 (and to all references to our Firm) included in or made a part
of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,455,448
<SECURITIES> 0
<RECEIVABLES> 2,234,076
<ALLOWANCES> 189,000
<INVENTORY> 0
<CURRENT-ASSETS> 24,875,614
<PP&E> 1,152,273
<DEPRECIATION> 538,886
<TOTAL-ASSETS> 25,534,378
<CURRENT-LIABILITIES> 1,898,555
<BONDS> 78,756
35,315,984
0
<COMMON> 2,838
<OTHER-SE> (11,761,755)
<TOTAL-LIABILITY-AND-EQUITY> 25,534,378
<SALES> 0
<TOTAL-REVENUES> 3,658,815
<CGS> 0
<TOTAL-COSTS> 1,125,050
<OTHER-EXPENSES> 9,265,673
<LOSS-PROVISION> 155,770
<INTEREST-EXPENSE> 26,759
<INCOME-PRETAX> 6,599,996
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,599,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,599,996
<EPS-BASIC> (11.42)
<EPS-DILUTED> (11.42)
</TABLE>
