<PAGE>
As filed with the Securities and Exchange Commission on March 10, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Naviant, Inc.
(Exact name of registrant as specified in its charter)
Delaware 7389 23-2889732
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
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Naviant, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073
Telephone: (610) 355-7040
Facsimile: (610) 355-2428
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
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Dr. Charles W. Stryker
President Chief Executive Officer and Chairman
Naviant, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073
Telephone: (610) 355-7040
Facsimile: (610) 355-2428
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Kevin J. Lavin, Esq. Julia K. Cowles, Esq.
Brobeck, Phleger & Harrison LLP Davis Polk & Wardwell
701 Pennsylvania Avenue NW, Suite 220 450 Lexington Avenue
Washington, DC 20004 New York, NY 10017
Telephone: (202) 220-6000 Telephone: (212) 450-4000
Facsimile: (202) 220-5200 Facsimile: (212) 450-4800
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, as amended, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]___________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]__________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]__________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price (1) (2) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value.......... $50,000,000 $13,200
</TABLE>
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(1) Includes shares of common stock that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell 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,
Preliminary Prospectus dated March 10, 2000
PROSPECTUS
Shares
naviant
Common Stock
-----------
This is Naviant, Inc.'s initial public offering. Naviant, Inc. is selling
all of the shares.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National
Market under the symbol "NAVT."
Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 7 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................. $ $
Underwriting discount............................. $ $
Proceeds, before expenses, to Naviant............. $ $
</TABLE>
The underwriters may also purchase up to an additional shares from
Naviant at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares will be ready for delivery on or about , 2000.
-----------
Merrill Lynch & Co.
Robertson Stephens
U.S. Bancorp Piper Jaffray
-----------
The date of this prospectus is , 2000.
<PAGE>
[PHOTOS/GRAPHICS TO COME]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 23
Selected Financial Data.................................................. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 33
Management............................................................... 48
Certain Transactions..................................................... 59
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 65
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find Additional Information................................ 73
Index to Financial Statements............................................ F-1
</TABLE>
-------------------------
This prospectus contains estimates of market growth and other information
related to the Internet. These estimates have been included in studies
published by Forrester Research and International Data Corporation, which are
market research firms, and by the Direct Marketing Association, an industry
trade organization. These estimates assume that certain events, trends and
activities will occur. None of these entities guarantees the accuracy or
completeness of its information and estimates. We have not independently
verified the information and assumptions on which these market growth estimates
are based. If any of these entities is wrong about any of its assumptions, then
its market estimates may also be wrong.
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
<PAGE>
SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial statements
and related notes, before making an investment decision.
NAVIANT
We provide one-to-one marketing solutions that enable Web advertisers,
publishers and consumer marketers to precisely identify and target Web users
through both traditional and online media. Our proprietary database contains
extensive physical world information on over 17.5 million U.S. households,
representing an estimated 40 million Web-enabled consumers, which we believe is
the largest and most detailed database of Web-enabled households available. We
develop, update and expand our database on an ongoing basis by acting as the
largest outsourced provider of electronic registrations for technology
products. By combining the online identity of Web-enabled consumers with the
detailed demographic and lifestyle information in our database, we enable our
clients to execute highly targeted marketing campaigns and to personalize Web
content.
We provide our clients with the following families of products and
services:
. e-Registration: Since 1996, we have processed over 45 million
electronic registrations for more than 300 technology products sold by
over 60 manufacturers and service providers.
. Precision Marketing:
e-List. Our extensive database of verified Web-enabled households
permits marketers to precisely identify and target existing and
prospective Web-enabled customers through traditional targeted
marketing campaigns.
e-Targeting. Our e-Targeting services, which we began offering in
January 2000, enable marketers to deliver banner advertisements to
specific households when they are on Web sites served by our
fulfillment partners, currently Excite@Home and 24/7 Media. e-
Targeting also enables Web sites to immediately segment their
visitors for dynamic personalization of Web content and to perform
demographic analysis of site visitors.
Affinity Marketing. We present contextually relevant offers to
consumers at the end of the product registration process and on a
continuing basis via private-labeled Web sites accessible through
permanent desk top icons or through direct e-mail marketing. This
affinity marketing process allows our clients to build customer
loyalty.
. e-CRM (Customer Relationship Management): As a compliment to our
precision marketing business, we provide consulting and processing
services which enable marketers to communicate with their Web-enabled
customers more efficiently.
Our objective is to become the leading provider of precision targeting
solutions to Web advertisers, publishers and consumer marketers. The essential
elements of our strategy are to:
. leverage our existing e-Registration business to maintain the largest
and most robust database of Web-enabled households;
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. fully capitalize on the broad capabilities and applications of our e-
Targeting technology;
. expand our distribution capabilities by growing our sales force and
forging creative distribution arrangements through strategic
alliances;
. develop new precision marketing products and services; and
. expand internationally.
A critical component of our strategy is to forge strategic alliances with
industry leaders. We have established a number of important relationships with
major corporations in the Web and advertising businesses. Our strategic
partners include Excite@Home and 24/7 Media for our e-Targeting fulfillment,
infoUSA for supplemental consumer data, eData.com for database management
services, and eData.com, Webcraft, Inc. and Young & Rubicam Inc. for
distribution of our e-Targeting and e-List services.
Recent Developments
In February 2000, we acquired Impco Enterprises, Inc. (which operates
under the name Strategic Database Group or "SDG") from Webcraft for 3,625,926
shares of our Series C preferred stock. SDG provides list processing services,
re-markets list properties, and conducts analytic processing and marketing
model development. Our acquisition of SDG expands our access to demographic
variables, expands our custom list processing capacity and increases our
capacity to support analytic processing for both internal product development
and client opportunities.
In March 2000, we entered into a four year agreement with Young & Rubicam
pursuant to which Young & Rubicam will purchase itself or through its clients
an aggregate of at least $10.0 million of our e-List, e-Targeting or other
products. In connection with this business agreement, Young & Rubicam agreed to
purchase 5,555,555 shares of our Series F preferred stock at $2.70 per share,
for a total initial investment of approximately $15.0 million, and was granted
an option to purchase up to $5.0 million of our common stock at the initial
offering price concurrent with, but not as a part of, this offering.
In March 2000, we entered into an agreement with SOFTBANK Holdings Inc.
to acquire substantially all of the assets of SOFTBANK Content Services Inc.
(which operates under the name of "Softbank Marketing Solutions" or "SMS"), in
exchange for 11,000,000 shares of our Series E preferred stock. SMS is an
electronic registration and affinity marketing company that provides
registration services to computer and computer-related product companies. Our
acquisition of SMS will further enhance our position in the electronic
registration market. Integration of SMS's proprietary technology will
accelerate deployment of several technology advances for our e-Registration
system, including a Web-based registration application that facilitates
enabling households for e-Targeting. Concurrent with entering into the
acquisition agreement SOFTBANK Capital Partners LP agreed to purchase 9,259,259
shares of our Series F preferred stock at $2.70 per share, for a total
investment of $25.0 million.
Our Privacy Policy
We do not monitor the movements and behaviors of consumers on the Web and
do not use online behavioral "clickstream" data in our products and services.
We recognize that online privacy regulation is relatively new and rapidly
changing and requires continuous attention as policies evolve. In addition to
following the practices set forth in our published privacy policy, we have
dedicated an executive privacy officer to monitor the evolution of standards
and our compliance with them. We believe that consumers benefit from our e-List
and e-Targeting products because we provide them more relevant advertising
through both online and traditional media and that these benefits can be
realized without intrusive online behavior monitoring. We provide for consumer
choice not only to decide whether or not to participate on our e-Targeting
system but also to change their minds at a future date.
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<PAGE>
We enable advertisers to deliver to consumers relevant online advertising
without the added concern of monitoring consumer online behavior. We believe
that we are in compliance with all current regulatory and industry requirements
for the collection and use of consumer information. See "Risk Factors" for
further information relating to privacy on the Web.
Dependence on the Success of Our e-Targeting Service
We expect that a significant portion of our future growth will be
dependent on the success of our recently launched e-Targeting service. To date,
we have recognized minimal revenue from our e-Targeting service. We need to
complete additional commercialization and technological work in order to fully
deploy our e-Targeting service.
Formation of the Company
Prior to May 1997, we operated as a division of MRJ, Inc. ("MRJ"), an
engineering consulting firm. In May 1997, our operations were contributed to a
subsidiary of MRJ. Our current structure was formed by our acquisition of the
stock and assets of the IQ2.net division of IntelliQuest Information Group,
Inc. in September 1999. Our principal executive offices are located at 14
Campus Boulevard, Suite 200, Newtown Square, Pennsylvania 19073, and our
telephone number at that location is (610) 355-7040. Our Company's Web site
address is www.naviant.com. Information contained on our Web site should not be
considered a part of this prospectus.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Naviant..................... shares
Common stock to be outstanding after the offering... shares
Use of proceeds..................................... We estimate that our net
proceeds from this
offering without exercise
of the over-allotment
option will be
approximately $ . We
intend to use these net
proceeds for general
corporate and working
capital purposes.
Risk factors ....................................... See "Risk Factors" and
other information
included in this
prospectus for a
discussion of factors you
should carefully consider
before deciding to invest
in shares of the common
stock.
Proposed Nasdaq National Market symbol.............. NAVT
</TABLE>
The number of shares of common stock outstanding after this offering is
based on shares outstanding as of March 9, 2000, reflects the conversion of
all outstanding preferred stock into common stock and does not include:
. 7,989,570 shares of common stock issuable upon the exercise of options
outstanding as of March 9, 2000 at a weighted average exercise price of
$1.10 per share;
. shares of common stock (assuming an initial offering price of $ per
share) issuable to Young & Rubicam in connection with its option to purchase
up to $5.0 million of common stock concurrent with this offering;
. shares of common stock (assuming million shares are sold in this
offering) issuable upon the exercise of the warrants issued in connection
with the sale of our Series C and D preferred stock which entitle the
warrant holders to purchase shares of our common stock equal to 5% of the
shares issued in this offering at the initial public offering price (the "5%
Warrants");
. up to 778,000 shares of common stock issuable upon the automatic exercise of
an outstanding warrant which will occur upon consummation of the offering
(subject to reduction in the event that the holder elects cashless exercise)
(the "Automatic Warrant"); and
. 3,328,335 shares of common stock, the maximum number of additional shares
issuable upon conversion of the Series F preferred stock.
This number also assumes that the underwriters' over-allotment option is
not exercised. If the over-allotment option is exercised in full, we will issue
and sell an additional shares.
4
<PAGE>
Summary Financial Information
(amounts in thousands, except share and per share data)
The following tables summarize the financial data for our business. The
information for the year ended December 31, 1997, reflects the periods before
and after our spin-off from MRJ. The pro forma statement of operations for the
year ended December 31, 1999 gives effect to our acquisitions of IQ2.net and
SDG and the pending acquisition of SMS as if each of these had occurred on
January 1, 1999. The pro forma basic and diluted weighted average shares
outstanding gives effect to (a) the issuance of convertible preferred stock in
connection with the acquisitions of IQ2.net and SDG and the pending acquisition
of SMS as though they had occurred on January 1, 1999 and (b) the conversion of
all of our outstanding convertible preferred stock, including the shares of
Series F preferred stock issued or expected to be issued to SOFTBANK, Young &
Rubicam and certain current stockholders. The pro forma basic and diluted
weighted average shares outstanding exclude (1) up to 778,000 shares of our
common stock issuable upon the exercise of the Automatic Warrant, (2)
shares issuable upon the exercise of the 5% Warrants, (3) 3,328,335 shares of
common stock, the maximum number of additional shares issuable upon conversion
of the Series F preferred stock and (4) shares of common stock (assuming an
initial offering price of $ per share) issuable to Young & Rubicam in
connection with their option to purchase up to $5.0 million of common stock
concurrent with this offering.
<TABLE>
<CAPTION>
Period from Period from
January 1, 1997 May 2, 1997 Pro forma
through through Year Ended Year Ended Year Ended
May 1, December 31, December 31, December 31, December 31,
1997 1997 1998 1999 1999
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
e-Registration........ $ -- $ -- $ -- $ 2,747 $ 7,725
Precision marketing... -- -- -- 3,926 7,596
e-CRM................. 4,533 9,630 9,717 11,380 20,612
------ ----------- ----------- ----------- -----------
Total revenues...... 4,533 9,630 9,717 18,053 35,933
Cost of revenues:
e-Registration........ -- -- -- 1,408 4,062
Precision marketing... -- -- -- 2,064 3,663
e-CRM................. 2,442 4,062 4,067 5,459 13,091
------ ----------- ----------- ----------- -----------
Total cost of
revenues........... 2,442 4,062 4,067 8,931 20,816
------ ----------- ----------- ----------- -----------
Gross profit............ 2,091 5,568 5,650 9,122 15,117
Net loss................ (882) (1,410) (3,175) (10,554) (38,854)
Accretion and dividends
on redeemable
convertible preferred
stock.................. -- -- -- (1,668) (6,724)
------ ----------- ----------- ----------- -----------
Net income (loss)
available to common
stockholders........... $ (882) $ (1,410) $ (3,175) $ (12,222) $ (45,578)
====== =========== =========== =========== ===========
Historical net loss per
share--basic and
diluted................ $ (0.14) $ (0.31) $ (1.17)
=========== =========== ===========
Historical weighted
average shares
outstanding--basic and
diluted................ 10,125,000 10,125,000 10,455,645
=========== =========== ===========
Pro forma net loss per
share--basic and
diluted................ $ (0.35) $ (0.39)
=========== ===========
Pro forma weighted
average shares
outstanding--basic and
diluted................ 30,538,661 99,379,307
=========== ===========
</TABLE>
5
<PAGE>
Our pro forma calculations in the summary balance sheet data below
reflect our expected receipt of approximately $49.2 million in connection with
the sale of our Series F preferred stock to SOFTBANK, Young & Rubicam and
certain current stockholders. Our pro forma balance sheet gives effect to the
issuance of convertible preferred stock in connection with the acquisition of
SDG and the pending acquisition of SMS as if such acquisitions had occurred on
December 31, 1999. Our pro forma as adjusted balance sheet data give effect to
the application of the estimated net proceeds from the sale of the shares
offered by this prospectus.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------
Pro forma
Actual Pro forma As Adjusted
------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $10,997 $ 60,261
Working capital......... 15,963 64,716
Total assets............ 71,353 160,845
Long-term obligations,
less current portion... 378 399
Redeemable convertible
preferred stock........ 74,261 162,992
Total stockholders'
equity (deficit)....... (13,083) (14,263)
</TABLE>
- --------
Unless otherwise indicated, all financial information and share and per
share data in this prospectus assumes:
. that shares will be issued in this offering and the initial public
offering price will be $ per share (the midpoint of the range on the
cover page of this prospectus);
. that the SMS acquisition and the Series F preferred stock financing
will be closed; and
. the underwriters will not exercise their over-allotment option and no
other person will exercise any other outstanding options or warrants.
6
<PAGE>
RISK FACTORS
Investing in our common stock involves risks. You should carefully
consider the following risks together with the other information contained in
this prospectus before deciding to buy our common stock. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also could harm our business, financial condition and operating results.
We have never been profitable, and we expect our losses to continue.
We have never been profitable. If our revenues grow at a slower rate than
we anticipate, or if our spending levels exceed our expectations or cannot be
adjusted to reflect slower revenue growth, we may not generate sufficient
revenues to achieve or sustain profitability. In this case, the value of your
investment could be reduced. For the year ended December 31, 1998, we incurred
net losses from operations of approximately $3.2 million. For the year ended
December 31, 1999, we incurred net losses from operations of approximately
$10.6 million. As of December 31, 1999, we had an accumulated deficit of
approximately $15.1 million. We expect to continue to lose money for the
foreseeable future because we anticipate incurring significant expenses in
connection with improving and building awareness of our products and services.
We forecast our future expense levels based on our operating plans and our
estimates of future revenues. We may find it necessary to accelerate
expenditures relating to our sales and marketing efforts and our product and
technology development and, as a result, may fail to meet public expectations
of projected financial performance.
Our e-Targeting technology is unproven and full-scale implementation involves
significant risks.
Our business strategy depends in large part on the success of our e-
Targeting product, which is a new and relatively unproven service. We have not
had an opportunity to fully test our ability to deliver a large number of
targeted advertisements. Also, there remains a considerable amount of
technological implementation to complete, both with respect to our own systems
and those of our partners, before we will be able to fully implement our e-
Targeting service. For example, for e-Targeting to work, we need to deposit an
identifier on the customer's browser during the e-Registration process so that
they will be recognized when they later enter our e-Targeting partners' Web
sites. Currently, approximately 17% of the Web-enabled households in our
database have such an identifier. In addition, our partners need to enhance
their ad serving systems to accommodate large volume e-Targeting because,
unlike traditional placement of banner advertisements, e-Targeting banner ads
must be stored on our partners' servers until the intended customer arrives on
their network, which requires significantly higher capacity ad servers. Our
partners also must complete the process of migrating each of the Web pages
being served by their network to their own servers so that they will accept e-
Targeting banner advertisements. Through our e-CRM business, we are providing
the necessary enhancements to 24/7 Media to address these needs, but there can
be no assurance that we will achieve the desired results. Finally, as with any
technology dependent on complex software and network facilities, we may
experience unanticipated software errors, system interruptions or other
unanticipated delivery problems.
e-Targeting technology may not be accepted in the marketplace.
The market for targeted marketing over the Web is new and rapidly
evolving, and our business will be harmed if sufficient demand for our services
does not develop. Demand for our e-Targeting services may not materialize for
several reasons, including:
. businesses that have already invested substantial resources in other
methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods;
. other, more effective forms of online advertising may be developed;
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<PAGE>
. the use of banner advertisements may be impeded by widespread
adoption of "filter" software programs; or
. consumers and businesses may choose not to accept e-marketing
messages due to privacy concerns.
We are dependent on our strategic partners for essential services, including
dependence on Excite@Home and 24/7 Media for delivery of advertisements to Web
users.
Our business strategy depends on our ability to provide Web advertisers,
publishers and consumer marketers with access to their target consumer audience
both in the physical world and over the Web. Our ability to provide our clients
with the ability to deliver targeted advertisements over the Web depends, in
turn, on our strategic partnerships with Excite@Home and 24/7 Media, each of
which has agreed to publish our clients' advertising on Web sites that they
serve. We do not have any ad serving capability of our own, and our partners
retain discretion to prioritize ads being delivered on behalf of their clients.
If these relationships with Excite@Home and 24/7 Media are terminated or
otherwise fail, we would be required to develop alternate means to deliver
advertising over the Web, which would require significant time and resources
and would cause our revenues to suffer.
The terms of our agreements with Excite@Home and 24/7 Media generally do
not restrict those companies from working with our competitors or from
developing products and services that may compete with us. However, we have
agreed that, prior to January 1, 2002, we will not provide products or services
to any company that directly competes with 24/7 Media's business of selling
inventory on behalf of third party Web sites (Excite@Home excluded).
Additionally, we have agreed to make minimum purchase commitments from
Excite@Home throughout the term of our agreement with them.
Our e-List and e-Targeting businesses will be dependent on our ability to
continue to obtain, maintain and use data currently obtained through our e-
Registration business.
A critical component of our e-List and e-Targeting businesses is an
extensive database including information about each consumer's physical
identity (such as the name and mailing address) and Web presence (which is
identified by installing an identifier on the user's browser). Our e-List and
e-Targeting businesses would be adversely affected if we were unable to
maintain and grow this database or if the information in the database were to
become inaccurate due to the passage of time.
The core data in our current database is comprised of data we have
gathered by processing product and service registrations for manufacturers and
service providers in our e-Registration business. These product manufacturers
and service providers may decide to internalize registration operations, to
outsource their product registrations to a different service provider, to begin
to charge licensing or other fees for access to their customers' data, or to
deny us the right to use this data for our e-List and e-Targeting businesses.
Several of our e-Registration clients do not currently permit us to use the
data we gather from registering their products in our other targeted marketing
businesses and additional clients may restrict our use of this data in the
future. Any such developments would have a material adverse effect on our e-
Registration business and on the effectiveness and growth of our e-List and e-
Targeting products and services.
Growing concerns about the use of Web user profiles, or "cookies", and data
collection may limit our ability to develop our database of Web user profiles.
Our e-Targeting technology depends on our ability to place small files of
information commonly known as "cookies" on a Web user's browser. We use these
cookies to identify the user to our clients. Information stored on cookies is
passed through the Web user's browser software when the user visits the Web
sites served by our strategic partners, presently Excite@Home and 24/7 Media.
Most currently-available Web browsers allow users to modify their browser
settings to prevent cookies from being stored on their browser, and a small
minority of users are currently choosing to do so. Users can also delete
cookies from their browsers
8
<PAGE>
at any time and we cannot be certain that a particular consumer in our database
will continue to retain a cookie that we have inserted. In addition, despite
our permissioning processes, consumers using our registration services and
visitors to Web sites on which our advertising messages are placed may not be
aware that we are placing a cookie on their browser.
Some Web commentators and privacy advocates have suggested limiting or
eliminating the use of cookies. The effectiveness of Web advertising in
general, and our e-Targeting technology in particular, would be limited by any
reduction or limitation in the use of cookies. It is possible in the future
that federal, state or other governmental entities may restrict the use of
cookies.
Changes to existing laws or the passage of new laws intended to address
this issue could, among other things:
. create uncertainty in the marketplace that could reduce demand for
our services;
. limit our ability to collect and to use data from individuals who
register products through our e-Registration services;
. increase the cost of doing business as a result of litigation costs
or increased service delivery costs; or
. decrease the efficacy of Web advertising.
If the use or effectiveness of cookies is limited, we may have to switch
to other technology that allows us to deliver targeted banner advertisements.
While such technology currently exists, it is substantially less effective than
cookies. Replacement of cookies could require significant re-engineering time
and resources, might not be completed in time to avoid negative consequences to
our business, financial condition or results of operations, and might not be
commercially feasible.
Our business may be significantly adversely affected by lawsuits and industry
initiatives related to privacy and business practices.
There are currently a number of pending legal proceedings in the online
marketing industry, including several class action lawsuits and state
government inquiries, which generally relate to, among other things, possible
violations of consumer protection and privacy laws. In addition, the FTC has
established a committee to review online privacy. The enforcement of the laws
concerning consumer protection and privacy issues relating to the Internet is
unpredictable and, although we believe that our business practices comply with
all applicable laws, there can be no assurance that our business practices will
not be subject to similar legal proceedings in the future. Such litigation and
regulatory inquiries are often expensive and time-consuming to defend and their
outcome is uncertain. In the event that we become subject to such proceedings,
we may need to spend significant amounts on our legal defense, senior
management may be required to divert their attention from other portions of our
business, new product launches may be deferred or canceled, and we may be
required to make changes to our present and planned products or services, any
of which could materially and adversely affect our business, financial
condition and results of operations.
In addition, several key industry organizations, such as the Direct
Marketing Association, the Internet Advertising Bureau, the Advertising
Research Foundation and FAST Forward, have begun initiatives focusing on
appropriate standards for consumer privacy over the Web. While we believe that
our products and services comply with current industry guidelines, as industry
guidelines evolve our products and services may not comply with recommended
industry guidelines and we may determine that compliance would not be
economically feasible or otherwise consistent with our business strategy. To
the extent that our e-Targeting approach diverges from the course of action
recommended by some or all of these trade groups, our business, results of
operations and financial condition could be adversely affected.
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We may not be successful in developing products and services for additional
delivery channels.
Part of our strategy is to develop products and services that will allow
our marketing clients to reach Web-enabled consumers with more precision and to
extend our means of delivery into the full spectrum of electronic media. We may
seek to do this by expanding our e-Registration business to products other than
computer-related products (for example, cellular telephones), by enhancing our
e-List segments (for example, small business files) or by adapting our services
to different delivery platforms (for example, cable television). Our success in
introducing these services will depend on our ability to (a) obtain access to
the consumer information necessary to create a meaningful database of market-
specific interests and preferences, (b) enter into marketing relationships with
partners having expertise in these markets and (c) develop the technology
necessary to access additional platforms. There can be no assurance that we
will be successful in obtaining this data or the necessary marketing
relationships or technologies, and any failure to do so would impair our
ability to introduce our planned products and services for these markets.
Claims may be brought against us that our technologies infringe the
intellectual property rights of others, which may require us to incur costs in
defending our clients and ourselves against such allegations.
Although we do not believe that our technologies infringe the proprietary
rights of others, it is possible that infringement or invalidity claims could
be asserted or prosecuted against us in the future. In particular, we have
agreed to indemnify 24/7 Media for any losses they suffer, up to the total
amount of consideration we receive pursuant to our agreement with them, as a
result of any claim that the e-CRM services we are providing violate the
intellectual property rights, including patents, of a third party. Any such
assertions or prosecutions could have a material adverse effect on our
business. There is a substantial risk of litigation regarding intellectual
property rights in our industry. Any claims, with or without merit could:
. be time-consuming, costly to defend and harm our reputation;
. divert management's attention and resources;
. cause delays in the delivery of products that incorporate our
technologies;
. require the payment of monetary damages, which may be trebled if the
infringement is found to be willful;
. result in an injunction which would prohibit us from offering
licenses to a particular technology;
. require us to enter into royalty or licensing agreements which, if
required, may not be available on acceptable terms; or
. require us to pay damages to or indemnify our clients under our
contracts with them.
We may be unable to protect our intellectual property, which would adversely
affect our ability to compete.
We are dependent upon our proprietary information and technology. We rely
on a combination of patent, copyright, trademark and trade secret laws and
license agreements to establish and protect our intellectual property. We
require our employees, third-party consultants, contractors and clients to
enter into agreements which limit the use of, access to and distribution of our
proprietary information. We cannot assure you that our precautions will be
adequate to prevent misappropriation or infringement of our intellectual
property. The laws of some foreign countries may not protect our proprietary
information and technology rights as fully as the laws of the United States.
Despite the steps taken by us to protect our proprietary rights, it may be
possible for unauthorized third parties to otherwise obtain and use information
or technology that we regard as proprietary. We may need to engage in
litigation in order to enforce our intellectual property rights in the future,
which could result in substantial costs and diversion of management and other
resources. Failure to protect our intellectual property rights in a meaningful
manner could have a material and adverse effect on our business.
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In March 2000, we filed a patent application in the United States
relating to certain of our e-Registration, e-List and e-Targeting technologies
and business methods. We cannot assure you that our patent application will be
granted. Even if it is granted, this patent may be successfully challenged by
others or invalidated. Many of our current and potential competitors dedicate
substantially greater resources to the protection and enforcement of
intellectual property rights, especially patents. If a blocking patent were to
be issued to a third party, we would need to either obtain a license to, or
design around, that patent. We may not be able to obtain a license on
acceptable terms, if at all, or design around the patent, which could harm our
ability to provide certain of our services.
If we are unable to safeguard the confidential information in our data
warehouse, our reputation may be harmed and we may be exposed to liability.
We currently retain highly confidential consumer information in a secure
data warehouse. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this data warehouse. Any
unauthorized access to our servers could result in the misappropriation of
confidential consumer information or cause interruptions in our services. If
any compromise or breach of security were to occur, it could harm our
reputation and expose us to possible liability. In addition, our reputation may
be harmed if we lose consumer information maintained in our data warehouse due
to systems interruptions or other reasons. It is also possible that one of our
employees or other authorized or unauthorized personnel could attempt to misuse
confidential consumer information, which would harm our reputation and expose
us to liability.
As a result of these concerns, we may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by
security breaches, and we may be subject to legal claims if unauthorized third
parties gain access to our system and alter, destroy or misappropriate
information in our database. Also, any public perception that we engaged in the
unauthorized release of information, whether or not correct, would adversely
affect our ability to attract and retain clients.
We may be liable as a result of the use of information in our database, in
particular, if this information is inaccurate.
We may be sued for defamation, civil rights infringement, negligence or
other legal claims relating to information that we provide to our clients for
use in their direct marketing campaigns. These suits may be brought by or on
behalf of individuals or by consumer groups. Our contracts generally provide
that our client must indemnify us for any damages arising from the use of data,
reports or analyses that we provide or the performance of any consulting,
analytic or other services by us. In addition, we may also face liability for
information that we supply to clients if the information is inaccurate. The
information in our databases, like that in any database, may contain
inaccuracies and our clients acknowledge this in our contracts with them.
However, we cannot be certain our contract provisions provide sufficient
protection. Liabilities which we may incur because of irregularities or
inaccuracies in the data we supply to our clients could adversely affect our
business, results of operations and financial condition.
Our insurance does not specifically provide for coverage of these types
of claims and therefore may not adequately protect us against such claims. In
addition, we could incur significant costs in investigating and defending such
claims, even if we ultimately are not liable. If any of these events occur, our
revenues and the value of your investment could be materially adversely
affected.
Sustained or repeated system failures could significantly disrupt our
operations, cause client dissatisfaction and reduce our revenues.
The continuing and uninterrupted performance of our computer systems and
systems provided by third parties is critical to our success. Our operations
depend on our ability to protect our computer systems against damage from fire,
power loss, water damage, telecommunications failures, viruses, vandalism and
other
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<PAGE>
malicious acts or unexpected adverse events. Although we maintain system backup
and auxiliary systems to mitigate the damage from the occurrence of these
events, we may not have taken adequate steps to guard against every difficulty
that could occur. Clients may become dissatisfied by any system failure that
interrupts our ability to provide our services to them, including failures
affecting the ability to deliver advertisements quickly and accurately to the
targeted audiences. Sustained or repeated system failures would significantly
reduce the attractiveness of our solutions to advertisers.
In addition, interruptions in our service could result from the failure
of our third party providers to provide the necessary data communications
capacity in the time frame required. Our data warehouse and processing
operations and computer hardware are primarily housed at eData.com, a third-
party provider of Web data services located in Boca Raton, Florida, and at our
own facilities in Atlanta and Newtown Square. If eData.com is unable to
adequately protect our data warehouse and hardware, and information is lost or
our ability to deliver our services is interrupted, our reputation may be
harmed and we may lose clients. In addition, the failure of any advertising
server system that we use, including failures which delay the delivery of
advertisements to Web sites or impede our ability to verify that advertisements
were delivered, could reduce client satisfaction and harm our business, results
of operations and financial condition.
Intense competition in the marketing data industry could reduce our ability to
gain clients and reduce our revenues.
We face intense competition in the marketing data services industry. The
following categories represent current and potential competition:
. ad serving companies, such as DoubleClick and Engage Technologies;
. providers of online media planning and buying services, such as
Avenue A; and
. publisher networks that provide services directly to clients, such as
Flycast Communications (now part of Engage Technologies); and
. offline direct marketing companies that may target the Web-enabled
consumer, such as Acxiom.
In addition, we face indirect competition from companies, which manage
affiliate programs such as LinkShare, advertising agencies with in-house online
media management capabilities such as Lowe Interactive, incentive-based
marketers such as MyPoints.com and marketing list brokers.
We believe that our ability to compete depends upon many factors both
within and outside of our control, including:
. the size and depth of our marketing database;
. the effectiveness, ease of use, performance and features of our
database;
. the reach of our fulfillment partners for our e-Targeting services;
. client perceptions of the effectiveness of our products and services;
. the price of our products and services; and
. the timing and acceptance of new services and enhancements to
existing solutions developed by us or our competitors.
The intense competition among Web sites has led to many pricing
alternatives for Web advertising. These alternatives make it difficult for us
to project future levels of advertising demand and related revenues that can be
sustained either by the Web advertising industry or us in general.
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We expect competition to continue to increase in our industry because
there are no substantial barriers to entry. There have been a number of new
entrants into this market. We believe that, in addition, competition will
continue to increase as a result of industry mergers, partnerships and
consolidations. For example, AdForce and Flycast merged into Engage
Technologies; Yesmail.com has recently been acquired by CMGI; AdKnowledge has
recently been acquired by Engage Technologies, a subsidiary of CMGI; and
DoubleClick has recently acquired NetGravity, Abacus and a 30% interest in
ValueClick. In addition, as we expand the scope of our Web advertising and
direct marketing services, we may compete with a greater number of Web sites
and other media companies across a wide range of different Web services.
Competitive pressures could prevent us from growing, reduce our market share or
require us to reduce prices on our products and services, any of which could
harm our business.
Many of our existing competitors have significantly greater financial,
technical, marketing, service and other resources, have a larger installed base
of users, have been in business longer or have greater name recognition than we
do. Some of our competitors' services may be more effective than our services
at performing particular functions or be more customized for particular needs.
Some large companies may attempt to build functions into their services that
are similar to functions of our products and services. Even if these functions
are more limited than those provided by our products and services, those
services could discourage potential clients from purchasing our products and
services, as well as lead to price reductions that could harm our revenues.
Our quarterly operating results are subject to significant fluctuations and you
should not rely on them as an indication of our future results. Fluctuations in
our operating results or the failure of our operating results to meet the
expectations of public market analysts and investors may negatively impact our
stock price.
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. Fluctuations in our quarterly operating results could
cause our stock price to decline. You should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of future
performance. Factors that may affect our quarterly results include:
. the introduction, development, timing, competitive pricing and market
acceptance of our products and services and those of our competitors;
. the maintenance and development of our strategic relationships;
. the timing, amount and mix of online direct marketing revenues;
. the magnitude and timing of our marketing initiatives;
. changes in government regulation;
. technical difficulties or system downtime affecting the Web generally
or the operation of our products and services specifically;
. seasonal trends in our electronic registration businesses; and
. our ability to manage our anticipated growth and expansion.
As a result of the factors listed above and because our e-Targeting
business is new, it is difficult to predict client demand for our services. It
is possible that in some future periods our results of operations may be below
the expectations of public market equity analysts and investors. This could
cause our stock price to decline. In addition, we plan to significantly
increase our operating expenses to expand our sales and marketing,
administration, consulting and training, maintenance and technical support and
research and development groups. If revenues fall below our expectations in any
quarter and we are unable to quickly reduce our spending in response, our
operating results would be lower than expected and our stock price may fall.
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<PAGE>
We may not be able to obtain sufficient funds to grow our business and any
additional financing may be on terms adverse to your interests.
We may need additional financing to continue to grow our business. If
additional financing is not available when required or is not available on
acceptable terms, we may be unable to fund our expansion, successfully promote
our brand name, develop or enhance our products and services, take advantage of
business opportunities or respond to competitive pressures, any of which could
reduce the value of your investment. If we are able to raise additional funds
and we do so by issuing equity securities, you may experience significant
dilution of your ownership interest and holders of these securities may have
rights senior to those of the holders of our common stock. If we obtain
additional financing by issuing debt securities, the terms of these securities
could restrict or prevent us from paying dividends and could limit our
flexibility in making business decisions. In this case, the value of your
investment could be reduced.
We currently anticipate that the net proceeds from this offering, together
with available funds, will be sufficient to meet our anticipated needs for at
least the next 12 months. Because we expect to generate losses for the
foreseeable future, income from our operations may not be sufficient to meet
our needs after that period. We expect to raise additional funds in the future
in order to fund our anticipated growth, more aggressive marketing programs or
the acquisition of complementary businesses, technologies and services.
Obtaining additional financing will be subject to a number of factors
including:
. market and economic conditions;
. our financial condition and operating performance; and
. investor sentiment.
These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us.
We depend on our key personnel to manage our business effectively in a rapidly
changing market.
Our future success will depend to a significant extent upon the continued
service and performance of a relatively small number of key senior management,
technical and sales and marketing personnel, who would be difficult to replace.
In particular, we believe that our future success is highly dependent on Dr.
Charles W. Stryker (our Chairman, President and Chief Executive Officer),
Raymond T. Butkus (our Senior Vice President (Sales and Marketing)), James M.
Flynn (our Senior Vice President (Operations)), and William J. Tobia (our
Senior Vice President, Chief Financial Officer). The loss of any of these key
employees could have a material adverse effect on our business.
We may not be able to effectively manage our expanding operations.
We have recently experienced a period of rapid growth. In order to execute
our business plan, we must continue to grow significantly. We had 58 employees
as of December 31, 1998. As of December 31, 1999, the number had increased to
215. As of February 29, 2000, we had 308 employees, including SDG employees.
This growth has placed, and our anticipated future growth, combined with the
requirements we will face as a public company, will continue to place, a
significant strain on our management, systems and resources. In the future, our
ability to support the growth of our business will depend, in part, on our
ability to attract, integrate and retain highly skilled employees, particularly
management, sales and technical personnel. In particular, we rely on
experienced sales and marketing personnel to maintain and expand our client
base, and we rely on highly skilled technical personnel to maintain and improve
our technological capabilities. If we are unable to hire or retain key
employees, our ability to operate and grow our business will be adversely
affected.
We expect that we will need to continue to improve our financial and
managerial controls and reporting systems and procedures. We will also need to
continue to expand and maintain close coordination
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among our products and technology, finance and administration, and sales and
marketing organizations. If we do not succeed in these efforts, it could reduce
our revenues and the value of your investment.
Our recent acquisitions affect the comparability of our historical financial
statements.
In September 1999, we acquired the stock and assets of the IQ2.net
division of IntelliQuest Information Group, Inc. The historical revenue of
IQ2.net was $18.6 million for the year ended December 31, 1998 and was $12.4
for the eight months ended August 31, 1999. In February 2000, we acquired all
of the issued and outstanding stock of SDG from Webcraft. The historical
revenue of SDG was $5.3 million for the year ended December 31, 1999. Also, in
March 2000, we agreed to acquire substantially all of the assets of SMS from
SOFTBANK. The historical revenue for SMS was $123,000 for the year ended
December 31, 1999. Our historical results of operations do not fully give
effect to the operations of the companies we have acquired or agreed to acquire
and the pro forma financial information included in this prospectus is based in
part on the separate pre-acquisition financial statements of these acquired and
to be acquired companies. Consequently, our historical results of operations
and pro forma financial information may not give you an accurate indication of
how Naviant, together with these combined entities, will perform in the future.
We may fail to integrate recent and future acquisitions.
Our success will depend, in part, on our ability to fully integrate the
operations and management of our recent acquisitions, IQ2.net, SDG and SMS, as
well as any future acquisitions. A successful integration requires, among other
things, the integration of their services into ours and the coordination of
their research and development, sales and marketing and financial reporting
efforts with ours. We cannot assure you that we will accomplish the integration
smoothly or successfully, or that we will realize the anticipated benefits of
these acquisitions. The success of the integration will require the dedication
of management and other personnel resources, which may temporarily distract
their attention from our day-to-day business.
If appropriate opportunities present themselves, we intend to acquire
other complementary businesses, technologies, services or products. Other than
SMS, we currently have no understandings or agreements relating to any
acquisition. We cannot assure you that we will be able to complete future
acquisitions successfully or integrate an acquired entity with our current
business. An acquisition may result in unforeseen operating difficulties and
expenditures. They may also require significant management attention that would
otherwise be available for ongoing development of our business. Moreover, we
cannot assure you that the anticipated benefits of any acquisition will be
realized.
We may not be successful in our plan for international expansion.
We believe that expansion into international markets through a
combination of internal business expansion, strategic alliances and potential
acquisitions will enable us to offer comparable products and services
internationally. Our future international operations might not succeed for a
number of reasons, including:
. difficulties in staffing and managing foreign operations;
. unexpected changes in regulatory requirements;
. cultural and language differences;
. issues relating to uncertainties of laws and enforcement relating to
the protection of intellectual property and privacy;
. legal uncertainties inherent in transnational operations such as
export and import regulations, tariffs and other trade barriers;
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<PAGE>
. legal uncertainties regarding jurisdictional reach of foreign
governments;
. taxation and currency exchange rate issues; and
. general political and economic trends.
The European Union has recently adopted a data protection directive
addressing data privacy that may result in limitations on the collection and
use of certain information regarding Web users residing in the European Union.
These limitations may limit our ability to target advertising or collect and
use information in any of these European countries. Some EU member states have
not implemented laws with respect to the directive at this time and the EU is
taking these countries to court for failing to implement laws as required under
the directive. Moreover, although the EU has started to enforce the directive
within the European Union, the EU has not enforced the directive with respect
to the activities of U.S. companies doing business in the EU. The U.S.
Department of Commerce has been working with the European Commission to develop
a "safe harbor" that allows U.S. companies to operate in the EU and still
comply with the directive. No agreement has been reached with respect to the
safe harbor, although a March 31, 2000 deadline has been set to finalize
negotiations. Thus, we cannot determine the impact of the directive on us at
this time. Widespread adoption of these kinds of restrictions in other European
or other countries could decrease our ability to provide our advertising and
direct marketing services effectively in those countries, which would hamper
our ability to expand our operations internationally.
Our business is largely dependent on the development and growth of the Web,
which may be unable to support the demands placed on it.
If Web usage in general does not grow, the demand for our e-List and e-
Targeting products and services will decrease, which would harm our business.
If Web usage does continue to grow, the Web infrastructure may be unable to
support the demands placed on it by this growth and its performance and
reliability may decline. To date, many Web sites have experienced interruptions
in their service as a result of outages and other delays occurring throughout
the Web network infrastructure. Varying factors could inhibit future growth or
the ability of the Web infrastructure to adequately support the growth in Web
usage, including:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. unavailability of cost effective, high speed service.
Additionally, several Web servers have recently suffered denial-of-
service attacks perpetrated by sophisticated hackers. If the media
advertisement servers on which we rely for delivery of our e-Targeting services
were subjected to any such attack for a significant period of time, our
business could be materially adversely affected.
Changes in government regulation could limit our Web activities or result in
additional costs of doing business on the Web.
There are currently few laws or regulations that specifically regulate
communications on the Web. However, we expect more stringent laws and
regulations to be enacted due to the increasing popularity and use of the Web.
Future regulations also could affect the costs of communicating on the Web and
adversely affect the growth in use of the Web, which could result in decreased
demand for our services or otherwise harm our business. In addition, the
application of existing laws to the Web could expose us to substantial
liability for which our customers or other third parties might not indemnify
us. Existing laws and regulations currently address, and new laws and
regulations and industry self-regulatory initiatives are likely to address, a
variety of issues, including:
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. user privacy and expression;
. the rights and safety of children;
. intellectual property;
. content;
. quality of products and services;
. advertising;
. information security;
. anti-competitive practices;
. the convergence of traditional channels with Web commerce; and
. taxation and pricing.
The nature and effect of any future legislation or regulation cannot be
fully determined, but any such legislation or regulation could have a material
adverse effect on our business, results of operations and financial condition.
The adoption of any such legislation could also dampen the growth in use
of the Web generally and decrease its acceptance as a communications,
commercial and advertising medium. Any legislation, which could have any
adverse effect on the growth of the Web, could decrease the demand for our
services and could have a material adverse effect on our business, results of
operations and financial condition.
Provisions in our charter documents, Delaware law and client agreements could
prevent, delay or impede a change in control of us and may reduce the market
price of our common stock.
Provisions of our certificate of incorporation and bylaws could have the
effect of discouraging, delaying or preventing a merger or acquisition that a
stockholder may consider favorable. We also are subject to the anti-takeover
laws of Delaware, which may discourage, delay or prevent someone from acquiring
or merging with us, which may adversely affect the market price of our common
stock. In addition, certain of our client agreements permit the client to
terminate their obligations in the event a competitor of such client acquires
us.
Our stock price may be volatile, and you may not be able to resell your shares
at or above the initial public offering price.
There has been no public market for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined through negotiations between the underwriters and us. The initial
public offering price may vary from the market price of our common stock after
the offering. The stock market in general and the market prices of shares in
technology companies, particularly those such as ours that offer advertising
and Web-based products and services, have been extremely volatile and have
experienced fluctuations that have often been unrelated or disproportionate to
the operating performance of such companies. If you purchase shares of common
stock, you may not be able to resell those shares at or above the initial
public offering price. The market price of our common stock may fluctuate
significantly in response to numerous factors, some of which are beyond our
control, including the following:
. actual or anticipated fluctuations in our operating results;
. adverse business developments;
. changes in governmental regulation;
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. changes in financial estimates by securities analysts;
. announcements by our competitors of new products and services;
. general economic conditions both in the U.S. and in foreign
countries;
. changes in financial estimates by securities analysts or our failure
to perform in line with such estimates;
. changes in market valuations of other companies that provide
marketers with consumer information;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
. the loss of one or more key strategic partners; and
. departures of key personnel.
The stock market has experienced extreme volatility that often has been
unrelated to the performance of particular companies. These market fluctuations
may cause our stock price to fall regardless of our performance.
Our management may apply the proceeds of this offering to uses that our
stockholders may not agree with and in ways that do not increase our profits or
market value.
Our management will have considerable discretion in the application of
the net proceeds received by us from this offering, and you will not have the
opportunity, as part of your investment decision, to assess whether the
proceeds are being used appropriately. You must rely on the judgment of our
management regarding the application of the proceeds of this offering. The net
proceeds may be used for corporate purposes that do not increase our
profitability or our market value. Pending application of the proceeds, they
may be placed in investments that do not produce income or that lose value.
Please see "Use of Proceeds" for a more complete description of how we plan to
use the proceeds of this offering.
There may be sales of a substantial amount of our common stock after this
offering that could cause our stock price to fall.
Sales of substantial amounts of our common stock in the public market,
after this offering or the perception that such sales may occur, could reduce
the market price of our common stock. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. After the offering, shares of our
common stock will become available for resale in the public market as shown on
the chart below.
<TABLE>
<CAPTION>
Approximate Number
Days after the Date of Shares Eligible
of this Prospectus for Future Sale Comment
------------------- ------------------ -------
<S> <C> <C>
Upon effectiveness...... Freely tradable shares sold in this offering
180 days................ Lock-up released; shares saleable under Rule 144, 144(k) or 701
</TABLE>
Upon completion of this offering, the holders of at least shares of
our common stock will be entitled to certain rights with respect to the
registration of those shares under the Securities Act. For a description of the
shares of our common stock that are available for future sale, see "Shares
Eligible for Future Sale."
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You will experience immediate and substantial dilution in the book value of
your shares.
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock immediately after
this offering. Accordingly, if you purchase common stock in this offering, you
will incur immediate dilution of approximately $ in book value per share of
our common stock from the price you pay for our common stock. Please see
"Dilution" below for information regarding the dilution you will experience.
If our stock price is volatile, we may become subject to securities litigation,
which is expensive and could result in a diversion of resources.
Litigation brought against us could result in substantial costs to us in
defending against the lawsuit and a diversion of management's attention that
could reduce the value of your investment. Securities class action litigation
has often been brought against companies that experience volatility in the
market price of their securities. Since our stock price may be volatile, we
could be subject to securities litigation and incur higher expenses than
expected, which could reduce the value of your investment.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate," "continue" and "future". You should read statements that
contain these words carefully because they discuss our future expectations,
make projections of our future results of operations or financial condition or
state other "forward-looking" information. We believe that it is important to
communicate our future expectations to our investors. However, there may be
events in the future that we are not able to accurately predict or control. The
factors listed in the sections captioned "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in the "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" sections and
elsewhere in this prospectus could have a material adverse effect on our
business and may result in the loss of a portion or all of your investment in
our stock.
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares of common stock
offered by this prospectus, assuming an initial pubic offering price of $
per share, less the underwriting discount and estimated offering expenses, will
be approximately $ million, or $ million if the underwriters' over-
allotment option is exercised in full.
We intend to use the net proceeds of this offering for general corporate
purposes, including expanding the depth and breadth of our proprietary
database, expanding our distribution capabilities both domestically and
internationally, expanding our sales and marketing initiatives, product
development, capital expenditures and other working capital needs. In addition,
we may use a portion of the net proceeds to acquire businesses, products or
technologies that are complementary to our current or future business and
licensed technologies. Although we are currently not subject to any agreement
or letter of intent with respect to potential acquisitions, other than SMS, we
have from time to time engaged in acquisition discussions with other parties.
Our management will have significant flexibility in applying the net proceeds
of this offering. Pending such uses, we will invest the net proceeds of this
offering in U.S. government securities and other investment grade, interest-
bearing securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock and we
do not intend to pay cash dividends on our common stock in the foreseeable
future. We currently expect to retain future earnings, if any, to fund the
operation and expansion of our business. Any future determination to pay cash
dividends will be at the discretion of our Board of Directors and will be
dependent upon our financial condition, results of operations, capital
requirements, restrictions under any existing indebtedness and other factors
the Board of Directors deems relevant.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1999:
. on an actual basis;
. on a pro forma basis to reflect:
. the conversion of all outstanding shares of our preferred stock on
December 31, 1999 into shares of our common stock, which will
occur upon the consummation of this offering;
. the issuance of 3,625,926 shares of Series C preferred stock to
Webcraft in connection with the acquisition of SDG, which was
completed in February 2000, and the conversion of these shares of
preferred stock into common stock, which will occur upon the
consummation of this offering;
. the issuance of 11,000,000 shares of Series E preferred stock to
SOFTBANK in connection with the acquisition of SMS, which is
expected to be completed prior to the consummation of this
offering, and the conversion of these shares of preferred stock
into common stock, which will occur upon consummation of this
offering; and
. the issuance of 18,496,810 shares of Series F preferred stock for
aggregate net proceeds of approximately $49.2 million to SOFTBANK,
Young & Rubicam and certain of our current stockholders, which is
expected to be completed prior to the consummation of this
offering, and the conversion of these shares of preferred stock
into common stock, which will occur upon the consummation of this
offering.
. on a pro forma as adjusted basis to reflect our sale of shares of
common stock in this offering at an assumed initial public offering
price of $ per share (the midpoint of the range on the cover page
of this prospectus), after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us, and
the application of the net proceeds as described under "Use of
Proceeds."
You should read the following table in conjunction with our financial
statements and the notes to those statements included at the end of this
prospectus.
The table excludes the following shares:
. 7,815,870 shares subject to outstanding options with a weighted
average exercise price of $1.00 share; 878,000 shares subject to
outstanding warrants with a weighted average exercise price of $2.11
share; 2,965,216 shares of common stock reserved for issuance under
our stock option and stock purchase plans;
. shares of common stock (assuming an initial offering price of $
per share, based on the midpoint of the range on the cover page of
this prospectus) issuable to Young & Rubicam in connection with its
option to purchase up to $5.0 million of common stock concurrent
with, but not as a part of, this offering;
. shares of common stock (assuming an initial offering price of $
per share, based on the midpoint of the range on the cover page of
this prospectus) issuable upon the exercise of the 5% Warrants; and
. 3,328,335 shares of common stock, the maximum number of additional
shares issuable upon conversion of the Series F preferred stock.
21
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999
------------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- -------- -----------
(amounts in thousands,
except share and per share
data)
<S> <C> <C> <C>
Long-term obligations, net of current portion... $ 378 $ 378 $
Redeemable convertible preferred stock:
Series A, $.01 par value; 3,375,000 shares
authorized, issued and outstanding, actual;
none authorized, issued and outstanding, pro
forma and pro forma, as adjusted............. 3,375 --
Series B, $.01 par value; 1,500,000 shares
authorized, issued and outstanding, actual;
none authorized, issued and outstanding, pro
forma and pro forma, as adjusted............. 1,500 --
Series C, $.01 par value; 8% cumulative
dividend, 50,925,926 shares authorized;
42,037,037 issued and outstanding actual;
none authorized, issued and outstanding pro
forma and pro forma as adjusted.............. 57,894 --
Series D, $.01 par value; 8% cumulative
dividend, 8,888,889 shares authorized, issued
and outstanding actual; none authorized,
issued and outstanding, and pro forma, as
adjusted..................................... 12,242 --
------- -------- ----
75,011 --
Less: stockholder loans receivable............ (750) --
------- -------- ----
Total redeemable convertible preferred
stock....................................... 74,261 --
Stockholders' equity (deficit):
Common stock, $0.01 par value, 116,000,000
shares authorized, 14,172,914 shares issued
and outstanding, actual; shares
authorized, 94,207,689 issued and
outstanding, pro forma; issued and
outstanding, pro forma, as adjusted ......... 142 942
Non-voting common stock, $.01 par value;
9,000,000 shares authorized,
no shares issued and outstanding, actual;
8,888,889 shares issued and outstanding, pro
forma and pro forma, as adjusted............. -- 89
Additional paid-in capital.................... 5,578 168,431
Accumulated deficit........................... (15,139) (15,139)
Stockholder loans receivable.................. (3,664) (4,414)
------- -------- ----
Total stockholders' equity (deficit)......... (13,083) 149,909
------- -------- ----
Total capitalization........................ $61,556 $150,287
======= ======== ====
</TABLE>
22
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, which
includes anticipated net proceeds of approximately $49.2 million from the
issuance of 18,496,810 shares of Series F preferred stock, was approximately
$ million, or $ per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities, divided by the pro forma number of shares
of common stock outstanding as of December 31, 1999, after giving effect to the
conversion of all outstanding shares of our preferred stock into shares of
common stock, including 3,625,926 shares of Series C preferred stock issued in
connection with the acquisition of SDG, 11,000,000 shares of Series E preferred
stock to be issued in connection with the pending acquisition of SMS,
18,496,810 shares of Series F preferred stock to be issued in connection with
the investments by SOFTBANK, Young & Rubicam and certain of our current
stockholders, (collectively, the "post December 31 stock issuances").
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers in this offering and
the pro forma net tangible book value per share of common stock immediately
after the completion of this offering. After giving effect to our sale of
shares of common stock in this offering at an assumed initial public offering
price of $ per share (the midpoint of the range on the cover page of this
prospectus) and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our adjusted pro
forma net tangible book value as of December 31, 1999 would have been $
million, or $ per share. This amount represents an immediate increase in pro
forma net tangible book value to our existing stockholders of $ per share and
an immediate dilution to new investors of $ per share. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Pro forma net tangible book value per share at December 31,
1999............................................................ $
Increase in pro forma net tangible book value per share
attributable to new investors...................................
---
Pro forma net tangible book value per share after this offering...
----
Dilution per share to new investors...............................
====
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1999, after giving effect to the post December 31 stock issuances and the
conversion of preferred stock into common stock, the differences between the
number of shares of common stock purchased from us, the aggregate cash
consideration paid to us and the average price per share paid by our existing
stockholders and by new investors purchasing shares of common stock in this
offering. The calculation below is based on an assumed initial public offering
price of $ per share (the midpoint of the range on the cover page of this
prospectus), before deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- -------------- Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New stockholders.....................
--- ----- ---- -----
Total.............................. 100.0% 100.0%
=== ===== ==== =====
</TABLE>
The foregoing discussion and table assume no exercise of any stock
options or warrants outstanding as of or issued subsequent to December 31,
1999. To the extent that any of these options or warrants is exercised, there
will be further dilution to new investors. As of December 31, 1999, there were
options outstanding to
23
<PAGE>
purchase a total of 7,815,870 shares of common stock with a weighted average
exercise price of $1.00 per share and warrants (other than the 5% Warrants)
outstanding to purchase a total of 878,000 shares of common stock with a
weighted average exercise price of $2.11 per share. The 5% Warrants and the
Young & Rubicam option are exercisable at the initial public offering price,
and therefore are not dilutive to the purchasers in this offering. For
additional information regarding our stock options, see note 8 to our financial
statements and the information in the "Capitalization" section of this
prospectus.
24
<PAGE>
SELECTED FINANCIAL DATA
(amounts in thousands, except share and per share data)
The following selected statement of operations data for the period from
January 1, 1997 through May 1, 1997, the period from May 2, 1997 through
December 31, 1997, and for the years ended December 31, 1998 and 1999 and the
balance sheet data at December 31, 1998 and 1999 are derived from the audited
financial statements appearing elsewhere in this prospectus. The following
selected statement of operations data for the years ended December 31, 1995 and
1996 and the balance sheet data at December 31, 1995, 1996 and 1997 is derived
from unaudited financial statements not included in this prospectus. Statement
of operations data for 1999 include the operations of IQ2.net from September 1,
1999.
The selected unaudited pro forma financial information is based upon, and
should be read together with, the unaudited pro forma financial information
included elsewhere in this prospectus. The selected unaudited pro forma
statement of operations data for the year ended December 31, 1999, is presented
as if we had completed the acquisitions of IQ2.net, SDG and SMS as of January
1, 1999. The pro forma balance sheet data at December 31, 1999, are presented
as if the acquisition of SDG, the pending acquisition of SMS and the sale of
Series F preferred stock had occurred on December 31, 1999.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and pro forma financial information and related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from Period from
January 1, May 2,
1997 1997 Pro forma
Year ended Year ended through through Year ended Year ended Year ended
December 31, December 31, May 1, December 31, December 31, December 31, December 31,
1995 1996 1997 1997 1998 1999 1999
------------ ------------ ----------- ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
e-Registration......... $ -- $ -- $ -- $ -- $ -- $ 2,747 $ 7,725
Precision marketing.... -- -- -- -- -- 3,926 7,596
e-CRM.................. 10,539 12,175 4,533 9,630 9,717 11,380 20,612
------- ------- ------ ------- ------- -------- --------
Total revenues.......... 10,539 12,175 4,533 9,630 9,717 18,053 35,933
Cost of revenues:
e-Registration......... -- -- -- -- -- 1,408 4,062
Precision marketing.... -- -- -- -- -- 2,064 3,663
e-CRM.................. 4,150 5,302 2,442 4,062 4,067 5,459 13,091
------- ------- ------ ------- ------- -------- --------
Total cost of revenues.. 4,150 5,302 2,442 4,062 4,067 8,931 20,816
------- ------- ------ ------- ------- -------- --------
Gross Profit............ 6,389 6,873 2,091 5,568 5,650 9,122 15,117
Operating Expenses:
Sales and marketing.... 1,979 2,650 866 1,327 1,716 5,781 10,752
General and
administrative........ 3,098 4,911 2,092 5,217 6,164 9,500 17,503
Research and
development........... 21 165 15 460 985 728 2,252
Amortization of
intangibles........... -- -- -- -- -- 3,890 23,671
------- ------- ------ ------- ------- -------- --------
Total operating
expenses............... 5,098 7,726 2,973 7,004 8,865 19,899 54,178
------- ------- ------ ------- ------- -------- --------
Operating income
(loss)................. 1,291 (853) (882) (1,436) (3,215) (10,777) (39,061)
Other income (expense).. -- -- -- 26 40 223 207
------- ------- ------ ------- ------- -------- --------
Net income (loss) ...... 1,291 (853) (882) (1,410) (3,175) (10,554) (38,854)
Accretion and dividends
on redeemable
convertible preferred
stock.................. -- -- -- -- -- (1,668) (6,724)
------- ------- ------ ------- ------- -------- --------
Net income (loss)
available to common
stockholders........... $ 1,291 $ (853) $ (882) $(1,410) $(3,175) $(12,222) $(45,578)
======= ======= ====== ======= ======= ======== ========
</TABLE>
(continued on next page)
25
<PAGE>
<TABLE>
<CAPTION>
Period from Period from
January 1, May 2,
1997 1997 Pro forma
Year ended Year ended through through Year ended Year ended Year ended
December 31, December 31, May 1, December 31, December 31, December 31, December 31,
1995 1996 1997 1997 1998 1999 1999
------------ ------------ ----------- ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data (continued):
Historical net loss per
share--basic and
diluted............... $ (0.14) $ (0.31) $ (1.17)
=========== =========== ===========
Historical weighted
average shares
outstanding-- basic
and diluted........... 10,125,000 10,125,000 10,455,645
=========== =========== ===========
Pro forma net loss per
share--basic and
diluted............... $ (0.35) $ (0.39)
=========== ===========
Pro forma weighted
average shares
outstanding--basic and
diluted............... 30,538,661 99,397,307
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
Pro forma
1995 1996 1997 1998 1999 1999
----------- ----------- ----------- ------- -------- ---------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ -- $ -- $1,123 $ 712 $ 10,997 $ 60,261
Working capital......... 3,079 3,264 3,355 1,806 15,963 64,716
Total assets............ 4,940 5,032 6,051 4,118 71,353 160,845
Long-term obligations... -- -- -- -- 378 399
Redeemable convertible
preferred stock........ -- -- 3,375 4,875 74,261 162,992
Total stockholders'
equity (deficit)....... 3,907 4,073 1,040 (2,135) (13,083) (14,263)
</TABLE>
Please refer to note 8 of the notes to financial statements and note 2(i)
to the unaudited pro forma condensed combined financial information regarding
the method used to compute our actual basic and diluted net loss per share and
our pro forma basic and diluted net loss per share.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and pro forma financial information and related notes thereto
included at the end of this prospectus. This discussion contains forward-
looking statements that involve risks and uncertainties. Our actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, those set forth
under "Risk Factors" and elsewhere in this prospectus.
Overview
We provide one-to-one marketing solutions that enable Web advertisers,
publishers and consumer marketers to precisely identify and target Web users
through both physical and online media. We have a proprietary database that
contains detailed information on Web-enabled consumers, which we develop,
update and expand on an ongoing basis by acting as the largest outsourced
provider of electronic registrations for technology products. By combining the
online identity of Web-enabled consumers with the information in our database,
we enable our clients to execute highly targeted marketing campaigns and to
personalize Web content. We expect expenditures on Web advertising to expand
significantly in the next several years and believe that marketers will
increasingly target Web users through a combination of targeted marketing on
the Web and traditional media.
Prior to May 1997, we operated as a division of MRJ, Inc. ("MRJ"). In May
1997, our operations were contributed to a subsidiary of MRJ. Until September
1999, we were a multidisciplinary marketing and management information systems
company, focusing on customer relationship marketing. Consulting services
included designing and implementing data warehousing and data mining systems
and marketing solutions primarily for customers in the financial services,
insurance, telecommunications, retail and healthcare industries.
Effective August 31, 1999, we acquired the stock and assets of the
IQ2.net division of IntelliQuest Information Group, Inc. As a result of the
acquisition, we now provide electronic registration and affinity marketing
services for technology and other product manufacturers, and create and license
direct marketing lists to companies seeking to reach consumers that are Web-
enabled. Since the acquisition, we have developed our e-Targeting products,
which enable marketers to deliver banner advertisements to specific households
when they are on Web sites served by our fulfillment partners and enable Web
sites to obtain immediate identification of their visitors for dynamic
personalization of Web content and demographic analysis of site visitors.
In February 2000, we acquired SDG. SDG provides list processing services,
re-markets list properties, and conducts analytic processing and marketing
model development. SDG expands our access to demographic variables, expands our
custom list processing capacity and increases our capacity to support analytic
processing for both internal product development and client opportunities.
In March 2000, we signed a definitive agreement for the purchase of SMS.
SMS is an electronic registration and affinity marketing company that provides
registration services to computer and computer related product companies. This
acquisition will further expand our electronic registration business and
affinity services.
Both the IQ2.net and SDG acquisitions have been, and the SMS acquisition
will be, accounted for under the purchase method of accounting. The goodwill
and other intangibles resulting from the IQ2.net acquisition is $44.5 million
and will be amortized over a period of two to four years. We expect the
goodwill and other intangibles resulting from the SDG acquisition and the
pending SMS acquisition to be approximately $6.7 million and $29.3 million,
respectively, and to be amortized over three years. The goodwill and other
intangible amounts resulting from the SDG acquisition and the pending SMS
acquisition, as well as the expected amortization periods, are preliminary and
subject to adjustment upon finalization of the purchase accounting.
Additionally, we expect a charge of $1.2 million in the second quarter of 2000
related to the pending SMS acquisition for in-process research and development.
27
<PAGE>
As a result of the acquisition of IQ2.net, we have transformed from a
services company to a precision marketing company. Since the acquisition, we
have dedicated significant cash resources to the expansion of all areas of our
business, especially the sales and marketing area and renewed research and
development efforts. Because of the high cost of this expansion, we have
incurred increased operating losses. We expect these losses to continue in the
future as additional costs are incurred in connection with our continued growth
and the addition of new precision marketing products.
Our three product groups are e-Registration, Precision Marketing and e-
CRM. e-Registration includes capturing detailed customer information through
various registration media including the Web, e-mail, modem and other means.
Precision Marketing includes data licensing of Web-enabled household records
(e-List), electronic targeting of Web enabled users (e-Targeting), and affinity
marketing services. e-CRM includes consulting and data processing services.
We expect revenues from e-Registration services to decline in future
periods as we (1) reduce charges for such services in exchange for shared data
rights to increase the size of our proprietary database and (2) increase the
opportunity to present affinity offers to more consumers. We expect that a
significant portion of our future revenues will be derived from our e-Targeting
services. We expect Precision Marketing revenues to increase due to the
increase in the size of our proprietary database, our anticipated increased
levels of shared data rights, our expanded sales force and new product
releases, in particular e-Targeting products and services. Although our e-CRM
services will be complemented by the recent acquisition of SDG, we expect e-CRM
services to decline on a pro forma basis due to our increased focus on
precision marketing.
e-Registration and e-CRM revenues are recognized as the services are
performed. Revenues from fixed price consulting contracts, which are generally
less than one year in duration, are recognized on the percentage of completion
method. Revenues from e-List licenses that do not require us to provide updated
information are recognized upon shipment of the lists to the customer. Revenues
from e-List licenses that require us to provide updated information are
recognized ratably over the contract term. Revenues are earned from affinity
marketing partners when we generate leads for our partners or when consumers
purchase goods or services as a result of the offers.
The costs of the business principally include personnel, communications,
facilities data processing and royalties for sublicensed data. The costs of
registration services include personnel, communications and facilities. The
costs of providing services are primarily personnel related. Where permissioned
by our registration customers, we use information obtained during product
registrations to match to sublicensed marketing databases for inclusion into
our proprietary database. We pay royalties for the use of the sublicensed data.
The proprietary database is housed in an outsourced data storage and
fulfillment facility. We have a contract with eData.com through December 2004
to process our lists and perform product development services.
We expect the (1) costs of revenues for e-Registration to increase in
absolute terms with increased volumes and new product offerings, (2) costs of
revenues for Precision Marketing to increase in absolute terms as revenue
increases in e-List, e-Targeting, and affinity and due to the acquisition of
SMS and (3) costs of revenues for e-CRM to increase in absolute terms due
primarily to the acquisition of SDG.
28
<PAGE>
Results of Operations
The tables included hereafter summarize revenues, cost of revenues and
operating expenses for the period from January 1, 1997 through May 1, 1997, the
period from May 2, 1997 through December 31, 1997, and the years ended December
31, 1998 and 1999. Our business was a division of MRJ during the period from
January 1, 1997 through May 1, 1997. In May 1997, our operations were
contributed to a subsidiary of MRJ. The revenues, cost of revenues, expenses
and interest income for the periods in 1997 were combined in this analysis to
reflect calendar 1997 results, and are referred to in the discussions
accompanying the tables as Calendar 1997. These combinations of the 1997
periods are for comparative purposes only and are not necessarily indicative of
the revenues, cost of revenues and operating expenses that would have occurred
had Naviant been a separate stand-alone entity during the entire 1997 calendar
year.
<TABLE>
<CAPTION>
Period from Period from
January 1, 1997 May 2, 1997
through through Total Year Ended Year Ended
May 1, December 31, Calendar December 31, December 31,
1997 1997 1997 1998 1999
--------------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
e-Registration.......... $ -- $ -- $ -- $ -- $ 2,747
Precision marketing..... -- -- -- -- 3,926
e-CRM................... 4,533 9,630 14,163 9,717 11,380
------ ------ ------- ------ -------
Total revenues........ $4,533 $9,630 $14,163 $9,717 $18,053
====== ====== ======= ====== =======
</TABLE>
Revenues. Total revenues were $14.2 million, $9.7 million and $18.1
million for Calendar 1997 and the years ended December 31, 1998 and 1999,
respectively. e-CRM contracts typically require a significant sales cycle and,
accordingly, revenues vary from year to year based upon contracts in progress.
e-CRM revenues declined during 1998 as Naviant focused on developing software
products. Naviant refocused on its consulting services business during 1999.
The increase in total revenues in 1999 results primarily from the acquisition
of IQ2.net, whose revenues are included primarily in the e-Registration and
Precision Marketing categories above. Two customers each represented over 10%
and, in the aggregate, 54% of total revenues for Calendar 1997. Three customers
each represented over 10% and, in the aggregate, 46% of total revenues in 1998.
One customer represented 26% of revenues in 1999. We expect the concentration
of revenues among significant customers to continue to decline in future
periods.
<TABLE>
<CAPTION>
Period from Period from
January 1, 1997 May 2, 1997
through through Total Year Ended Year Ended
May 1, December 31, Calendar December 31, December 31,
1997 1997 1997 1998 1999
--------------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cost of Revenues:
e-Registration.......... $ -- $ -- $ -- $ -- $1,408
Precision marketing..... -- -- -- -- 2,064
e-CRM................... 2,442 4,062 6,504 4,067 5,459
------ ------ ------ ------ ------
Total cost of
revenues............. $2,442 $4,062 $6,504 $4,067 $8,931
====== ====== ====== ====== ======
</TABLE>
Costs of revenues. Costs of revenues were $6.5 million, $4.1 million and
$8.9 million for Calendar 1997 and the years ended December 31, 1998 and 1999,
respectively. Costs of revenues for e-CRM services were 46%, 42% and 48% of the
related revenue in Calendar 1997 and the years ended December 31, 1998 and
1999, respectively. The increase in total costs of revenues in 1999 results
primarily from the acquisition of IQ2.net, whose cost of revenues are included
primarily in the e-Registration and Precision Marketing categories above.
29
<PAGE>
<TABLE>
<CAPTION>
Period from Period from
January 1, 1997 May 2, 1997
through through Total Year Ended Year Ended
May 1, December 31, Calendar December 31, December 31,
1997 1997 1997 1998 1999
--------------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Sales and marketing..... $ 866 $1,327 $2,193 $1,716 $ 5,781
General and
administrative......... 2,092 5,217 7,309 6,164 9,500
Research and
development............ 15 460 475 985 728
Amortization of
intangibles............ -- -- -- -- 3,890
------ ------ ------ ------ -------
Total operating
expenses............. $2,973 $7,004 $9,977 $8,865 $19,899
====== ====== ====== ====== =======
</TABLE>
Sales and marketing. Sales and marketing expenses were $2.2 million, $1.7
million and $5.8 million for Calendar 1997 and the years ended December 31,
1998 and 1999, respectively. Sales and marketing expenses decreased in 1998
compared to Calendar 1997 in absolute dollars due to significant decreases in
our sales force and discretionary marketing spending in 1998 as we transitioned
our focus from a software development to a services company. Sales and
marketing expenses increased in 1999 due to the acquisition of IQ2.net and due
to an increase in the direct sales force as well as additional marketing
efforts since the acquisition. We expect sales and marketing expenses to
increase both in absolute dollars and as a percentage of revenues due to
continued expansion of our direct sales force.
General and administrative. General and administrative expenses were $7.3
million, $6.2 million and $9.5 million for Calendar 1997 and the years ended
December 31, 1998 and 1999, respectively. General and administrative expenses
include salaries and benefits for administrative and non-billable operations
personnel, facilities costs, professional services, recruiting costs and other
administrative expenses. General and administrative expenses increased in 1999
due to the acquisition of IQ2.net, increases in finance and administration
staff, and increased facilities costs due to our continued growth. We issued
options during 1999 with exercise prices less than the fair market of the
common stock at the date of grant, resulting in compensation expense of
approximately $106,000 for the year ended December 31, 1999. We expect to
recognize additional expense related to these options as follows: 2000-
$448,000, 2001-$448,000, 2002-$448,000, 2003-$342,000. Certain of these options
vest upon a qualified initial public offering. We estimate that compensation
expense to be recognized upon a qualified initial public offering is $448,000.
These amounts may vary due to forfeitures from employee terminations. We expect
general and administrative expenses to increase in absolute dollars, but to
decrease as a percentage of revenues.
Research and development. Research and development expenses were
$475,000, $985,000 and $728,000 for Calendar 1997 and the years ended December
31, 1998 and 1999, respectively. Research and development expenses include
salaries and benefits of personnel involved in internal development of products
and payments to vendors for external development efforts. As we pursue new
lines of products and services, we expect research and development expenses to
increase both in absolute dollars and as a percentage of revenues.
Amortization of intangibles. Amortization of intangibles was $3.9 million
in 1999 and results from the acquisition of IQ2.net. Intangible assets include
the assembled workforce, the acquired database and customer list and goodwill.
We are amortizing the assembled workforce over two years and the remainder of
the intangible assets over four years.
Interest income. Interest income was $26,000, $40,000 and $223,000 for
Calendar 1997 and the years ended December 31, 1998 and 1999, respectively.
Interest income results from the investment of excess cash and increased in
1999 due to the sale of preferred stock.
Income taxes. We have not recorded any income tax expense or benefit to
date because we have incurred losses during each of the periods in which we
have engaged in operations. No taxable income is available in prior periods
against which we can carryback our losses. Also, because the amounts and extent
of our future earnings are not determinable with a sufficient degree of
probability to recognize deferred tax assets
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in accordance with the requirements of Statement of Financial Accounting
Standards No. 109--Accounting for Income Taxes, we have recognized no deferred
tax assets.
Net loss. We had a net loss of $2.3 million, $3.2 million and $10.6
million in Calendar 1997 and the years ended December 31, 1998 and 1999,
respectively. We expect losses to continue in the future as additional costs
are incurred in connection with additional growth.
Liquidity and Capital Resources
Since inception, Naviant has financed its operations primarily through
proceeds from the sale of convertible preferred stock. During Calendar 1997,
Naviant issued $3.4 million of Series A preferred stock, of which $1.4 million
was used to payoff a portion of the intercompany debt to MRJ. During 1998,
Naviant issued $1.5 million of Series B preferred stock. Cash used in
operations was $1.7 million and $322,000 during the year ended December 31,
1998 and Calendar 1997, respectively. Net cash used in operations during the
year ended December 31, 1998 and Calendar 1997 resulted primarily from net
losses during those periods, net of changes in working capital.
Naviant's investing activities during the year ended December 31, 1998
and Calendar 1997 were purchases of equipment and leasehold improvements.
In September and November 1999, Naviant issued a total of $56.8 million
of Series C preferred stock and $12.0 million of Series D preferred stock, of
which $47.4 million of the proceeds was used for the acquisition of IQ2.net.
Other investing activities during 1999 included purchases of computer and
communications equipment and leasehold improvements of $2.2 million to upgrade
current facilities and support the growing employee base.
Cash used in operations was $8.1 million during the year ended December
31, 1999 and was primarily due to: (a) the net loss of $10.6 million offset by
non-cash depreciation and amortization expense of $4.6 million, and (b)
increases in accounts receivable and prepaid expenses of $6.4 million and
$371,000, respectively, offset by increases in accounts payable and accrued
expenses of $3.8 million. The operations were financed through the proceeds of
the aforementioned Series C and Series D preferred stock remaining after the
acquisition of IQ2.net.
Naviant currently has material commitments to vendors for data royalties,
data processing and development services, and advertising through 2004. See
"Business--Strategic Alliances." Naviant also has operating and capital lease
commitments of approximately $8.0 million over the next five years. Naviant has
experienced a significant increase in capital expenditures since the
acquisition of IQ2.net, and anticipates continued increased expenditures with
its growing employee base and the pending acquisition of SMS. Additionally,
Naviant will continue to evaluate possible acquisitions of, or investments in
businesses, products, and technologies that are complementary, which may
require the use of cash. Naviant's capital requirements will depend on numerous
other factors, including market acceptance of current and future products and
the resources devoted to developing, marketing and selling its products.
At December 31, 1999, Naviant had $11.0 million in cash and cash
equivalents and $16.0 million in working capital. We believe that the net
proceeds of this offering, existing cash and cash equivalents and cash provided
by operating activities will be adequate to meet Naviant's cash needs for at
least the next 12 months. Thereafter, Naviant may require additional funds to
support its working capital requirements or for other purposes, and may seek to
raise such additional funds through public or private equity financing or other
sources. There can be no assurance that additional financing will be available
at all or that if available, such financing will be obtainable on terms
favorable to Naviant. The sale of additional securities could result in
additional dilution to shareholders.
In March 2000, Naviant signed agreements for the sale of Series F
preferred stock to SOFTBANK, Young & Rubicam and certain of our current
stockholders. Net proceeds from the sale of the Series F preferred stock will
total approximately $49.2 million.
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Year 2000 Computer Problem
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately differentiate 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally
and the compliance and remediation work accomplished leading up to 2000 was
effective to prevent any problems. Computer experts have warned that there may
still be residual consequences of the change in centuries and any such
difficulties could result in a decrease in sales of our services and products,
an increase in allocation of resources to address Year 2000 problems of our
clients without additional revenue commensurate with such dedication of
resources, or an increase in litigation costs relating to losses suffered by
our customers due to such Year 2000 problems.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
It requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met and that a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000 and cannot be applied retroactively.
The Company is currently evaluating this statement, but does not expect that it
will have a material effect on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue
in financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the impact of
SAB 101 would have no material effect on the financial position or results of
operations of the Company.
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BUSINESS
Overview
We provide one-to-one marketing solutions that enable Web advertisers,
publishers and consumer marketers to precisely identify and target Web users
through both traditional and online media. Our proprietary database contains
extensive physical world information on over 17.5 million U.S. households,
representing an estimated 40 million Web-enabled consumers, which we believe
is the largest and most detailed database of Web-enabled households available.
We develop, update and expand our database on an ongoing basis by acting as
the largest outsourced provider of electronic registrations for technology
products. By combining the online identity of Web-enabled consumers with the
information in our database, we enable our clients to execute highly targeted
marketing campaigns to personalize Web content.
Our precision marketing solutions address the growing demand for products
that enable marketers to:
. identify and distinguish both existing and prospective customers on
the Web in order to tailor the content and the scope of their
marketing campaigns;
. precisely identify verified Web-enabled households as part of their
traditional targeted marketing campaigns;
. immediately identify online visitors demographically and enable direct
mail and outbound telemarketing of Web site visitors; and
. integrate online and traditional mediums to increase the reach and
effectiveness of their advertising campaigns.
Our e-Targeting product enables marketers to reach a highly attractive
target audience of Web-enabled households through marketing programs using
both the Web and traditional marketing channels such as physical mail and
telephone campaigns. We are developing strategic relationships with
fulfillment partners, initially Excite@Home and 24/7 Media, to enable
marketers to deliver banner advertisements directly to their customers or
prospects when they are on a Web site served by one of these partners.
We provide our clients with the following families of products and
services:
. e-Registration: Since 1996, we have processed over 45 million
electronic registrations for more than 300 technology products sold by
over 60 manufacturers and service providers.
. Precision Marketing:
. e-List. Our extensive database of verified Web-enabled households
permits marketers to identify and target existing and prospective
Web-enabled customers through traditional targeted marketing
campaigns. Since product introduction in mid 1998, the size of our
database has grown from 1.4 million U.S. households to its current
size of over 17.5 million U.S. households.
. e-Targeting. Our e-Targeting services, which we began offering in
January 2000, enable marketers to deliver banner advertisements to
specific households when they are on Web sites served by our
fulfillment partners, currently Excite@Home and 24/7. e-Targeting
also enables Web sites to immediately identify their visitors for
dynamic personalization of Web content and to perform demographic
analysis of site visitors.
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. Affinity Marketing. We present contextually relevant offers to
consumers at the end of the product registration process and on a
continuing basis via private-labeled Web sites accessible through
permanent desk top icons or through direct e-mail marketing. This
affinity marketing process connects manufacturers and consumers
through unique loyalty programs and increases the target audience
for direct marketers.
. e-CRM (Customer Relationship Management): As a compliment to our
precision marketing business, we provide consulting and processing
services which enable marketers to communicate with their Web-enabled
customers more efficiently.
Industry Background
Growth of the Internet
The Internet is a significant and rapidly growing global interactive
medium, enabling millions of people all over the world to share information,
communicate, be entertained and conduct business. According to a June 1999
International Data Corporation study, there were over 140 million Web users
worldwide at the beginning of 1999, which IDC estimates will grow to over 500
million in 2003, representing a 29% compound annual growth rate. Of these
worldwide users, International Data Corporation estimates that there were over
62 million Web users in the United States at the beginning of 1999, which they
expect to grow to over 175 million in 2003.
The interactive nature of the Web gives advertisers the potential to
establish dialogues and one-to-one relationships with potential customers,
receive direct feedback on their advertising and adapt their advertising
strategy to respond to such feedback. The Web also provides advertisers with
the opportunity to reach broad, global audiences. This audience is attractive
to advertisers as a result of the typical users demographic profile, which in
the U.S. includes higher levels of income and education then comparable
national averages. As a result, spending on Web advertising has been growing
dramatically. According to the Direct Marketing Association, businesses and
other marketing organizations spent an estimated $285 billion on general
advertising in 1998, of which $1.3 billion was spent on advertising delivered
over the Web. Forrester Research projects total Web advertising expenditures in
the U.S. to increase to over $17 billion in 2003. In addition, marketers have
begun to recognize the importance of targeting Web users in physical world
advertising campaigns in an effort to drive these consumers to buy goods and
services over the Web.
Increasing Demand for Targeting Capabilities
Early Web marketing efforts were directed primarily at placing
advertisements on the most frequently visited Web sites and pages within those
sites, in order to address the broadest possible market. Marketers had little
or no ability to target specific Web-enabled consumers in either their physical
world or online campaigns. With the development of the Web, marketers are
seeking ways to improve the effectiveness of their campaigns by targeting the
they most want to reach. By targeting campaigns to the most relevant users, Web
marketers seek to improve their response rates, increase brand awareness and
reduce customer acquisition and retention costs.
Until recently, marketers seeking to identify and communicate with
individual Web-enabled consumers have had limited resources available to assist
them. Demographic information regarding Web users has generally lacked detail
and has not generally been available from a comprehensive source. Although Web
site registration, (which requires a user to register upon visiting the site)
provides a limited amount of information regarding the user, it fails to
aggregate and correlate information regarding users of different sites. Another
type of targeting is through permissioned e-mail, in which users request to
receive e-mail advertisements on
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particular products or services. As with site registration, permissioned e-mail
has not led to a detailed, comprehensive profile of a large number of users.
In an effort to learn more about Web users' tastes and behavior patterns,
other marketers have attempted to analyze "clickstream" data of anonymous
users. This method tracks online behavior patterns to identify which features
appeal to a given user, thus allowing a minimal amount of demographic
information to be generated. Because clickstream profiling is anonymous, it
does not enable marketers to contact Web users in the physical world or to
contact known customers through the Web. Accordingly, marketers seeking to
provide coordinated direct marketing campaigns by approaching specific
consumers both on the Web and by direct mail or telephone have generally been
able to obtain only limited data on a small number of consumers accessible via
the Web and in the physical world, or generic data on a larger number of
anonymous consumers accessible only via the Web.
The Naviant Solution and Strategic Advantages
The Solution
We believe that the Naviant solution provides marketers with the most
precise means currently available to target Web users in both the online and
physical worlds. Our e-Registration business enables us to simultaneously (1)
obtain physical world data (name, address, and other demographic information)
regarding consumers of technology products who are Web-enabled and (2) deposit
an identifier into that consumer's Web browser which allows us to recognize the
consumer when he or she visits Web sites served by our fulfillment partners. We
use the data obtained from e-Registrations to create a proprietary database by
verifying, sorting and merging the registration data with supplemental
demographic and lifestyle data regarding each specific consumer household to
create a detailed file with over 120 demographic and lifestyle characteristics
that are typically important to marketers.
As the Web matures, marketers are seeking to enhance marketing
capabilities by delivering highly targeted advertising to Web users through the
use of traditional direct media such as mail and telemarketing. Through our e-
List services, we provide detailed customized lists on demand to enable
marketers to more precisely target Web-enabled consumers through traditional
direct marketing methods. By combining Web-based advertising campaigns with
traditional marketing approaches, marketers are able to increase the reach and
effectiveness of their advertising campaigns. We believe that we are the first
company to provide a comprehensive line of products and services to meet this
developing need.
Our database supports the Naviant e-Targeting solution for advertising
and dynamic personalization on the Web. Our technology provides the ability to
precisely identify and deliver appropriate banner advertisements to consumers
in our database when they are present on Web sites served by our technology-
enabled partners, currently Excite@Home and 24/7 Media. Our dynamic
personalization capability provides to Web sites the ability to segment site
visitors and personalize the content served based upon the demographic
attributes of the visitor. Thus, e-Targeting allows our marketing clients to
identify existing customers and attractive prospective customers that are Web-
enabled and deliver to them targeted banner advertisements, e-mail messages and
content tailored to their demographic profile. Each Web-enabled household
included in our e-Targeting product has been fully permissioned for our e-
Targeting services.
Key Features of the Naviant Solution
The Naviant precision targeting solution is based on the following
distinctive features:
. We Compile and Systematically Update the Largest Database of Web-
enabled Households. Our database includes detailed information on
over 17.5 million U.S. households, comprising an estimated 40 million
Web-enabled consumers, which we believe is the largest and most
detailed database of Web-enabled households available. Our ongoing e-
Registration business provides us
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with a systematic method of updating and expanding this database. We
processed over 13 million registrations in 1998 and over 19 million
in 1999. We currently register more than 300 products for over 60
hardware and software vendors.
. We Enable Marketers to Reach Specific Households in Both the "Online"
and "Physical" Worlds. By merging the data we obtain through our e-
Registration business with supplemental physical world demographic
data, we provide marketers with the ability to identify specific
households in both the online and physical worlds. We use this
information to enable marketers to seamlessly integrate their
marketing campaigns in a deliberate and orchestrated fashion, using
mail, telephone, e-mail and banner advertising to increase the reach
and effectiveness of their multimedia advertising campaigns.
. Our e-Targeting Partners Provide Broad Access to Consumers on the
Web. We have established alliances with Excite@Home and 24/7 Media
for distribution of targeted advertisements to viewers of Web sites
served by their respective networks. Accordingly to Media Metrix,
approximately 62% of Web users in the United States visited sites
served by either the Excite@Home or 24/7 Media networks during
November 1999.
. Data Included in Our e-Targeting Product is Fully Permissioned for e-
Targeting Use. We obtain approval from our e-Registration clients to
gather and use the consumer's information for our e-List services and
from the consumer to use their information to support our e-Targeting
services. In compliance with industry standards, we inform consumers
that we may provide our customer lists to third parties before data
are collected from them for online use. Additionally, we offer
consumers the ability to opt-out of our program for e-Targeting and,
because we know the identity of the consumers in our database, we are
able to delete their information when they request that we do so
directly with us or through the Direct Marketing Association Mail
Preference Service.
Our Strategy
Our objective is to become the leading provider of precision targeting
solutions to Web advertisers, publishers and consumer marketers. We seek to
offer our customers a suite of products and services that maximize the
performance of their marketing campaigns targeting Web consumers through both
online and traditional media. We intend to achieve this objective by
implementing the following strategies:
. Leverage Our Existing e-Registration Business to Maintain the Largest
and Most Robust Database of Web-enabled Households. We believe that
continuing to maintain the leading database of Web-enabled households
is vital to our success. We intend to continue to add new
e-Registration products from our traditional client base of
technology hardware and software companies, and from new types of
clients such as user-registered Web sites and traditional consumer
product manufacturers. We plan to continue to grow and enhance our
database through comprehensive marketing campaigns, attractive
pricing and feature-rich product offerings. We are focused on
attracting clients that will provide substantial registration volumes
to enhance the breadth, depth and accuracy of our database.
. Fully Capitalize on the Broad Capabilities and Applications of Our e-
Targeting Technology. We plan to focus on growing e-Targeting
revenues derived from the sale of highly targeted banner
advertisements, while also pursuing opportunities to develop
additional revenue streams using our targeting capabilities. We
intend to assist online marketers, including content, commerce and
community Web sites, to immediately identify their site visitors and
to provide their visitors with dynamically personalized Web content
and relevant e-commerce offers tailored to their demographic
background.
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. Expand our Distribution Channels. We will continue to grow our direct
and indirect sales force to expand our customer base through new
sales channels and broker relationships. We intend to further expand
our broker relationships and to embed our e-List and e-Targeting
products within the product lines of other companies to expand our
access to market for our database and its related products. We also
intend to expand our relationship with advertising agencies and media
buying services as we increase sales of our e-Targeting services.
. Develop New Precision Marketing Products and Services. We intend to
continue to develop additional products and services, both through
internal product development and acquisitions on an opportunistic
basis. We will focus on enhancing the precision of our services and
broadening the reach of our delivery channels. For example, we are
developing a proprietary high tech, small business file, which will
enable marketers to reach Web-enabled small business consumers. We
also intend to pursue opportunities to exploit additional electronic
media platforms, such as wireless, interactive cable, personal
digital assistants and automated teller machines, that allow for one-
to-one marketing.
. Expand Internationally. Although our precision marketing business has
been focused on the domestic U.S. market, through our e-Registration
service, over the last four years we have collected consumer
information with respect to 3.7 million registrations received from
outside of the United States. We believe that our U.S. business model
will be applicable on a global basis, and intend to pursue expansion
into attractive international markets. Initially, we have taken steps
to establish a subsidiary in Canada, including the recent hiring of a
vice president and general manager; and we are exploring
opportunities in Western Europe.
Recent Acquisitions
We intend to pursue acquisitions on an opportunistic basis as a means of
implementing our strategy. In February 2000, we acquired SDG, and in March
2000, we entered into a definitive agreement for the purchase of SMS.
SDG provides list processing services, re-markets list properties and
conducts analytic processing and marketing model development. Our acquisition
of SDG expands our access to demographic variables through SDG's access to
third-party consumer list files. SDG's capabilities also expand our custom list
processing capacity and increases our capacity to support analytic processing
for both internal product development and customer opportunities. We intend to
integrate SDG and its capabilities into our e-List products, and expect that
SDG will be responsible for developing niche e-List products.
SMS is an electronic registration and affinity marketing company that
provides registration services to computer and computer-related product
companies. SMS completed over 300,000 product registrations in 1999, its first
full year of operation. Our acquisition of SMS will further enhance our
position in the electronic registration market. Integration of SMS's
proprietary technology will accelerate deployment of several technology
advances for our e-Registration system, including a Web-based registration
application that facilitates enabling households for e-Targeting services.
SMS's technology will also improve our affinity marketing programs
through the integration of SMS's Club Rewards program. During registration,
SMS's software places a gift box icon on the desktop of a consumer's browser
which, when activated, provides a link to the Club Rewards Web site, a co-
branded affinity Web site that offers over 50 distinct affinity offers to its
members. For generating lead referrals, SMS shares revenues with registration
clients and participating affinity partners. Club Rewards has a broad group of
established affinity offerings that we can leverage against our much larger
volume of registrations to enhance both affinity offerings and related
revenues.
We intend to integrate the Club Rewards system into our e-Registration
client base and migrate our existing e-Registration clients onto the SMS
platform to increase our affinity offerings and the number of households in our
database that are enabled for e-Targeting.
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Our Products and Services
The electronic registration of technology products through our e-
Registration business is a critical component in developing our e-List and e-
Targeting products. On behalf of our e-Registration clients, we construct
customized registration applications that are included by manufacturers in
their products, either in the product's software or in a companion CD or floppy
diskette. While installing the product, the consumer activates the registration
application, and the completed registration is delivered to us via direct modem
connections, the Web or e-mail. In addition to obtaining consumer data and
answers to customized marketing research questions of interest to the
manufacturer, the registration program may also present affinity offers to the
consumer to purchase related products and services. Upon receipt of a
consumer's consent to receive targeted marketing offers, the affinity program
deposits an identifier in the consumer's browser, allowing our technology-
enabled fulfillment partners to recognize the consumer on the Web.
After registrations are completed, the data is processed and returned to
the product manufacturer. For those registrations where we have permission from
the manufacturer to add the information to our database, the data collected is
also forwarded to our internal product development data center. We begin our
product creation process by conducting "data hygiene" on the consumer-provided
data, including correcting and standardizing the presentation of addresses and
other data, identifying and recording the head of household and verifying
consumer permission for our e-Targeting product. We then merge the resulting
cleansed file with demographic information (such as age, income and home
ownership) purchased from third party sources to create a consumer file with
over 120 demographic and lifestyle characteristics. Finally, we suppress from
our database any household that has requested through the Direct Marketing
Association Mail and Telephone Preference Service not to be targeted by direct
marketing.
We update our database with each product registration. After completion
of a new product registration, we check the list of newly-registered consumers
against the existing database to eliminate redundant entries and to refresh
existing information with more recent data. In order to enhance the accuracy of
our database, we update it quarterly based on national change of address
processing.
We transfer the resulting database to our production fulfillment data
system, which enables this data to be counted, sorted and extracted. Our sales
representatives have access to a Web browser interface that allows them to
extract and deliver customized lists to our e-List customers on demand. We
distribute e-List data on all types of electronic and physical media, including
tapes, CDs and direct file transfers.
The resultant database also supports our e-Targeting product. Our e-
Targeting clients can select the specific Web-enabled households that they want
to reach through their Web marketing campaigns from our database. On behalf of
our e-Targeting clients, we are able to deliver the desired banner
advertisement or e-mail message, together with the Web identifiers for the
targeted Web-enabled household, to our e-Targeting fulfillment partners,
currently Excite@Home and 24/7 Media. When the target consumer enters a Web
site served by the Excite@Home or 24/7 Media networks, these fulfillment
partners match the identifiers that we have placed on the consumer's browser
with the Web identifier we supplied, and deliver the targeted advertisements
via their ad-serving systems. Upon delivery of our e-Targeting banner ads,
invoice information is automatically transmitted to us for analysis and
billing.
Our database supports the following products and services:
e-Registration
Our electronic registration process equips our clients with an effective
process for capturing detailed customer information through all registration
media, including the Web, e-mail, modem, mail or fax. Our recent acquisition of
SMS enhanced our e-Registration services by allowing us to offer our clients
the ability to
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customize the consumer experience upon initial product activation. Our e-
Registration services provide our clients with cost effective, timely and
ongoing customer contact to improve customer satisfaction and cross-selling
efforts.
Precision Marketing
e-List. Leveraging our extensive database of Web-enabled households, we
provide our e-List clients with the physical world information necessary to
precisely target existing and prospective customers through traditional direct
marketing channels. Since product introduction in mid 1998, the size of our
database has grown from 1.4 million U.S. households to its current size of over
17.5 million U.S. households.
We believe that our e-List consumer household file is the largest, fully
verified list for marketing to Web-enabled households. Our e-List products
enable marketers to precisely target the Web-enabled household by customizing
their target audiences by selecting from over 120 demographics and lifestyle
characteristics, such as age, income, hobbies, etc., as well as technology
purchasing behavior. Our marketing clients can license our e-List product for
one-time use or for a period of time (usually one year) or they can enhance
their own customer profiles by matching our e-List product against their
database.
e-Targeting. Our e-Targeting product enables us to sell high-value,
precisely targeted online advertising to our marketing clients. We are the
first company to offer a method for targeting consumers across a wide range of
Web sites that is as exact as traditional direct marketing. Our e-Targeting
solution gives our clients the ability to directly target a banner ad and to
segment their target audience based on specific criteria, including
demographic, geographic or other buying indicators. The target audience, and
the related advertising campaign, can also be segmented between prospects and
existing customers. We generally charge our clients based on the number of
advertisements delivered. Our e-Targeting solution enables our customers to buy
precision ad placements and identify site visitors, which we believe can lead
to increased return on investment for Web advertisers and higher advertising
rates and effectiveness for Web sites than untargeted methods. We launched our
e-Targeting service in January 2000.
In addition, our e-Targeting technology allows e-commerce sites to
demographically segment anonymous site visitors. Web sites that use our e-
Targeting technology are provided precise demographic and geographic
information that enables them to complete more transactions, dynamically
personalize offers and content on the site to reflect the demographics of the
visitor, and communicate post visit with their visitors via online media and
email. Our identifier located on the site visitor's browser returns the
appropriate identification information to the site's Web server.
Affinity. We also offer affinity marketing services to our e-Registration
clients. We conduct affinity marketing by presenting contextually relevant
offers to consumers at the end of the product registration process. For
example, after consumers register a printer, they may be asked if they would
like to see promotional offers for printer cartridges. This affinity marketing
process, in addition to connecting manufacturers and consumers through unique
loyalty programs and increasing the target audience for direct marketers,
allows our clients to employ retention models based on demographically targeted
affinity offers delivered at the time of product registration as well as on a
continuing basis via private-labeled Web sites accessible through permanent
desk top icons or through direct e-mail marketing. We rent this offer space to
our registration clients or other marketers for the express purpose of
providing value-added offers to the consumers that we register.
e-CRM
As a compliment to our precision marketing business, we provide
professional consulting and processing services that enable Web marketers to
integrate and manage their physical and online customer interaction and
channels for improved acquisition, retention and cross-selling. We provide the
methods and
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services to integrate customer relationship practices with e-commerce
technology and make it work across various marketing and distribution channels
for our Web marketing clients. We build custom solutions for our clients that
include information systems analytics and a host of other custom applications.
Naviant provides e-CRM solutions through the following key service lines:
business consulting, systems integration, custom data services, project
management and training and support. For example, as part of our e-CRM
business, we are developing the software which 24/7 Media will use for delivery
of our e-Targeting services over their ad serving network.
Marketing and Sales
Our branding strategy is to position Naviant as a precision marketing
company with a singular marketplace focus on reaching the Web-enabled consumer.
Our marketing strategy is designed to reinforce our position as the leader in
the emerging category of integrated, precision marketing on the Web. We employ
a variety of media to increase awareness of the Naviant brand, including
advertisements placed in recognized publications like the Wall Street Journal,
Business 2.0, and Red Herring, participation in online advertising trade shows
and an aggressive public relations campaign. Finally, we intend to enhance our
Web site to facilitate the ordering of our products and services through the
Web.
Our U.S. sales organization for e-List and e-Targeting products comprises
approximately 50 sales professionals organized into four geographic regions.
Our e-CRM sales organization is not geographically organized, and works closely
with our professional services organization to identify and pursue e-CRM
services opportunities nationwide. Our e-Registration sales organization has a
similar nationwide focus. This year, we plan to increase our sales force in key
markets across the United States and Canada. These account executives approach
a wide variety of both technology and consumer product companies positioning
Naviant as both a means of identifying and profiling new customers and enabling
integrated precision marketing to their customers following the initial sale.
In addition to our direct sales force, we distribute our products through
a variety of indirect channels. For our e-List product we have established an
agreement with a list management firm to represent our product to the list
brokerage community. We also will make selective use of sales agents to
represent our product to specialized market segments. As our product line
expands, we will continue to seek alternate and supplemental distribution
channels.
Strategic Alliances
We have established a number of important relationships with major
corporations in the Web and advertising businesses. Set forth below is a
description of our key strategic alliances. Each of these key strategic
partners or related entities is a shareholder in Naviant.
Excite@Home. Excite@Home is a global Web media company offering consumers
and advertisers Web navigation services with personalization and targeting
capabilities. Through its MatchLogic subsidiary, Excite@Home provides Web ad
campaign management tools and services in the form of reporting, measurement
and analytical techniques and direct and database marketing services. Pursuant
to our agreement with Excite@Home, we offer consumers the option to acquire an
Excite membership when they register a product using our e-Registration
services. We receive a percentage of the on-going advertising revenue generated
from any person who subscribes to Excite via our e-Registration process. We
also have made minimum quarterly purchase commitments of banner advertising
inventory on Excite's Web site for resale to our clients. Those minimum
quarterly purchase commitments are calculated on a cumulative basis, and range
from $250,000 in the second quarter of 2000 to a cumulative total of $5.5
million by the end of the first quarter of 2002. Banner impressions which we
purchase that are ultimately delivered to users who registered with Excite
other than through our e-Registration service are credited towards the minimum
purchase commitments at one-third of the rate credited for banner impressions
delivered to Excite-registered users who have registered through our e-
Registration service. This agreement expires on March 31, 2002.
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24/7 Media. 24/7 Media is a Web advertising and direct marketing firm
that serves a network of over 3,000 Web sites. Our relationship with 24/7 Media
provides us an outstanding delivery channel for our e-Targeting products.
Pursuant to our agreement, we license to 24/7 Media our e-List data files and
provide data matching services between our files and 24/7 Media's files for
purposes of targeted advertising on the 24/7 Media network. We also license our
e-mail address list to them for resale. In exchange, 24/7 Media licenses to us
its data on all individuals identified in their network and provides us banner
advertising inventory to resell to our clients. Our contract is exclusive in
that, prior to January 1, 2002, we may not provide products or services for any
company that competes directly in a material manner with 24/7 Media's business
of selling banner advertising inventory on behalf of third party Web sites
(except for Excite@Home) and they must use us as their exclusive source for
data derived from the electronic product registration business. In addition,
prior to January 1, 2002, 24/7 Media may not provide their user registration
data to any data source providers that compete directly in a material manner
with our e-List business. This agreement expires on December 31, 2002.
Webcraft. Webcraft (a subsidiary of Big Flower Holdings, Inc.) offers
fully integrated direct marketing programs, including direct mail production,
fulfillment, response management, telemarketing, full-color personalized
printing and traditional web printing (as well as full lettershop services) and
one-to-one targeted marketing. Our five year agreement with Webcraft authorizes
them to integrate sales of our e-List, e-Target and other services with sales
of their own list products and services to their clients, and allows us to use
Webcraft's services for both our internal and client marketing fulfillment
needs. Our agreement requires Webcraft to generate a five year minimum total of
$16.5 million of revenue from sales of our products and services, scaling from
$2.3 million for the year ended February 28, 2001, to $4.3 million for the year
ended February 28, 2005. We must purchase an aggregate of $5.0 million of
Webcraft's services over the five year term, scaling from $650,000 for the year
ended February 28, 2001 to $1.4 million for the year ended February 28, 2005.
Amounts generated in excess of the minimum in any year will be credited to
subsequent year purchases. The minimum purchase obligations are subject to
reduction or elimination in the event that either we or Webcraft discontinues
major product and service lines.
infoUSA. infoUSA provides business and consumer information products and
database marketing services. Pursuant to our agreement with infoUSA, we license
to each other a limited, nonexclusive, nontransferable license to use each
others database. We use infoUSA's database to append to and enhance our
database files. We pay for the data append and file enhancement based on the
volume of their data used in our e-Targeting services, subject to minimum
commitments from us that range from $1.3 million for the year ended September
30, 2000 to $3.3 million for the year ended September 30, 2004. This agreement
expires on September 30, 2004, but may be terminated by either party without
cause after September 30, 2002, upon six months' notice.
eData.com. eData.com is a Web-based information technology solutions
company. We have several agreements with eData that provide us with strategic
benefits. We license from eData.com our database technology that allows us to
provide marketers with a response to requests for highly-segmented populations
of Web-enabled consumers. They also will continue to provide data processing,
facilities management and related services through December 31, 2004, for a
total price of $38.3 million over the term of the agreement. We have also
granted eData.com a license to our data for data append and file enhancement.
eData.com has agreed to a $17.5 million minimum purchase commitment of our e-
List products over five years for resale via their distribution channels.
Young & Rubicam: Young & Rubicam is one of the world's largest
consolidated marketing and communications organizations. In March 2000, we
entered into a four year business agreement with Young & Rubicam pursuant to
which Young & Rubicam will purchase itself or through its clients an aggregate
of at least $10.0 million of our e-List, e-Targeting or other products. Our
agreement also requires us to pay Young & Rubicam a sales fee of 30% of the net
revenue for e-Targeting and e-List sales they direct to us, payable in cash or
common stock (based upon the quarterly average price of the common stock in the
quarter in which the fee was earned, subject to some limitations). In addition,
we have granted Young & Rubicam a four year license to our Master e-Marketing
Database that allows Young & Rubicam to conduct data-mining, analytics and
modeling functions for their internal use and that of their clients. In the
event we are acquired, in certain
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<PAGE>
circumstances Young & Rubicam's revenue commitment and certain portions of the
license to become terminable upon six months' notice.
Clients
Although our clients vary greatly in size, industry sector and marketing
sophistication, they all share a desire to reach Web-enabled consumers. They
recognize that the Web provides a unique means of reaching their existing
customers and identifying new prospects.
Our e-Registration clients include more than 60 manufacturers, for whom
we register over 300 products. Our e-List clients include over 200 companies.
Although our e-List client base was initially heavily concentrated in the
technology and telecommunications sectors, it is now significantly more
diversified. The typical purchasers of our e-List products are companies
seeking to enhance their marketing communications with highly targeted lists of
Web users. We commenced offering our e-Targeting services in January 2000. We
believe that e-Targeting will allow us to leverage our existing client base as
well as to develop new clients. We intend to expand our relationship with
advertising agencies and media buying services as our e-Targeting product goes
to market.
Set forth below is a client list that represents the diversity of our
client base.
e-Registration
Adobe IBM
Canon Iomega
Compaq Lotus
Corel Scansoft
Epson Toshiba
Hewlett-
Packard
Precision Marketing
Affinity e-List
Marketing e-Targeting
AT&T
AOL Citibank Angara.com
AT&T Dean & Deluca MP3.com Citibank
Cool Savings Essential.com Qwest MVP.com
MP3.com E*TRADE Reader's Digest Reader's Digest
Service911.com Games2learn.com Reflect.com Reflect.com
Wired Magazine Garden.com Service911.com
Ziff-Davis Juno Toytime.com
MCI Worldcom U.S. West
Wedding
Channel.com
e-CRM
24/7 Media Prudential
Convergys Insurance
Spree.com
Sprint
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During 1999, Hewlett Packard accounted for 42% of our e-Registration
revenues and 6% of our total revenues. 24/7 Media and Sprint respectively
accounted for 41% and 15% of our e-CRM revenues, and 26% and 9% of our total
revenues. eData.com and Juno respectively accounted for 26% and 13% of our
Precision Marketing revenues and 6% and 3% of our total revenues.
Client Case Studies
The client case studies set forth below are representative of the ways in
which our clients use Naviant's solutions:
<TABLE>
<CAPTION>
Client Challenge Solution
------ --------- --------
<C> <C> <S>
Citibank........ Introduce Citibank's new Citi f/i We provided Citibank the
online banking offer by targeting ability to identify and
non- Citibank account holders. reach attractive prospects
using our e-List and e-
Targeting products.
Citibank identified the
demographic profile of the
consumers they desired to
acquire and Naviant
executed a direct mail
campaign to those prospects
followed by an integrated
e-Targeting effort that
reinforced the direct mail
solicitation.
Angara.......... Acquire a large volume of Naviant provided data to
demographically coded cookies Angara that allows their e-
to enhance their segmentation of commerce clients to
site visitors. recognize visitors and
present them personalized
content using our anonymous
Naviant cookies appended
with demographics. Angara
provides their clients the
ability to classify
unidentified visitors into
defined market segments and
deliver the most relevant
content to them.
AT&T............ Segment customer base and target By utilizing our e-List
various marketing initiatives solution, AT&T was able to
directed towards high-value, identify those customers
technology-savvy customers. who were Web-enabled and
aggressive users of
technology and build
campaigns targeted to
retain and upsell to them.
In addition, specific
initiatives were launched
to target potential clients
of other AT&T product
offerings.
Garden.com...... Build brand, attract high Garden.com and Naviant
volumes of new visitors and built a solution that took
acquire new customers. full advantage of the power
of our database and the
convenience of our campaign
analysis product, our
turnkey solution for
measuring and tracking the
results of a promotional
campaign. Within 30 days,
attractive households were
identified, a campaign was
designed and the offline
campaign was launched.
Garden.com was also able to
monitor the increase in
traffic and resulting
online purchases achieved
after launching the
campaign.
America Online.. Acquire new customers in the Our e-List product provided
very competitive ISP landscape. a source of likely
prospects that formed the
basis of a major
acquisition marketing
campaign conducted by AOL.
Cool Savings.... Add distribution channels in Through our Affinity
order to build customer base. product, we partnered with
Cool Savings to deliver
bar-coded coupons to a
reseller through our e-
Registration process. In
addition to using the
coupons when purchasing
products from the reseller,
the customer may be
directed to the
manufacturer's foyer on the
Cool Savings Web-site where
further partner
communications can take
place.
</TABLE>
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Privacy
We have developed a comprehensive privacy policy for both our e-List and
e-Targeting businesses that are in compliance with industry standards and that
we believe provide for both consumer privacy protection and the benefits of
precision marketing. We recognize the importance of compliance with emerging
industry and regulatory requirements and have assigned a dedicated executive
privacy officer to ensure our continued awareness and maintenance of adequate
notice, choice, access, security and enforcement for consumer information.
Naviant's current policies and procedures with respect to privacy of consumer
information have been designed to meet or exceed the requirements for our
industry sector as they exist today and provide us the basis to continue to
ensure our compliance in the future.
Practices for our e-List product meet or exceed the current privacy
requirements of the industry for list compilers and marketers:
. We receive client permission to use their customer identities for
direct mail and telemarketing uses. Our registration data collection
practices are consistent with industry and governmental requirements
for compilation of demographic information for offline marketing
efforts.
. We give consumers the right to remove themselves from the marketing
list. Since November 1999, we have provided consumers the ability to
exclude their information from our marketing list. This feature
exceeds the industry requirement for end user notification applicable
to us as a database compiler. In addition, in compliance with Direct
Marketing Association guidelines, our e-List licensees are required
to honor individual requests for no future contact from them.
. Names submitted to the Direct Marketing Association Mail and
Telephone Preference Services are automatically removed. We screen
our e-List products for persons who have notified the Direct
Marketing Association Preference Services and suppress their names
from mail and telephone lists.
We recognize governmental and popular concern for maintaining consumer
privacy over the Web and we have taken additional steps to ensure that consumer
privacy is respected in our e-Targeting business.
. We comply with industry standards for data collection. In compliance
with industry standards for online data collection, we inform
consumers that we may provide our customer lists to third parties
before data are collected from them for online use.
. We offer consumers the ability to opt out of our e-Targeting
process. Our Website affords consumers the ability to remove their
name from our e-Targeting process.
. We extend consumer participation in DMA Preference Service to our
online offerings. For consumers that have expressed a desire to be
suppressed from traditional media marketing efforts, we extend that
request to our online e-Targeting service, a capability that cannot
be replicated by online profiling-based targeted marketers that use
anonymous data collection techniques.
. We do not monitor the movements and behaviors of consumers on the
Web. Naviant will not use online "clickstream" data until such time
as a clear consensus has been reached with respect to consumer
sentiment and governmental regulation of such data, and then only
with appropriate protection and for appropriate uses.
We publish our privacy policy on our Web site and we are committed to
complying with industry standards for our products. We also strictly adhere to
government and industry privacy standards, including those of the Direct
Marketing Association Privacy Promise Program, the Federal Trade Commission's
Fair Information Principles for Privacy Online and the American Marketing
Association's Code of Ethics for Marketing on the Web.
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We believe that consumers benefit from our e-List and e-Targeting
products by providing them more relevant advertising through all marketing
channels whether through online or traditional media and that these benefits
can be realized without intrusive online behavior monitoring. We provide for
consumer choice not only to decide whether or not to participate but also to
change their minds at some future date. We enable advertisers to deliver to
consumers relevant and targeted online advertising without the added concern of
monitoring consumer online behavior.
Competition
We face intense competition in the marketing data services industry. We
currently and may potentially compete with a variety of companies with respect
to our services on an individual basis. These competitors include providers of
online media planning and buying services such as Avenue A, ad serving
companies such as Engage Technologies, publisher networks that provide services
directly to customers, organizations that manage affiliate programs such as
LinkShare, advertising agencies with in-house online media management
capabilities such as Lowe Interactive, incentive-based marketers such as
MyPoints.com, traditional direct marketers, such as Acxiom and marketing list
brokers.
We expect competition to continue to increase in our industry. In
addition, we believe that competition will continue to increase as a result of
industry mergers, partnerships and consolidations. As we expand
internationally, we expect to face competition from internationally-based
competitors as well. Many of our existing and potential future competitors have
significantly greater financial, technical, marketing, service and other
resources, have a larger customer base, have been in business longer or have
greater name recognition than we do. See "Risk Factors--Intense competition in
the marketing data industry could reduce our ability to gain clients and reduce
our revenues."
Technology Capabilities
We have expended and will continue to expend significant portions of our
financial and management resources to develop, maintain and extend our
technology infrastructure. Our systems infrastructure has been built and
maintained by over 85 IT professionals with an average of over 13 years of
systems design, implementation and operations experience.
Our e-Registration system, which has been in service since 1997 in our
Atlanta data processing facility, has the capacity to support over 1 million
registrations per day at peak capacity and can simultaneously support 567
direct modem connections and over 500 Web-based registrations. Our systems
capacity exceeds our peak utilization on a daily basis by a factor of four. Our
e-Registration system records registration transactions in real time,
formatting and transmitting the resulting transaction data to our registration
customers. It can also provide registration data to our customers in batch mode
(for daily, weekly or monthly reporting on registrations received) and provides
for nearly instantaneous access to sales volumes segmented by various
demographic, geographic and product-specific details. The system is built using
industry standard reporting tools that provide robust, reliable client access
to their data using techniques inclusive of multi-dimensional reporting, online
analytic processing and standard fixed format reports for marketing analysis.
We maintain a master database of all data collected via our registration
processes. This data is contained in an Oracle database engine that supports
over 2 terabytes of storage. The system provides us with standard structural
query language access to all of our raw data. We also maintain a robust
analysis engine that interfaces with our master database to allow for the
construction of our e-List products.
Our technology provides our marketing customers with a response in less
than one second to requests for highly-segmented populations of Web-enabled
consumers. The system employs state-of-the-art, proprietary database technology
licensed from eData.com and is operated by eData.com. The system employs
storage resources in excess of 6 terabytes that enables a given e-List to be
constructed more quickly and efficiently.
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<PAGE>
The system is available to any marketer via the Web. The system provides robust
output capacity across several magnetic, electronic or physical media formats.
We are currently using less than 10% the capacity of the system which currently
exceeds 200 million records.
Naviant's e-Targeting technology is built upon the capabilities of our e-
Registration and e-List fulfillment engines. Upon receipt of a consumer's
consent to receive targeted marketing offers, our affinity program deposits an
identifier into consumers' browsers, which enables Naviant to tie that
household to their online presence. The e-List fulfillment engine enables our
customers to select those households that they desire to present banner
advertising to and extract from the system the appropriate identifiers for
those households. Our system pairs those identifiers with the identifiers used
by our ad serving partners (currently Excite@Home and 24/7 Media) and delivers
the banner inventory to the respective company for delivery to individual
households.
We house the master database and the e-List fulfillment engine in a data
center facility owned and operated by eData.com in Boca Raton, Florida. The
facility has fully redundant power feeds, and state-of-the-art
telecommunications capacity for dedicated circuit and Web access.
Intellectual Property Rights
In March 2000, we filed a patent application in the United States
relating to certain of our e-Registration, e-List and e-Targeting technologies
and business methods. We cannot assure you that our patent application will be
granted. Even if it is granted, this patent may be successfully challenged by
others or invalidated.
Our database contains detailed information about millions of Web-enabled
households. We believe we have rights to this database's entire data content,
all records and all derived information from the database as a whole, all
updating routines and quality assurance processes and all underlying data
warehousing technology, except for the data and technology that we license from
others. However, there can be no assurance that any patent, trade secret or
other intellectual property protection will be available for such information.
We rely on a combination of patent, trade secret, copyright and trademark
laws to protect our intellectual property. We also limit access to and
distribution of our proprietary information. However, the steps we take to
protect our intellectual property may not be adequate to deter misappropriation
of our proprietary information.
Many of our current and potential competitors dedicate substantially
greater resources to the protection and enforcement of intellectual property
rights, especially patents. If a blocking patent were to be issued to a third
party, we would need to either obtain a license to, or design around, that
patent. We may not be able to obtain a license on acceptable terms, if at all,
or design around the patent, which could harm our ability to provide certain of
our services.
Employees
As of February 29, 2000, we employed 308 persons, of whom 104 were in our
Newtown Square, Pennsylvania office, 18 were in our New York office, 84 were in
our Atlanta office, 20 were in our Chicago office, 17 were in our San Francisco
office, 50 were in the SDG Rochester office and 15 were in various other
locations. Of these employees, 134 are engaged in consulting services,
engineering research and development, 82 are employed in sales and marketing
positions, 26 are engaged in product registrations, 38 are engaged in customer
and operations support and 28 are employed in finance and administrative
functions. With the pending acquisition of SMS, Naviant will employ an
additional 14 individuals, of which 3 are sales and marketing, 3 are employed
in finance and administrative functions and 8 employed in engineering and
research. None of our employees is represented by a labor union or is subject
to a collective bargaining agreement. Management believes that its relationship
with its employees is good.
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<PAGE>
Facilities
Our executive offices and principal operations are currently located in a
leased facility in Newtown Square, Pennsylvania that provides us with up to
approximately 24,000 square feet of office space, of which approximately 4,000
square feet is presently subleased to third parties. As these subleases
terminate, we will use the additional space to support our growth. We operate
our registration services business primarily in a 23,800 square foot leased
facility in Atlanta. Additionally we lease space in New York (8,200 square
feet), Rochester (18,000 square feet), San Francisco (4,700 square feet) and
Chicago (2,600 square feet), primarily for sales functions. With the pending
acquisition of SMS, the Company will assume leases in San Francisco (800 square
feet) and Boston (1,200 square feet). We believe that our lease arrangements
for our facilities are adequate to meet our needs for the foreseeable future.
Legal Proceedings
We are currently not a party to any significant legal proceedings.
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MANAGEMENT
Directors and Executive Officers
Set forth below is certain information concerning our directors and
executive officers as of March 9, 2000. In addition, SOFTBANK, upon the closing
of its investment with us, will nominate one person to be SOFTBANK's
representative on our board of directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles W. Stryker(3)... 52 President, Chief Executive Officer, Chairman and Director
James M. Flynn.......... 40 Senior Vice President (Operations)
Raymond T. Butkus....... 48 Senior Vice President (Sales and Marketing)
William J. Tobia........ 43 Senior Vice President and Chief Financial Officer
J. Kenneth Driessen(1).. 67 Director
David A. Finley(1)(2)... 67 Director
Ted A. Gardner(2)(3).... 42 Director
George L. 39 Director
Hashbarger(1)(4).......
Mark E. Hastings(1)..... 32 Director
Robert E. Keith(3)...... 58 Director
Jeffrey M. 46 Director
Killeen(2)(3)..........
David J. Moore.......... 47 Director
Kristopher A. Wood(4)... 28 Director
</TABLE>
- --------
(1) Member of our Audit Committee
(2) Member of our Compensation Committee
(3) Member of our Executive Committee
(4) Has agreed to tender his resignation effective upon the effective date of
this offering.
Dr. Charles W. Stryker has been a director of our company since June 1998
and has served as our Chairman, President and Chief Executive Officer since our
acquisition of IQ2.net in September 1999. Prior to joining Naviant, Dr. Stryker
served from February 1998 as President of the IQ2.net division and as a Senior
Vice President of IntelliQuest. From May 1992 to June 1999, Dr. Stryker acted
as president and founder of Information Technology Forum, Inc., a management
consulting firm specializing in the development of content-based electronic
products. In addition to his duties with Naviant, Dr. Stryker also serves as
the founder and Executive Director of the MkIS User Forum, an international
trade group composed of executives responsible for the design and
implementation of the corporate Marketing Systems (MkIS) for major global
marketers. Dr. Stryker serves on the board of directors of several private
companies and 24/7 Media. Dr. Stryker holds a B.S. degree and an M.S. degree in
electrical engineering and a Ph.D. in operations research from New York
University.
James M. Flynn has served as our Senior Vice President (Operations) since
our acquisition of IQ2.net in September 1999. Mr. Flynn was the President and
Chief Executive Officer of Naviant from May 1998 to September 1999 and its
Director of Operations from January 1996 to April 1998. Mr. Flynn served as
Director of Sales, Mid-Atlantic Region for MRJ from August 1993 to December
1995. Mr. Flynn holds a B.S. degree in Engineering from the United States
Military Academy at West Point.
Raymond T. Butkus has served as our Senior Vice President (Sales and
Marketing) since our acquisition of IQ2.net in September 1999. Prior to joining
Naviant, Mr. Butkus served from January 1998 as Vice President and General
Manager of a business unit of IntelliQuest. From July 1996 to September 1997,
Mr. Butkus was employed by GEN Logistics Systems, Inc., an online
transportation brokerage business, where he
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was President and Chief Operating Officer. Prior to that Mr. Butkus worked for
almost 20 years for AT&T Corporation, most recently as Vice President of Sales.
Mr. Butkus holds a B.S. degree in business management from the Providence
College and an M.B.A. degree from the University of Puget Sound.
William J. Tobia has served as Vice President and Chief Financial Officer
since August 1997. From August 1989 through May 1997, Mr. Tobia was the Chief
Financial Officer of Premier Solutions, Inc., an asset-management software
development company. Mr. Tobia holds a B.S. degree in accounting from Villanova
University and an M.B.A. degree from Drexel University.
J. Kenneth Driessen has been a director since May 1997. Mr. Driessen has
served as the Chairman, Chief Executive Offer and President of MRJ Technology
Solutions, Inc., an engineering consulting firm of which Naviant was a
subsidiary until September 1999, from May 1990 through December 1999. Mr.
Driessen holds a B.S.E.E. degree in Engineering from Marquette University and
an Advanced Management Program degree in Business from Harvard University.
David A. Finley has served as a director since May 1997 and served as
non-executive Chairman from September 1997 until September 1999. Mr. Finley has
been at Future Three Software, a private EDI software and services company,
since 1998 serving as a director and consultant. Mr. Finley has served as a
director and non-executive chairman of Hungarian Telephone and Cable
Corporation since 1996 and as a director of MRJ Group, Inc. from 1995 to 1999.
Mr. Finley has served as a director of Elite Information Group, formerly named
Broadway & Seymour, Inc., since 1990. Mr. Finley served as a director of
Intelligroup, Inc. from 1997 to 1999. Mr. Finley served as a director of
Nakagama and Wallace Investment Management, an institutional fixed-income and
equity money manager, from 1993 to 1997. Mr. Finley served as an advisor to
ORIX U.S.A from 1991 to 1997. Mr. Finley retired in 1990 from over 30 years of
service with IBM last serving as Corporate Treasurer. Mr. Finley holds a
B.S.E.E. degree in Engineering from North Carolina State University and an
M.B.A. degree from the University of North Carolina.
Ted A. Gardner has been one of our directors since September 1999. Mr.
Gardner has been a Managing Director of First Union Capital Partners, Inc., a
subsidiary of First Union Corporation, since 1995. Mr. Gardner is a Senior Vice
President of First Union Corporation, since 1995. Mr. Gardner is a Senior Vice
President of First Union Corporation. Mr. Gardner presently serves as a
director of Kinder Morgan, Inc. Mr. Gardner holds a B.A. degree in Economics
from Duke University and J.D. and M.B.A. degrees from the University of
Virginia.
George L. Hashbarger has served as a director since September 1999. Mr.
Hashbarger has also served in various Vice President positions with GE Capital
Equity Investments, Inc. since March 1993. Mr. Hashbarger also serves as a
director of Krause's Furniture, Inc. (a vertically-integrated furniture
manufacturer and retailer), Pink Dot, Inc. (which specializes in home delivery
of convenience items) and HomePoint.com, Inc. (a leading provider of business-
to-business services in the furniture category). Mr. Hashbarger holds a B.B.A.
degree in Finance from Texas A&M University and an M.B.A. degree from the
University of Virginia.
Mark E. Hastings has been one of our directors since September 1999. Mr.
Hastings has served as a general partner of BCI Partners, Inc. since August
1997. Mr. Hastings served as an associate of the Edison Venture Fund from April
1994 to August 1997. Mr. Hastings holds a B.A. degree in Economics from The
Colorado College and an M.B.A. degree in Finance from the Wharton School of
Business, University of Pennsylvania.
Robert E. Keith has served as a director since May 1997. Mr. Keith has
been the managing director of TL Ventures since 1989. Mr. Keith presently
serves as Chairman of Internet Capital Group, Inc. and as a director of the
following public companies: Cambridge Technology Partners, Web Capital Group,
U.S. Interactive, SunSource and Safeguard Scientifics. Mr. Keith also serves as
a director to numerous privately-held companies, including American Education
Centers, Inc.; Benchmark Partners, Inc.; Multi-Gen Paradigm, Inc.;
Telemarketing Resources; Whisper Communications, Inc.; and XL Vision, Inc. Mr.
Keith holds a B.S. degree in American History from Amherst College and received
a J.D. degree from Temple University.
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Jeffrey M. Killeen has served as a director since January 2000. Mr.
Killeen has been CEO of Forbes.com, a business and financial information Web
site, since August 1999. Prior to joining Forbes.com, Mr. Killeen served as COO
of barnesandnoble.com from January 1998. From August 1994 through January 1998,
Mr. Killeen was President & CEO of Pacific Bell / SBC InteractiveMedia, where
he founded and led the development of the electronic yellow pages businesses
for those companies. Mr. Killeen also serves on the board of directors of Rare
Medium, Inc. Mr. Killeen received a B.A. degree in Government from St. Lawrence
University.
David J. Moore has served as a director since September 1999. David J.
Moore has served as President, Chief Executive Officer and Director of 24/7
Media since February 1998. Mr. Moore was Chief Executive Officer of Petry
Interactive, Inc. from December 1995 to February 1998. From 1993 to 1994,
Mr. Moore was President of Geomedica, an online service for physicians. Mr.
Moore is also a director of China.com and 24/7 Media. Mr. Moore received a B.A.
degree in Communications from Northern Illinois University.
Kristopher A. Wood has been one of our directors since September 1999.
Mr. Wood has served as Managing Director of XL Ventures LLC, a venture capital
investment firm, since its inception in December 1999 and as a Managing
Director of its affiliate, XL Ventures, Inc., since its inception in September
1997. From September 1995 to December 1999, Mr. Wood served as Managing
Director, Mergers & Acquisitions of Big Flower Holdings, Inc. From July 1993 to
May 1995, Mr. Wood was a member of the Global Finance Group of Deutsche Bank
Alex. Brown Incorporated. Mr. Wood also serves on the Boards of Directors of
About.com, Inc., Promotions.com, Inc., and several private companies. Mr. Wood
received his B.S. degree in Economics from the Wharton School of the University
of Pennsylvania.
Advisory Board
Our Advisory Board members provide us with strategic guidance in general
management, sales and marketing, and information technology management. Our
Advisory Board members and their backgrounds are:
Edward A. Barbieri, Ph.D. has been in the computer and information
services field for over 35 years, and the President or Chief Executive Officer
of major organizations in the information services business for the past 22
years. Dr. Barbieri spent 16 years with Burroughs Computers and 15 years with
TRW Information Services where he was Vice President and General Manager of
both TRW Credit Data and TRW Business Credit. Dr. Barbieri holds a Ph.D. from
The Peter Drucker Graduate Management Center, Claremont Graduate University,
and three Master's degrees in management and business administration.
William J. Benedict, Jr. has served as president of Alpine Meridian,
Inc., an Internet strategy and financial advisory firm based in Greenwich, CT,
since founding the company in 1987. Alpine Meridian structures strategic
alliances among significant participants in the Internet and provides financial
advisory services. Mr. Benedict also serves as managing general partner of
Resource Ventures L.P., a venture firm investing in private Internet companies,
and a director of PDAP, Inc. and MarketPlayer.com. Prior to founding Alpine
Meridian, Mr. Benedict held a number of management and trading positions with
Societe Generale, most recently First Vice President, responsible for Societe
Generale's National Banking Department in the US. Prior to his positions with
Societe Generale, Mr. Benedict was an analyst and corporate lending officer
with Chase Manhattan Bank in New York and Tokyo. He was also a founding
shareholder and director of LaSalle Commodities, a futures investment fund. Mr.
Benedict graduated from The University of Denver in 1974 with a B.S.B.A.
Peter Eustis has served as the Senior Vice President of Marketing and
Membership for the Direct Marketing Association since 1994. Prior to joining
the Direct Marketing Association, Mr. Eustis served as the Senior Vice
President of Personalized Sales and Service for Dun & Bradstreet Information
Services.
Martha Rogers, Ph.D. is an expert in the rapidly growing field of
customer relationship management and electronic commerce. A co-founder of the
marketing consulting firm Peppers and Rogers Group, Dr. Rogers is the co-author
of three international best-selling business books. Along with her partner Don
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Peppers, Dr. Rogers coined the phrase "1 to 1 marketing," and in 1998 the two
were named Direct Marketer of the Year by Direct Marketing Days in New York.
Dr. Rogers also heads Consumer Direct, a research project examining the direct-
to-consumer channel. Dr. Rogers earned her Ph.D. at the University of Tennessee
as a Bickel Fellow and currently serves as an Adjunct Professor at the Fuqua
School of Business at Duke University spearheading the CRM coursework at the
MBA level as well as a member of the Advisory Board of the Kelley School of
Business at Indiana University.
Committees of the Board of Directors
Our board of directors established an audit committee in September 1997.
The members of the audit committee are Messrs. Driessen, Finley and Hastings.
The audit committee reports to the board of directors with regard to the
selection of our independent auditors, the scope and records of our annual
audits, fees to be paid to the auditors, the performance of our independent
auditors, compliance with our accounting and financial policies, and
management's procedures and policies relative to the adequacy of our internal
accounting controls.
Our board of directors established a compensation committee in September
1997. The members of the compensation committee are Messrs. Finley, Gardner and
Killeen. The compensation committee reviews and makes recommendations to our
board regarding our compensation policies and all forms of compensation to be
provided to our directors, executive officers and certain other employees. In
addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. The compensation committee also
administers our stock option and stock purchase plans.
Our board of directors established an executive committee in November
1999. The members of the executive committee are Dr. Stryker and Messrs.
Gardner, Keith and Killeen. The executive committee reviews and may approve
acquisitions valued at less than $5 million and issuances of our securities
(not to exceed 3% in any one transaction or 10% in the aggregate) in connection
with business relationships.
Prior to establishing the compensation committee, our board of directors
as a whole performed the functions delegated to the compensation committee. No
member of our board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of
directors or compensation committee. No interlocking relationships exist
between our board of directors or compensation committee and the board of
directors or compensation committee of any other company nor have any such
interlocking relationships existed in the past.
Classified Board of Directors
Upon the closing of this offering, our board of directors will be divided
into three classes of directors, as nearly equal in size as is practicable, to
serve staggered three-year terms as follows:
. Class I, comprised of Messrs. Driessen, Finley, and Hastings, whose
terms will expire at the annual meeting of stockholders to be held in
2001;
. Class II, comprised of Messrs. Gardner, Keith and Moore, whose terms
will expire at the annual meeting of stockholders to be held in 2002;
and
. Class III, comprised of Dr. Stryker and Mr. Killeen, whose terms will
expire at the annual meeting of stockholders to be held in 2003.
Upon expiration of the term of a class of directors, the directors for
that class will be elected for three-year terms at the annual meeting of
stockholders in the year in which their term expires. Each director's term is
subject to the election and qualification of his successor, or his earlier
death, resignation or removal. These provisions, when coupled with the
provision of our amended and restated certificate of incorporation
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authorizing the board of directors to fill vacant directorships or increase the
size of the board of directors, may delay a stockholder from removing incumbent
directors and simultaneously gaining control of the board of directors by
filling the vacancies with its own nominees.
Director Compensation
Directors currently do not receive any fees from us for their services as
directors, although by resolution of the board, they may receive a fixed sum
and reimbursement for expenses in connection with attendance at board and
committee meetings.
Non-employee directors will receive option grants at periodic intervals
under the automatic option grant program of our 2000 Stock Incentive Plan,
which will become effective when the underwriting agreement for this offering
is signed. Non-employee and employee directors will also be eligible to receive
option grants under the discretionary option grant program of the 2000 Plan.
Under the automatic option grant program, each non-employee director as of the
effective date of this offering or who joins thereafter will receive an option
grant to purchase 50,000 shares of common stock on the date such director joins
the board. In addition, on the date of each annual stockholders meeting held
after the effective date of this offering, each non-employee director who
continues to serve as a non-employee director will be automatically granted an
option to purchase 10,000 shares of common stock. All options granted under the
automatic option grant program will vest in two equal annual installments.
In addition, the board has granted the following stock options:
. On May 29, 1997, we granted Harvey N. Kushner (one of our directors
at the time) an option to purchase 37,500 shares of common stock at a
price of $1.00 per share.
. On November 1, 1997, we granted Mr. Finley an option to purchase
110,000 shares of common stock at a price of $1.00 per share.
. On June 1, 1998, we granted Dr. Stryker an option to purchase 37,500
shares of common stock at a price of $1.00 per share.
. On September 28, 1999, we granted Mr. Finley an option to purchase
185,684 shares of common stock at a price of $1.00 per share.
. On January 25, 2000, we granted Mr. Killeen an option to purchase
125,000 shares of common stock at a price of $2.00 per share.
The board accelerated the vesting schedule for the above options granted
prior to September 15, 1999 and those options are now fully vested. The above
options granted after September 15, 1999 vest in four annual cliffs of 20%,
with the remaining 20% vesting upon consummation of this offering.
The board of directors also unanimously approved the following
transactions:
. On September 13, 1999, we loaned Dr. Stryker $750,001 to finance the
purchase of 555,556 shares of our Series C convertible preferred
stock. The full-recourse loan has a two-year term and bears 5.42%
interest.
. On November 30, 1999, we loaned Mr. Finley $100,000 and Dr. Stryker
$1,497,940 in order to finance the purchase of common stock pursuant
to option grants. These full-recourse loans have a four-year term and
bear 6.08% interest.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of our directors
and officers to us or our stockholders for breaches of fiduciary duties to the
fullest extent permitted by Delaware law. In addition, our
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certificate of incorporation and bylaws provide for mandatory indemnification
of directors and officers to the fullest extent permitted by Delaware law. We
have also obtained directors' and officers' liability insurance and will have
entered into indemnification agreements with all of our directors and executive
officers.
Employment Contracts
Our executive officers generally serve at the discretion of our board.
However, we have entered into employment contracts with Dr. Stryker and Messrs.
Butkus, Flynn and Tobia. Each of their employment agreements is for a two year
term commencing September 15, 1999 and is renewable for one year periods. The
agreements provide for a salary of $200,000 per year for each of Messrs.
Butkus, Flynn and Tobia and $250,000 per year for Dr. Stryker. In the event of
termination without cause, the employment agreements with Dr. Stryker and
Messrs. Butkus, Flynn and Tobia provide the following severance rights:
(i) continued vesting through the end of a one-year severance period;
and
(ii) continued payment of salary for a one-year severance period.
Our option vesting and salary payment obligations cease if such officer
violates the confidentiality, non-disclosure, non-competition or non-
solicitation obligations of his employment agreement, and our salary payment
obligation is offset by any wages earned by such officer during the severance
period.
Dr. Stryker and Messrs. Butkus, Flynn and Tobia are our only officers
whose employment is not terminable "at will," however, we have also entered
into a letter agreement with Mr. Becker that provides for three months'
severance pay if we terminate Mr. Becker for any reason other than cause.
Executive Compensation
Summary Compensation Table. The following table provides certain summary
information concerning the compensation earned by our Chief Executive Officer,
our other executive officers and our two most highly-compensated non-executive
officers each of whose compensation exceeded $100,000 in 1999, who we refer to
as the Named Officers in this Section.
<TABLE>
<CAPTION>
Annual
Compensation Long Term
Name and Principal ----------------- Other Annual Compensation
Position(s) Salary Bonus Compensation(1) Options (# of Shares)
- ------------------ -------- -------- --------------- ---------------------
<S> <C> <C> <C> <C>
Charles W. Stryker(2)... $ 78,467 $125,000 $ -- 3,713,600
President, Chief
Executive Officer and
Chairman
Paul K. Becker.......... 166,872 45,000 8,296 350,000
Vice President
(Professional Services)
Raymond T. Butkus(3).... 61,539 50,000 2,693 1,114,000
Senior Vice President
(Sales and Marketing)
James M. Flynn.......... 183,742 85,000 9,091 1,214,000
Senior Vice President
(Operations)
O. James Inscoe......... 173,209 32,105 8,632 335,000
Vice President
(Customer Support and
Operations)
William J. Tobia........ 175,066 85,000 8,657 1,164,000
Senior Vice President
and Chief Financial
Officer
</TABLE>
- --------
(1) Consists of contributions to such executive's 401(k) plan.
(2) Dr. Stryker became our President, Chief Executive Officer and Chairman in
September 1999. His annual salary is $250,000.
(3) Mr. Butkus became our Senior Vice President (Sales and Marketing) in
September 1999. His annual salary is $200,000.
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Option Grants in Last Fiscal Year. The following table provides certain
information concerning stock options granted to each of the Named Officers in
1999. No stock appreciation rights were granted to these individuals during
such year. All options were granted at fair market value as determined by our
board on the date of grant.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------- Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying Granted to Exercise Term (1)
Options Employees Price Per Expiration ------------------------------
Name Granted in 1999 Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Stryker...... 3,713,600(2) 33.9% $1.00 09/14/09 $ 2,335,464 $ 5,918,522
Paul K. Becker.......... 50,000(3) 0.5% 1.00 12/31/05 $ 31,445 $ 79,688
300,000(2) 2.7% 1.00 09/27/09 $ 188,669 $ 478,123
Raymond T. Butkus....... 1,114,000(2) 10.2% 1.00 09/14/09 $ 700,589 $ 1,775,430
James M. Flynn.......... 100,000(3) 0.9% 1.00 12/31/05 $ 62,890 $ 159,375
1,114,000(2) 10.2% 1.00 09/09/09 $ 700,589 $ 1,775,430
O. James Inscoe......... 35,000(3) 0.3% 1.00 12/31/05 $ 22,012 $ 55,781
300,000(2) 2.7% 1.00 09/27/09 $ 188,669 $ 478,123
William J. Tobia........ 50,000(3) 0.5% 1.00 12/31/05 $ 31,445 $ 79,688
1,114,000(2) 10.2% 1.00 09/09/09 $ 700,589 $ 1,775,430
</TABLE>
- --------
(1) Future value assumes appreciation of the fair value of the common stock of
5% and 10% per year over the ten-year option period. The actual value
realized may be greater than or less than the potential realizable values
set forth in the table, and does not represent our estimate or projection
of future common stock prices.
(2) The options are exercisable upon grant; however, 80% of such option grants
vests over a 4-year period at the rate of 20% per year and 20% will vest
upon the closing of this offering. Any unvested shares underlying such
grants are subject to repurchase at the original cost upon optionee's
termination of employment.
(3) Such options are fully exercisable and fully vested.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table provides certain information concerning option
exercises and option holdings for 1999 with respect to each of the Named
Officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying the-Money Options at
Number of Value Realized Unexercised Options at December 31,
Shares (Market Price at December 31, 1999 1999(2)
Acquired on Exercise Less ------------------------- -------------------------
Name Exercise (1) Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Stryker...... 1,497,940 $-- 2,253,160 -- $-- $--
Paul K. Becker.......... 120,000 -- 380,000 -- -- --
Raymond T. Butkus....... 445,600 -- 668,400 -- -- --
James M. Flynn.......... 500,000 -- 864,000 -- -- --
O. James Inscoe......... 120,000 -- 280,000 -- -- --
William J. Tobia........ 520,100 -- 793,900 -- -- --
</TABLE>
- --------
(1) The acquired shares are subject to repurchase by us at the original
exercise price per share prior to vesting by the optionee. As of December
31, 1999, our repurchase right had lapsed on vested shares as follows: Dr.
Stryker--37,500 shares; Mr. Becker--85,000 shares; Mr. Butkus--no shares;
Mr. Flynn--120,000 shares; Mr. Inscoe--5,000 shares; and Mr. Tobia--74,500
shares.
(2) Value determined by subtracting the exercise price from the fair market
value of the common stock at December 31, 1999, as determined by our board
of directors ($1.00 per share), multiplied by the number of shares
underlying the options.
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2000 Stock Incentive Plan
The 2000 Stock Incentive Plan is intended to serve as the successor
equity incentive program to our 1997 Stock Option Plan and 1999 Stock
Option/Stock Issuance Plan. The 2000 Stock Incentive Plan was adopted by the
board of directors on January 25, 2000; it will be approved by the stockholders
prior to the date of this offering. The 2000 Stock Incentive Plan will become
effective on the date the underwriting agreement for this offering is executed.
We have reserved 16,989,570 shares of common stock for issuance under the
2000 Plan, which includes amounts reserved for options granted under our 1997
Plan and 1999 Plan, plus an additional 9,000,000 shares, which will be
available for future grant. The share reserve will automatically be increased
on the first trading day of January each calendar year, beginning in January
2001, by a number of shares equal to the greater of (a) 2% of the total number
of shares of common stock outstanding on the last trading day of the
immediately preceding calendar year or (b) the number of shares subject to
options granted in the immediately preceding calendar year. In no event will
the number of shares reserved for issuance under the 2000 Stock Incentive Plan
on the first trading day of any calendar year (including the shares subject to
the annual increase) exceed the lesser of (1) 20% of the total number of shares
of common stock outstanding on the last trading day of the immediately
preceding calendar year or (2) 28,000,000 shares. However, in no event may any
one participant in the 2000 Stock Incentive Plan receive option grants or
direct stock issuances for more than 2,000,000 shares in the aggregate per
calendar year.
Outstanding options under the predecessor plans will be incorporated into
the 2000 Stock Incentive Plan upon the date of this offering, and no further
option grants will be made under those plans. The incorporated options will
continue to be governed by their existing terms, unless the compensation
committee extends one or more features of the 2000 Stock Incentive Plan to
those options. However, except as otherwise noted below, the outstanding
options under the predecessor plans contain substantially the same terms and
conditions summarized below for the discretionary option grant program under
the 2000 Stock Incentive Plan.
The 2000 Stock Incentive Plan has four separate programs: (a) the
discretionary option grant program under which eligible individuals in our
employ or service (including officers, non-employee board members and
consultants) may be granted options to purchase shares of our common stock, (b)
the stock issuance program under which such individuals may be issued shares of
common stock directly, through the purchase of such shares or as a bonus tied
to the performance of services, (c) the salary investment option grant program
under which executive officers and other highly compensated employees may elect
to apply a portion of their base salary to the acquisition of special below-
market stock option grants and (d) the automatic option grant program under
which option grants will automatically be made at periodic intervals to
eligible non-employee board members.
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances, the time
or times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the exercise or purchase
price for each such grant or issuance (which may be less than, equal to or
greater than the fair market value of the shares), the status of any granted
option as either an incentive stock option or a non-statutory stock option
under the federal tax laws, the vesting schedule to be in effect for the option
grant or stock issuance and the maximum term for which any granted option is to
remain outstanding. The committee will also select the executive officers and
other highly compensated employees who may participate in the salary investment
option grant program in the event that program is activated for one or more
calendar years. Neither the compensation committee nor the board will exercise
any administrative discretion with respect to option grants made under the
salary investment option grant program or under the automatic option grant
program for the non-employee board members.
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The exercise price for the options may be paid in cash or in shares of
our common stock valued at fair market value on the exercise date. The option
may also be exercised through a same-day sale program without any cash outlay
by the optionee. In addition, the compensation committee may allow a
participant to pay the option exercise price or direct issue price (and any
associated withholding taxes incurred in connection with the acquisition of
shares) with a full-recourse, interest-bearing promissory note.
In the event that the company is acquired, whether by merger or asset
sale or board-approved sale by the stockholders of more than 50% of our voting
stock, each outstanding option under the discretionary option grant program
which is not to be assumed by the successor corporation or otherwise continued
will automatically accelerate in full, and all unvested shares under the
discretionary option grant and stock issuance programs will immediately vest,
except to the extent the repurchase rights with respect to those shares are to
be assigned to the successor corporation or otherwise continued in effect. The
compensation committee may grant options and issue shares which will accelerate
(a) in the acquisition even if the options are assumed and repurchase rights
assigned, (b) in connection with a hostile change in control (effected through
a successful tender offer for more than 50% of our outstanding voting stock or
by proxy contest for the election of board members) or (c) upon a termination
of the individual's service following a change in control or hostile take-over.
In the event of an acquisition of the company (by merger or asset sale),
options currently outstanding under the 1999 plan will accelerate unless
assumed by the successor corporation. Such options are not by their terms
subject to acceleration in connection with any other change in control or
hostile take-over. All options outstanding under the 1997 plan are fully
vested.
Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to surrender
their outstanding options for an appreciation distribution from the company
equal to the fair market value of the vested shares subject to the surrendered
option less the aggregate exercise price payable for such shares. Such
appreciation distribution may be made in cash or in shares of common stock.
There are currently no outstanding stock appreciation rights under the
predecessor plans.
The compensation committee has the authority to cancel outstanding
options under the discretionary option grant program (including options
incorporated from predecessor plans) in return for the grant of new options for
the same or different number of option shares with an exercise price per share
based upon the fair market value of the common stock on the new grant date.
In the event the compensation committee elects to activate the salary
investment option grant program for one or more calendar years, each of our
executive officer and other highly compensated employee selected for
participation may elect to reduce his or her base salary for that calendar year
by a specified dollar amount not less than $5,000 nor more than $50,000. In
return, the individual will automatically be granted, on the first trading day
in the calendar year for which the salary reduction is to be in effect, a non-
statutory option to purchase that number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of our common stock on the grant date. The option exercise price will
be equal to one-third of the fair market value of the option shares on the
grant date. As a result, the fair market value of the option shares on the
grant date less the exercise price payable for those shares will be equal to
the salary reduction amount. The option will become exercisable in a series of
12 equal monthly installments over the calendar year for which the salary
reduction is to be in effect and will be subject to full and immediate vesting
in the event of an acquisition or change in control of the company.
Under the automatic option grant program, each individual who is serving
as a non-employee Board member on the date the underwriting agreement for this
offering is executed, will receive an option for 50,000 shares of our common
stock with an exercise price equal to the price at which shares are sold in
this offering, provided such individual has not been in our prior employ. Each
individual who first joins the board
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<PAGE>
after the effective date of this offering as a non-employee board member will
automatically be granted an option for 50,000 shares of our common stock at the
time of his or her commencement of board service, provided such individual has
not been in our prior employ. In addition, on the date of each annual
stockholders meeting, beginning with the 2001 meeting, each individual who has
served as a non-employee board member for at least six (6) months and is to
continue to do so will receive an option grant to purchase 10,000 shares of
common stock. Each automatic grant will have an exercise price equal to the
fair market value per share of our common stock on the grant date and will have
a maximum term of 10 years, subject to earlier termination following the
optionee's cessation of board service. Each option will be immediately
exercisable, subject to the company's right to repurchase any unvested shares,
at the original exercise price, at the time of the board member's cessation of
service. Each option grant will vest, and the repurchase right will lapse, in a
series of two (2) equal successive annual installments upon the optionee's
completion of each year of Board service over the two (2)-year period measured
from the grant date.
Limited stock appreciation rights will automatically be included as part
of each grant made under the automatic option grant and salary investment
option grant programs and may be granted to one or more officers as part of
their option grants under the discretionary option grant program. Options with
such a limited stock appreciation right may be surrendered to the company upon
the successful completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the optionee
will be entitled to a cash distribution from the company in an amount per
surrendered option share equal to the highest price per share of common stock
paid in connection with the tender offer less the exercise price payable for
such share.
The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive Plan
will terminate no later than , 2010.
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Employee Stock Purchase Plan
Our Employee Stock Purchase Plan was adopted by the board on January 25,
2000 and will be approved by the stockholders prior to the date of this
offering. The plan will become effective immediately upon the execution of the
underwriting agreement for this offering. The plan is designed to allow
eligible employees of the Company and its participating subsidiaries to
purchase shares of common stock, at semi-annual intervals, through their
periodic payroll deductions. A total of 1,000,000 shares of our common stock
will initially be issued under the plan. The share reserve will automatically
increase on the first trading day of January each year beginning in January
2001, by the greater of (1) 0.2% of the total shares of common stock
outstanding on the last trading day of the immediately preceding calendar year
or (2) the number of shares issued pursuant to the plan in the preceding year,
but no such annual increase will exceed 250,000 shares. In no event, however,
may any participant purchase more than 750 shares, nor may all participants in
the aggregate purchase more than 250,000 shares on any one semi-annual purchase
date.
The plan will have a series of successive offering periods, each with a
maximum duration of 24 months. However, the initial offering period will begin
on the day the underwriting agreement is executed in connection with this
offering and will end on the last business day in April 2002. The next offering
period will begin on the first business day in May 2002, and subsequent
offering periods will be set by the compensation committee. Shares will be
purchased for the participants semi-annually (the last business day of April
and October each year) during the offering period. The first purchase date will
occur on October 31, 2000. Should the fair market value of the common stock on
any semi-annual purchase date be less than the fair market value on the first
day of the offering period, then the current offering period will automatically
end and a new offering period will begin, based on the lower fair market value.
Individuals who are eligible employees on the start date of any offering
period may enter the plan on that start date or on any subsequent semi-annual
entry date (generally May 1 or November 1 each year). Individuals who become
eligible employees after the start date of the offering period may join the
plan on any subsequent semi-annual entry date within that period.
A participant may contribute up to 15% of his or her cash compensation
through payroll deductions; the accumulated payroll deductions will be applied
to the purchase of shares on the participant's behalf on each semi-annual
purchase date. The purchase price per share for shares purchased during the
initial offering period will be the lower of the fair market value of the
common stock on the participant's entry date into the offering period or the
fair market value on the semi-annual purchase date. The purchase price per
share for shares purchased during any subsequent offering period will be 85% of
the lower of the fair market value of our common stock on the participant's
entry date into the offering period or the fair market value on the semi-annual
purchase date.
The board may at any time amend or modify the plan. The plan will
terminate no later than the last business day in April 2010.
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CERTAIN TRANSACTIONS
Formation of Naviant
Prior to May 2, 1997, the business we currently conduct was operated as a
division of MRJ Group, Inc. On May 2, 1997, MRJ formed Naviant and contributed
to it certain assets in exchange for 10,125,000 shares of our common stock. On
May 14, 1997, TL Ventures III L.P., TL Ventures III Interfund L.P. and
TL Ventures III Offshore L.P. (together, "TL Ventures III") purchased an
aggregate of 3,375,000 shares of our Series A preferred stock at a price of
$1.00 per share, and Mr. Keith became one of our directors. On October 26,
1998, MRJ and TL Ventures III purchased 1,125,000 and 375,000 shares,
respectively, of our Series B preferred stock at a price of $1.00 per share. On
September 15, 1999, we acquired the stock and assets of IQ2.net from
IntelliQuest Information Group, Inc. for $46.5 million. At the time of the
above transactions:
. Mr. Driessen (one of our directors) was a director and executive
officer of MRJ;
. Mr. Keith (one of our directors) was an officer or general partner of
the entities controlling TL Ventures III; and
. Dr. Stryker (now our President, Chief Executive Officer and Chairman)
was an officer of IntelliQuest Information Group and IQ2.net and one
of our directors.
Issuance of Series C and Series D Preferred Stock
On September 13, 1999 and November 17, 1999, we sold an aggregate of
42,037,037 shares of our Series C preferred stock and 8,888,889 shares of our
Series D preferred stock for $1.35 per share. These purchasers also received
the 5% Warrants in the amounts set forth below. Concurrent with the closing of
these sales, Messrs. Gardner, Hashbarger, Hastings, Moore and Wood joined our
board. Our directors, executive officers and 5% stockholders participated in
these transactions as follows:
<TABLE>
<CAPTION>
Number of Shares of
-------------------------------
Series D
Non- Common
Series C Voting Stock
Preferred Preferred Underlying
Name of Purchaser Stock Stock 5% Warrants
- ----------------- --------- --------- -----------
<S> <C> <C> <C>
24/7 Media(1)................................... 3,703,704 --
BCI Partners(2)................................. 7,407,408 --
First Union Securities, Inc.(3)................. 1,296,296 7,962,963
GE Capital Equity Investments, Inc.(4).......... 5,555,556 --
Charles W. Stryker.............................. 555,556 --
TL Ventures III(5).............................. 1,481,481 --
TL Ventures IV(6)............................... 5,925,926 --
XL Ventures LLC(7).............................. 7,407,407 --
</TABLE>
- --------
(1) Mr. Moore is President and Chief Executive Officer of 24/7 Media.
(2) Represents 118,815 shares purchased by BCI Investors, LLC and 7,288,593
shares held by BCI Growth V, LLC. Mr. Hastings is a managing member of the
general partner of BCI Growth V, LLC and is a managing member of BCI
Investors, LLC.
(3) Such shares were subsequently transferred to Naviant Investment, LLC, of
which First Union Investors, Inc. is the managing member and Mr. Gardner is
a member. Mr. Gardner is an officer of First Union Securities, Inc.
(footnotes continued on following page)
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<PAGE>
(4) Mr. Hashbarger is a Senior Vice President of GE Capital Equity
Investments, Inc.
(5) Mr. Keith is an officer or general partner of the entities controlling TL
Ventures III.
(6) Includes 5,773,363 shares and 152,563 shares purchased by TL Ventures IV
L.P. and TL Ventures IV Interfund L.P. (together, "TL Ventures IV"),
respectively. Mr. Keith is an officer or general partner of the entities
controlling TL Ventures IV.
(7) Such shares were subsequently transferred to XL Ventures Fund II LLC, of
which CLI Associates LLC is the managing member and Mr. Wood is a member
of CLI Associates LLC.
Registration Rights. We granted the investors in our preferred stock
rights that require us to register or include their shares in a registered
offering of our securities, which rights will be terminated upon conversion
into common stock upon consummation of this offering. Please see "Description
of Capital Stock--Registration Rights" for a description of these rights.
Acquisition of SDG
In February 2000, we issued an aggregate of 3,625,926 shares of our
Series C preferred stock to Webcraft in connection with the acquisition of
SDG. Webcraft is a subsidiary of Big Flower Holdings, Inc. and an affiliate of
XL Ventures Fund II LLC. Subsequently, Webcraft transferred such Series C
preferred stock to XL Ventures Fund II LLC.
Issuance of Series E and Series F Preferred Stock
In March 2000, we entered into an agreement with SOFTBANK Holdings Inc.
to acquire substantially all of the assets of SOFTBANK Content Services Inc.
(which does business under the name of "SMS"), in exchange for 11,000,000
shares of our Series E preferred stock. At the same time, SOFTBANK Capital
Partners LP agreed to purchase 9,259,259 shares of our Series F preferred
stock at $2.70 per share, for a total investment of $25.0 million and Young &
Rubicam purchased 5,555,555 shares of our Series F preferred stock at $2.70
per share, for a total initial investment of approximately $15.0 million. In
addition, Young & Rubicam was granted an option to purchase up to $5.0 million
of our common stock concurrent with, but not as part of, this offering.
In connection with the investments by SOFTBANK Capital Partners LP and
Young & Rubicam, certain of our current stockholders purchased an additional
3,681,996 shares of our Series F preferred stock at $2.70 per share, for a
total investment of approximately $9.9 million.
Our directors, executive officers and 5% stockholders participated in
these transactions as follows:
<TABLE>
<CAPTION>
Number of Shares of
Series F
Name of Purchaser Preferred Stock
- ----------------- -------------------
<S> <C>
24/7 Media, Inc............................................. 229,735
BCI Partners................................................ 459,470
Naviant Investment, LLC..................................... 574,337
GE Capital Equity Investments, Inc.......................... 344,602
Charles W. Stryker.......................................... 92,593
TL Ventures III............................................. 323,880
TL Ventures IV.............................................. 365,094
XL Ventures Fund II LLC..................................... 684,380
</TABLE>
Other Transactions
On September 1999, we loaned Dr. Stryker $750,001 to purchase 555,556
shares of our Series C preferred stock. This loan has a term of two years,
bears 5.42% interest, and is secured by a specific pledge of Dr. Stryker's
Series C preferred stock and a general pledge of all his assets.
60
<PAGE>
On November 30, 1999, we loaned an aggregate of $3,283,540 to certain of
our executive officers and directors to enable them to exercise a portion of
their outstanding stock options. Each of these loans has a term of four years,
bears 6.08% interest and is secured by a specific pledge of each such officer's
or director's common stock and a general pledge of all of each such officer's
or director's assets. The amounts loaned to each officer and directors are
detailed in the table below:
<TABLE>
<CAPTION>
Loan
Officer/Director Amount
---------------- ----------
<S> <C>
Paul K. Becker................................................. $ 120,000
Raymond T. Butkus.............................................. 445,600
David A. Finley................................................ 100,000
James M. Flynn................................................. 500,000
O. James Inscoe................................................ 120,000
Charles W. Stryker............................................. 1,497,940
William J. Tobia............................................... 500,000
</TABLE>
On September 7, 1999, MRJ transferred its 10,125,000 shares of common
stock and 1,125,000 shares of Series B preferred stock to the Naviant
Technology Solutions, Inc. Voting Trust, to which Naviant is a party. Mr.
Driessen, one of our directors, is the sole Voting Trustee of the Voting Trust,
and has the sole power and authority to vote and give consents with respect to
the shares held in the Voting Trust. As Voting Trustee, Mr. Driessen is also
attorney-in-fact for taking actions with respect to the agreements to which the
shares in the Voting Trust are subject. The Voting Trust expires on September
6, 2020, however, the Voting Trustee may also terminate the Voting Trust at any
time after the effectiveness of this offering.
In connection with the formation of the Voting Trust, we have:
. indemnified the Voting Trustee for liabilities and claim asserted
against him as Voting Trustee;
. entered into a Reimbursement Agreement with the Voting Trustee,
obligating us to reimburse the Voting Trustee for any expenses
incurred with the exercise of his duties as Voting Trustee.
The Voting Trustee is a party to our stockholders agreement and
registration rights agreement.
24/7 Media owns 3,933,439 shares of our preferred stock. Mr. Moore,
President and Chief Executive Officer of 24/7 Media, is a director. In 1999,
24/7 Media accounted for 26% of our revenue. For a description of other
business transactions that we have with certain of our stockholders, see
"Business--Strategic Alliances."
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between us and our
officers, directors, principal stockholders and their affiliates will be
approved by a majority of our board, including a majority of the independent
and disinterested outside directors on the board of directors, and will
continue to be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
Stock options granted to officers and directors. For information
regarding the grant of stock options to our executive officers and directors,
please see "Management--Director Compensation and Executive Compensation."
Indemnification and Insurance. For information regarding indemnification
and liability insurance provided to our executive officers and directors,
please see "Management--Limitation of Liability and Indemnification Matters."
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 9, 2000, and as adjusted to reflect
the sale of shares offered hereby, by (i) each person who is known by us to own
beneficially more than five percent of our common stock, (ii) each of our
directors and Named Officers, and (iii) all current executive officers and
directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock used to
calculate the percentage ownership of each listed person includes the shares of
common stock underlying options or warrants held by such persons that are
exercisable within 60 days of this offering. The percentage of beneficial
ownership before the offering is based on shares, consisting of (1)
shares of common stock outstanding as of March 9, 2000, (2) shares issuable
upon the conversion of the preferred stock outstanding as of March 9, 2000, (3)
shares issuable upon exercise of the 5% Warrants and (4) 778,000 shares
issuable upon the exercise of the Automatic Warrant. Percentage of beneficial
ownership after the offering is based on shares, including shares sold in
this offering. The address for our officers and Mr. Finley is c/o Naviant,
Inc., 14 Campus Boulevard, Suite 200, Newtown Square, PA 19073.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Before Offering Owned After Offering
--------------------- ------------------------
Name of Beneficial Owner Number Percentage Number Percentage
- ------------------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Named Officers and Directors
Charles W. Stryker(1)......... 4,399,249
Paul K. Becker(2)............. 533,351
Raymond T. Butkus(3).......... 1,114,000
James M. Flynn(4)............. 1,376,170
O. James Inscoe(5)............ 409,890
William J. Tobia(6)........... 1,274,000
J. Kenneth Driessen(7)........ 815,553
David A. Finley(8)............ 302,762
Ted A. Gardner(9)............. 9,833,596
George L. Hashbarger(10)...... --
Mark E. Hastings(11).......... 7,866,878
Robert E. Keith(12)........... 11,796,381
Jeffrey M. Killeen(13)........ 125,000
David J. Moore(14)............ 3,933,439
Kristopher A. Wood(15)........ 11,717,713
Other 5% Stockholders
24/7 Media(14)................ 3,933,439
BCI Partners(11).............. 7,866,878
Naviant Investment, LLC(9).... 9,833,596
GE Capital Equity Investments,
Inc.(10)..................... 5,900,158
SOFTBANK(16).................. 20,259,259
Young & Rubicam(17)........... 5,555,555
TL Ventures III(18)........... 5,545,361
TL Ventures IV(19)............ 6,251,020
XL Ventures Fund II LLC(15)... 11,667,713
All Named Officers, directors
and 5% stockholders as a
group(20).................... 87,212,954
</TABLE>
(footnotes on following page)
62
<PAGE>
(1) Includes 2,053,496 shares and options to purchase 2,253,160 shares. Of
such 2,053,496 shares, all are pledged to Naviant as security for loans
from Naviant to Dr. Stryker and 1,460,440 are unvested and are subject to
our right to repurchase them if Dr. Stryker's services are terminated
prior to vesting. Does not include shares underlying the 5% Warrant
held by Dr. Stryker.
(2) Includes 153,351 shares and options to purchase 380,000 shares. Of such
153,351 shares, 120,000 are pledged to Naviant as security for a loan from
Naviant to Mr. Becker, 25,000 are unvested and are subject to our right to
repurchase them if Mr. Becker's services are terminated prior to vesting,
and 33,351 are held in the Naviant 401(k) Plan and are subject to the
Voting Trust.
(3) Includes 445,600 shares and options to purchase 668,400 shares. All of
such 445,600 shares are pledged to Naviant as security for a loan from
Naviant to Mr. Butkus and are unvested and are subject to our right to
repurchase them if Mr. Butkus' services are terminated prior to vesting.
(4) Includes 512,170 shares and options to purchase 864,000 shares. Of such
512,170 shares, 500,000 are pledged to Naviant as security for a loan from
Naviant to Mr. Flynn, 380,000 are unvested and are subject to our right to
repurchase them if Mr. Flynn's services are terminated prior to vesting,
and 12,170 are held in the Naviant 401(k) Plan and are subject to the
Voting Trust.
(5) Includes 129,800 shares and options to purchase 280,000 shares. Of such
129,890 shares, 120,000 are pledged to Naviant as security for a loan from
Naviant to Mr. Inscoe, 115,000 are unvested and are subject to our right
to repurchase them if Mr. Inscoe's services are terminated prior to
vesting, and 9,890 are held in the Naviant 401(k) Plan and are subject to
the Voting Trust.
(6) Includes 500,100 shares and options to purchase 773,900 shares. Of such
500,100 shares, 500,000 are pledged to Naviant as security for a loan from
Naviant to Mr. Tobia and 445,600 are unvested and are subject to our right
to repurchase them if Mr. Tobia's services are terminated prior to
vesting.
(7) Includes 99,851 shares held in the Naviant 401(k) Plan, 360,000 held in a
family limited partnership and an option to purchase 50,000 shares to be
granted upon the closing of this offering; all of such 771,159 shares are
subject to the Voting Trust. Mr. Driessen's address is 830 Holly Drive,
Annapolis, MD 21401.
(8) Includes 50,000 shares held in a retirement account, 134,274 shares held
directly, 7,078 shares subject to the Voting Trust, and options to
purchase 111,410 shares. Of such 134,274 shares held directly, 100,000 are
pledged to Naviant as security for a loan from Naviant to Mr. Finley,
74,274 are unvested and are subject to our right to repurchase them if Mr.
Finley's services are terminated prior to vesting.
(9) Includes 9,833,596 shares held by Naviant Investment, LLC. The managing
member of Naviant Investment, LLC is First Union Securities, Inc. Mr.
Gardner is a member of Naviant Investment, LLC, and disclaims beneficial
ownership of the shares held by Naviant Investment, LLC except to the
extent of his pecuniary interest therein arising from his membership
interest. The address for Mr. Gardner and Naviant Investment, LLC is c/o
First Union Investors, Inc., One First Union Center, 301 South College
Street, Charlotte, N.C. 28288. Does not include shares underlying the
5% Warrant held by Naviant Investment, LLC.
(10) All of such shares are held by GE Capital Equity Investments, Inc., of
which Mr. Hashbarger is a Senior Vice President. Mr. Hashbarger disclaims
beneficial ownership of the shares held by GE Capital Equity Investment,
Inc. The address for Mr. Hashbarger and GE Capital Equity Investments is
120 Long Ridge Road, Stamford, CT 06927. Does not include shares
underlying the 5% Warrant held by GE Capital Equity Investments, Inc.
(11) Includes 126,185 shares held by BCI Investors LLC, and 7,740,693 shares
held by BCI Growth V, LLC. Mr. Hastings is a managing member of the
general partner of BCI Investors LLC and BCI Growth V, LLC. Mr. Hastings
disclaims beneficial ownership of the shares held by BCI Investors LLC and
BCI Growth V, LLC. The address for Mr. Hastings and BCI Partners is
Glenpointe Centre West, Teaneck, NJ 07666. Does not include shares
underlying the 5% Warrant held by BCI Investors LLC and BCI Growth V, LLC.
(12) Includes 5,545,361 shares held by TL Ventures III, and 6,251,020 shares
held by TL Ventures IV. Mr. Keith is an officer or general partner of the
entities controlling TL Ventures III and TL Ventures IV.
(footnotes continued on following page)
63
<PAGE>
Mr. Keith disclaims beneficial ownership of the shares held by TL Ventures
III and TL Ventures IV except to the extent of his pecuniary interest in
such shares arising from his interest in the entities controlling TL
Ventures III and TL Ventures IV. Mr. Keith's address is c/o TL Ventures,
700 The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087. Does not
include shares underlying the 5% Warrants held by TL Ventures III and
TL Ventures IV.
(13) Represents options to purchase 125,000 shares.
(14) Includes 3,933,439 shares held by 24/7 Media, Inc., of which Mr. Moore is
a President, Chief Executive Officer and a director. Mr. Moore disclaims
beneficial ownership of the shares held by 24/7 Media, Inc. The address
for Mr. Moore and 24/7 Media, Inc. is 1250 Broadway, 28th Floor, New York,
NY 10001. Does not include shares underlying the 5% Warrant held by
24/7 Media, Inc.
(15) All of such shares are held by XL Ventures Fund II LLC. Mr. Wood is a
managing director of the entity controlling XL Ventures Fund II LLC. Mr.
Wood disclaims beneficial ownership of the shares held by XL Ventures Fund
II LLC except to the extent of his pecuniary interest in such shares
arising from his interest in the entities controlling XL Ventures Fund II
LLC. The address for XL Ventures Fund II LLC is 1105 North Market Street,
Wilmington, DE 19899. The address for Mr. Wood is 3 E. 54th Street, New
York, NY 10022. Does not include shares underlying the 5% Warrant
held by XL Venture Fund II LLC.
(16) SOFTBANK has agreed to acquire these shares in connection with its
investment and the sale of SMS. These transactions are subject to approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
(17) Does not include shares of common stock (assuming an initial offering
price of $ ) issuable to Young & Rubicam in connection with its option
to purchase up to $5.0 million of common stock concurrent with this
offering. The address for Young & Rubicam is 285 Madison Avenue, New York,
New York, 10017.
(18) Includes 4,464,953 shares held by TL Ventures III L.P., 145,791 shares
held by TL Ventures III Interfund L.P., 934,617 shares held by TL Ventures
III Offshore L.P. The address for TL Ventures III is 700 The Safeguard
Building, 435 Devon Park Drive, Wayne, PA 19087. Does not include
shares underlying the 5% Warrants held by TL Ventures III L.P., TL
Ventures III Interfund L.P. and TL Ventures III Offshore L.P.
(19) Includes 6,090,088 shares held by TL Ventures IV L.P. and 160,932 shares
held by TL Ventures IV Interfund L.P. The address for TL Ventures IV is
700 The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087. Does
not include shares underlying the 5% Warrants held by TL Ventures IV
L.P. and TL Ventures IV Interfund L.P.
(20) Does not include shares underlying the 5% Warrants held by certain
Named Officers, directors and 5% stockholders.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon completion of this offering, our authorized capital stock will
consist of shares of common stock, $0.01 par value, and shares of
undesignated preferred stock, $0.01 par value. The following description of our
capital stock, as of the closing of this offering, is subject to and qualified
in its entirety by our certificate of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of March 9, 2000, there were shares of common stock outstanding
after giving pro forma effect to the conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering. These
shares were held of record by approximately stockholders.
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by our board of directors out of funds legally available for that
purpose. In the event of a liquidation, dissolution or winding up, the holders
of our common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. The holders of our common stock do not have
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
Our board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series with
certain rights, preferences and privileges, which may be greater than the
rights of the common stock. It is not possible to accurately describe the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of common stock until our board of directors determines the specific
rights of the holders of such preferred stock. However, the effects might
include, among other things:
. restricting dividends on our common stock;
. diluting the voting power of our common stock;
. impairing the liquidation rights of our common stock; or
. delaying or preventing a change in control of Naviant without further
action by the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding. At the present, we have no plans to issue any shares of preferred
stock.
Warrants
As of March 9, 2000, warrants to purchase 778,000 shares of common stock
at an exercise price of $ per share were outstanding. Upon completion of this
offering, if not previously exercised, these warrants will be automatically
exercised for shares of common stock through a cashless exercise feature. In
addition, we have issued warrants to the purchasers of our Series C and Series
D preferred stock which entitle the warrant holders to purchase at the initial
public offering price shares of our common stock equal to 5% of the shares to
be issued in this offering. These warrants expire upon effectiveness of the
registration statement to which this prospectus relates.
65
<PAGE>
Registration Rights
According to the terms of a registration rights agreement with some of
our existing stockholders, beginning 180 days after the closing of this
offering, stockholders who hold in the aggregate shares of common stock,
may require us to file a registration statement under the Securities Act of
1933 with respect to the resale of their shares. To demand such registration,
investors holding an aggregate of at least shares must request that the
registration statement register at least shares. We are not required to
effect more than two demand registrations in any twelve-month period.
Additionally, the holders of shares of common stock will have
piggyback registration rights with respect to the registration of shares of
common stock under the Securities Act. If we propose to register any shares of
common stock under the Securities Act, the holders of shares having piggyback
registration rights are entitled to receive notice of that registration and are
entitled to include their shares in the registration.
At any time after we become eligible to file a registration statement on
Form S-3, holders of demand registration rights may require us to file an
unlimited number of registration statements on Form S-3 under the Securities
Act with respect to their shares of common stock. We are not required to effect
more than one such registrations on Form S-3 during any twelve-month period.
These registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares of common stock to be included in the registration. We are generally
required to bear all of the expenses of all registrations under the investors'
rights agreement, except selling expenses, underwriting discounts and
commissions. The investors' rights agreement also contains our commitment to
indemnify the holders of registration rights for certain losses they incur in
connection with registrations under the agreement. Registration of any of the
shares of common stock held by security holders with registration rights would
result in those shares becoming freely tradeable without restriction under the
Securities Act.
Anti-Takeover Provisions
Certain provisions of Delaware law, our certificate of incorporation and
our bylaws could make the following transactions more difficult:
. the acquisition of Naviant by means of a tender offer;
. the acquisition of Naviant by means of a proxy contest or otherwise;
or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are intended to discourage certain
types of coercive takeover practices and inadequate takeover bids. They are
designed to encourage persons seeking to acquire control of Naviant to first
negotiate with our board of directors. We believe that the benefits of our
increased ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure Naviant outweigh the
disadvantages of discouraging such proposals as negotiation of such proposals
could result in an improvement of their terms.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and
66
<PAGE>
associates, owns or within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation's voting
stock. The existence of this provision may have an anti-takeover effect with
respect to transactions not approved in advance by our board of directors,
including, but not limited to, discouraging attempts that might result in a
premium over the market price of shares of common stock held by our
stockholders.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term
upon being elected by our stockholders. See "Management--Executive Officers
and Directors." This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Naviant because it generally makes it more difficult for
stockholders to replace a majority of the directors.
Stockholders Meetings. Under our bylaws, only our board of directors,
Chairman of the Board and President may call special meetings of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and stockholder nominations of candidates for election
as directors.
Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent.
Elimination of Cumulative Voting. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of our directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock allows our board of directors to issue preferred stock with voting and
other rights or preferences that could impede the success of any attempt to
change control of Naviant. These and other provisions may have the effect of
deterring hostile takeovers or delaying changes in our officers and directors.
Supermajority Vote Provisions. The Delaware General Corporate Law
provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
Our certificate of incorporation imposes supermajority vote requirements in
connection with the amendment of certain provisions of our certificate of
incorporation, including the provisions relating to the classified board of
directors and action by written consent of stockholders.
Indemnification
We indemnify our directors and officers to the fullest extent permitted
by Delaware law. We have entered into indemnity agreements with all of our
directors and officers and have purchased directors' and officers' liability
insurance. In addition, our charter limits the personal liability of our board
members for breaches by the directors of their fiduciary duties where
permitted under Delaware law.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is StockTrans,
Inc., Ardmore, Pennsylvania.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the prevailing market price of our
common stock could decline. Furthermore, because we do not expect any shares
will be available for sale for 180 days after this offering as a result of
certain contractual and legal restrictions on resale described below, sales of
substantial amounts of our 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 the closing of this offering, we will have outstanding an aggregate
of shares of our common stock, based upon the number of shares outstanding
at March 9, 2000 and assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, all shares sold
in this offering will be freely tradeable without restriction or further
registration under the Securities Act unless they are purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. The
remaining shares will be eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
Number
of
Shares Date
------ ----
<C> <S>
After the date of this prospectus, freely tradeable shares sold in
this offering and shares saleable under Rule 144(k) that are not
subject to the 180-day lock-up.
After 180 days from the date of this prospectus, the 180-day lock-up
is released and these shares are saleable under Rule 144 (subject, in
some cases, to volume limitations), Rule 144(k) or Rule 701.
After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not yet
saleable under Rule 144.
</TABLE>
The remaining shares of common stock held by existing stockholders
are "restricted securities" as defined in Rule 144. Our existing stockholders
may sell restricted securities in the public market only if the shares are
registered or if the shares qualify for an exemption from registration under
Rule 144 or 701 under the Securities Act, which are summarized below.
Lock-up Agreements. All of our directors and officers and substantially
all of our stockholders and option holders have signed lock-up agreements under
which they agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock for 180 days after the date of this
prospectus. Transfers or dispositions can be made sooner with the prior written
consent of Merrill Lynch.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year, including the holding period
of certain prior owners other than affiliates, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (a)
1% of the number of shares of our common stock then outstanding, which will
equal approximately shares immediately after the offering, or (b) the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice on Form 144
with respect to that sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the three months preceding a sale and
who has beneficially owned shares for at least two years, including the holding
period of certain prior owners other than affiliates, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
68
<PAGE>
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the closing of this offering.
Rule 701. In general, under Rule 701 of the Securities Act as currently
in effect, of our directors, officers, employees, consultants or advisors who
purchased shares from us before the date of this prospectus in connection with
a compensatory stock plan or other written compensatory agreement is eligible
to resell such shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
Registration Rights. Upon completion of this offering, the holders of at
least shares of our common stock will be entitled to certain rights with
respect to the registration of those shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." After such registration,
these shares of our common stock become freely tradeable without restriction
under the Securities Act. These sales could cause the market price of our
common stock to decline.
Stock Plans. After this offering, we intend to file a Form S-8
registration statement under the Securities Act covering shares of common
stock issued or reserved for issuance under our 1997 Stock Incentive Plan, our
1999 Stock Option/Stock Issuance Plan and our Employee Stock Purchase Plan. We
expect this registration statement to become effective as soon as practicable
after the effective date of this offering.
As of December 31, 1999, options to purchase 7,815,870 shares of our
common stock were issued and outstanding, all of which were then exercisable.
All of these shares will be eligible for sale in the public market from time to
time, subject to vesting provisions, Rule 144 volume limitations applicable to
our affiliates and the expiration of lock-up agreements.
69
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, FleetBoston Robertson
Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as representatives
of each of the underwriters named below. Subject to the terms and conditions
described in a purchase agreement among us and the underwriters, we have agreed
to sell to the underwriters, and the underwriters severally have agreed to
purchase from us, the number of shares listed opposite their names below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
FleetBoston Robertson Stephens Inc...............................
U.S. Bancorp Piper Jaffray Inc...................................
---
Total.......................................................
===
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in
whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose
initially to offer the shares to the public at the initial public offering
price on the cover page of this prospectus and to dealers at that price less a
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a discount not in excess of $ per share to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............... $ $ $
Underwriting discount............... $ $ $
Proceeds, before expenses, to
Naviant............................ $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount,
are estimated at $ and are payable by us.
70
<PAGE>
Over-allotment Option
We have granted an option to the underwriters to purchase up to
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise these options for 30 days from the date of this
prospectus solely to cover any over-allotments. If the underwriters exercise
these options, each will be obligated, subject to conditions contained in the
purchase agreements, to purchase a number of additional shares proportionate to
that underwriter's initial amount reflected in the above table.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, business associates and
related persons. If these persons purchase reserve shares, this will reduce the
number of shares available for sale to the general public. Any reserved shares
that are not orally confirmed for purchase within one day of the pricing of
this offering will be offered by the underwriters to the general public on the
same terms as the other shares offered by this prospectus.
No Sales of Similar Securities
We, our executive officers and directors and substantially all of our
stockholders have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first obtaining
the written consent of Merrill Lynch. Specifically, we, such officers and
directors and such stockholders, have agreed not to directly or indirectly:
. offer, pledge, sell or contract to sell any common stock;
. sell any option or contracts to purchase any common stock;
. purchase any option or contract to sell any common stock;
. grant any option, right or warrant for the sale of any common stock;
. lend or otherwise dispose of or transfer any common stock;
. request or demand that we file a registration statement related to
the common stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock,
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.
Quotation on the Nasdaq National Market
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "NAVT."
Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations among us and the representatives. In addition to prevailing market
conditions, the factors to be considered in determining the initial public
offering price are
. the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
71
<PAGE>
. our financial information;
. the history of, and the prospects for, our company and the industry
in which we compete;
. an assessment of our management, our past and present operations, and
the prospects for, and timing of, our future revenues;
. the present state of our development; and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering, the shares will not trade in the public
market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short
position by purchasing shares in the open market. The representatives may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above. Purchase of the common stock to stabilize its
price or to reduce a short position may cause the price of the common stock to
be higher than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
in the open market to reduce the underwriter's short position or to stabilize
the price of such shares, they may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those shares. The
imposition of a penalty bid may also affect the price of the shares in that it
discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
72
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Brobeck, Phleger & Harrison LLP, Washington, D.C. Certain legal matters
in connection with the offering will be passed upon for the Underwriters by
Davis Polk & Wardwell, New York, New York.
EXPERTS
The financial statements of Naviant, Inc. as of December 31, 1998 and
1999 and for the period from January 1, 1997 to May 1, 1997, the period from
May 2, 1997 to December 31, 1997 and for the years ended December 31, 1998 and
1999, included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of SOFTBANK Content Services, Inc. (d/b/a
Softbank Marketing Solutions or "SMS") as of December 31, 1999 and for the year
then ended included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of IQ2.net and Austin Registration as of
December 31, 1997 and 1998 and for each of the two years in the period ending
December 31, 1998 included in this Prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information about us and the common stock
offered in this offering, we refer you to the registration statement and to the
attached exhibits. Complete exhibits have been filed with our registration
statements on Form S-1.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, NW, Washington, DC
20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information about the public reference rooms. You may obtain copies of
all or any part of our registration statement from the Securities and Exchange
Commission upon payment of prescribed fees. Our filings with the Securities and
Exchange Commission, including the registration statement, are also available
without charge at the Securities and Exchange Commission's Web site at
http://www.sec.gov.
Upon completion of this offering, Naviant will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934 and, accordingly, will file periodic reports, proxy statements and
other information with the Securities and Exchange Commission. Such periodic
reports, proxy statements and other information will be available for
inspection and copying at the Securities and Exchange Commission's public
reference rooms, and the Web site of the Securities and Exchange Commission
referred to above.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
NAVIANT, INC.
Report of Independent Accountants........................................ F-2
Financial Statements:
Balance Sheets as of December 31, 1998 and 1999........................ F-3
Statements of Operations for the period from January 1, 1997 through
May 1, 1997, the period from May 2, 1997 through December 31, 1997,
and the years ended December 31, 1998 and 1999........................ F-4
Statements of Changes in Stockholders' Equity (Deficit) for the period
from May 2, 1997 through December 31, 1997 and the years ended
December 31, 1998 and 1999............................................ F-5
Statements of Cash Flows for the period from January 1, 1997 through
May 1, 1997, the period May 2, 1997 through December 31, 1997 and the
years ended December 31, 1998 and 1999................................ F-6
Notes to Financial Statements.......................................... F-7
SOFTBANK Content Services, Inc. (d/b/a SMS)
Report of Independent Accountants........................................ F-24
Financial Statements:
Balance Sheet as of December 31, 1999.................................. F-25
Statement of Operations for the year ended December 31, 1999........... F-26
Statement of Stockholders' Equity (Deficit) for the year ended December
31, 1999.............................................................. F-27
Statement of Cash Flows for the year ended December 31, 1999........... F-28
Notes to Financial Statements.......................................... F-29
IQ2.net & Austin Registration
Report of Independent Accountants........................................ F-33
Combined Carve-out Financial Statements:
Combined Carve-out Balance Sheets as of December 31, 1997 and 1998..... F-34
Combined Carve-out Statements of Operations for the years ended
December 31, 1997 and 1998............................................ F-35
Combined Carve-out Statements of Cash Flows for the years ended
December 31, 1997 and 1998............................................ F-36
Notes to Combined Carve-out Financial Statements....................... F-37
Unaudited Pro Forma Condensed Combined Financial Information
Pro Forma Balance Sheet................................................ F-49
Pro Forma Statement of Operations...................................... F-50
Notes to Unaudited Pro Forma Condensed Combined Financial Information.. F-51
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Naviant, Inc.:
In our opinion, the accompanying balance sheets and the related
statements of operations, of changes in stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Naviant, Inc. at December 31, 1998 and 1999, and the results of its operations
and its cash flows for the period from January 1, 1997 through May 1, 1997, the
period from May 2, 1997 through December 31, 1997 and the years ended December
31, 1998 and 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 4, 2000, except as to the information
in Note 16, for which the date is March 9, 2000.
F-2
<PAGE>
NAVIANT, INC.
BALANCE SHEETS
December 31, 1998 and 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
December 31,
1999
December 31, (Note 16)
----------------- -------------
1998 1999
------- -------- (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 712 $ 10,997
Accounts receivable, net.................... 2,063 13,265
Prepaid expenses and other current assets... 409 1,498
------- --------
Total current assets...................... 3,184 25,760
Equipment and leasehold improvements, net..... 890 3,769
Other assets:
Intangible assets, net...................... -- 40,893
Other....................................... 44 931
------- --------
Total assets.............................. $ 4,118 $ 71,353
======= ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease
obligations................................ $ -- $ 242
Accounts payable and accrued expenses....... 282 6,490
Accrued payroll and benefits................ 531 2,175
Deferred revenue ........................... 550 767
Due to MRJ.................................. 15 17
Accrued stock-based compensation............ -- 106
------- --------
Total current liabilities................. 1,378 9,797
Capital lease obligations..................... -- 378
------- --------
Total liabilities......................... 1,378 10,175
Commitments and contingencies
Redeemable convertible preferred stock........ 4,875 74,261 $ --
Stockholders' equity (deficit):
Common stock, $.01 par value; 116,000,000
shares authorized, 10,125,000 and
14,172,914 shares issued and outstanding at
December 31, 1998 and 1999, respectively
(61,084,951 shares pro forma).............. 101 142 611
Non-voting common stock, $.01 par value;
9,000,000 shares authorized, no shares
issued and outstanding at December 31, 1998
and 1999, respectively (8,888,889 shares
pro forma)................................. 89
Additional paid-in capital.................. 2,349 5,578 80,031
Accumulated deficit......................... (4,585) (15,139) (15,139)
Stockholder loans receivable................ -- (3,664) (4,414)
------- -------- --------
Total stockholders' equity (deficit)...... (2,135) (13,083) $ 61,178
------- -------- ========
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit)................................ $ 4,118 $ 71,353
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NAVIANT, INC.
STATEMENTS OF OPERATIONS
for the period from January 1, 1997 through May 1, 1997, the period from May 2,
1997 through December 31, 1997 and the years ended December 31, 1998 and 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Period from Period from May
January 1, 1997 2, 1997 through Year ended December 31,
through May 1, December 31, ------------------------
1997 1997 1998 1999
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $4,533 $ 9,630 $ 9,717 $ 18,053
Cost of revenues........ 2,442 4,062 4,067 8,931
------ ----------- ----------- -----------
Gross profit.......... 2,091 5,568 5,650 9,122
Operating expenses:
Sales and marketing... 866 1,327 1,716 5,781
General and
administrative....... 2,092 5,217 6,164 9,500
Research and
development.......... 15 460 985 728
Amortization of
intangibles.......... -- -- -- 3,890
------ ----------- ----------- -----------
Total operating
expenses........... 2,973 7,004 8,865 19,899
------ ----------- ----------- -----------
Operating loss.......... (882) (1,436) (3,215) (10,777)
Interest income......... -- 26 40 223
------ ----------- ----------- -----------
Net loss................ (882) (1,410) (3,175) (10,554)
Accretion and dividends
on redeemable
convertible preferred
stock.................. -- -- -- (1,668)
------ ----------- ----------- -----------
Net loss available to
common stockholders.... $ (882) $ (1,410) $ (3,175) $ (12,222)
====== =========== =========== ===========
Historical net loss per
common share:
Basic and diluted..... $ (0.14) $ (0.31) $ (1.17)
=========== =========== ===========
Historical weighted
average number of
shares:
Basic and diluted..... 10,125,000 10,125,000 10,455,645
=========== =========== ===========
Pro forma net loss per
common share:
Basic and diluted..... $ (0.35)
===========
Pro forma weighted
average number of
shares:
Basic and diluted..... 30,538,661
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NAVIANT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the period from May 2, 1997 through December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Stockholder
----------------- Paid-in Accumulated Loans Total Stockholders'
Shares Amount Capital Deficit Receivable Equity (Deficit)
---------- ------ ---------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 2, 1997.... -- $ -- $ -- $ -- $ -- $ --
Initial capitalization.. 10,125,000 101 101
Capital contribution.... 2,349 2,349
Net loss................ (1,410) (1,410)
---------- ----- ------ -------- ------- --------
Balance, December 31,
1997................... 10,125,000 101 2,349 (1,410) -- 1,040
Net loss................ (3,175) (3,175)
---------- ----- ------ -------- ------- --------
Balance, December 31,
1998................... 10,125,000 101 2,349 (4,585) -- (2,135)
Exercise of stock
options................ 4,047,914 41 4,008 (3,664) 385
Issuance of warrants.... 889 889
Accrual of preferred
stock dividends........ (1,638) (1,638)
Accretion of redeemable
preferred stock........ (30) (30)
Net loss................ (10,554) (10,554)
---------- ----- ------ -------- ------- --------
Balance, December 31,
1999................... 14,172,914 $ 142 $5,578 $(15,139) $(3,664) $(13,083)
========== ===== ====== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NAVIANT, INC.
STATEMENTS OF CASH FLOWS
for the period from January 1, 1997 through May 1, 1997, the period from May 2,
1997 through December 31, 1997 and the years ended December 31, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Period from
Period from May 2, 1997 Year ended
January 1, 1997 through December 31,
through May 1, December 31, -----------------
1997 1997 1998 1999
--------------- ------------ ------- --------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss...................... $(882) $(1,410) $(3,175) $(10,554)
Adjustment to reconcile net
loss to cash provided by
(used in) operating
activities:
Depreciation and
amortization................ 70 233 429 4,619
Stock-based expense.......... -- -- -- 138
Provision for (recovery of)
uncollectible accounts...... (72) 163 (136) 281
Changes in assets and
liabilities, net of effect
of business acquired:
Accounts receivable......... 84 535 1,504 (6,396)
Prepaid expenses and other
current assets............. (287) (64) 27 (371)
Other assets................ -- -- (44) (360)
Accounts payable and accrued
expenses................... 334 117 (425) 3,766
Accrued payroll and
benefits................... 449 (83) (120) 1,201
Due to MRJ.................. 574 (83) (262) 2
Deferred revenue............ -- -- 550 (391)
----- ------- ------- --------
Net cash provided by (used
in) operating activities.. 270 (592) (1,652) (8,065)
----- ------- ------- --------
Cash flows from investing
activities:
Purchase of equipment and
leasehold improvements....... (270) (285) (259) (2,204)
Acquisition of business, net
of cash acquired............. -- -- -- (47,368)
----- ------- ------- --------
Net cash used in investing
activities................ (270) (285) (259) (49,572)
----- ------- ------- --------
Cash flows from financing
activities:
Proceeds from issuance of
preferred stock.............. -- 3,375 1,500 67,771
Repayment of MRJ loan......... -- (1,375) -- --
Repayment of capital lease.... -- -- -- (74)
Proceeds from exercise of
stock options................ -- -- -- 225
----- ------- ------- --------
Net cash provided by
financing activities...... -- 2,000 1,500 67,922
----- ------- ------- --------
Net increase (decrease) in cash
and cash equivalents.......... -- 1,123 (411) 10,285
Cash and cash equivalents,
beginning of period........... -- -- 1,123 712
----- ------- ------- --------
Cash and cash equivalents, end
of period..................... $ -- $ 1,123 $ 712 $ 10,997
===== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company:
Naviant, Inc. (the "Company"), provides one-to-one marketing solutions
that enable Web advertisers, publishers and consumer marketers to precisely
target Web users through both traditional and online media. Naviant's product
and service offerings currently include registration services, precision
marketing services and consulting services.
The Company was formed on May 2, 1997 as a result of a spin-off of
substantially all of the assets and liabilities of the Enterprise System
Division of MRJ, Inc. ("MRJ"). The assets and liabilities are recorded in the
Company's financial statements at historical cost. MRJ's investment in the
Enterprise Systems Division at January 1,1997 was $2.9 million and $2.0 million
at May 1, 1997 after a net loss of $882,000 for the period. At May 2, 1997, the
investment of $2.0 million and an additional $450,000 was contributed by MRJ as
the initial capitalization of Naviant.
The statements of operations, changes in stockholders' equity (deficit)
and cash flows for the period from January 1, 1997 through May 1, 1997 reflect
the carve-out historical results of the Enterprise Systems Division of MRJ.
These statements are not necessarily indicative of results that would have
occurred if the Enterprise System Division had been a separate stand-alone
entity during the period presented or of future results of the Company. During
the period ended May 1, 1997, MRJ charged the Enterprise Systems Division
$308,000 for certain general and administrative, accounting and personnel
services. Such charges were allocated based on a proportion of revenues,
payroll and total fixed assets. The Company's management believes that the
methodology used to allocate the above charges was reasonable.
Effective August 31, 1999, the Company purchased substantially all of the
net assets of the IQ2.net division ("IQ2.net") of IntelliQuest Information
Group, Inc. ("IntelliQuest") for cash. The acquisition was funded through the
issuance of Series C convertible redeemable preferred stock and Series D non-
voting convertible redeemable preferred stock (Note 3). The results of
operations of IQ2.net are included from the date of acquisition.
2. Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Concentration of Credit Risk:
The Company maintains its cash and cash equivalents in bank deposit
accounts which, at times, may exceed federally insured limits. The Company
sells its products to various companies in the Internet, technology and other
industries. The Company performs ongoing credit evaluations of its customers
and maintains reserves for potential credit losses.
Revenue Recognition:
The Company's revenues are derived from the sale of registration
services, data licensing, consulting and processing services. Revenue from
registration and processing services is generally recorded as the services are
F-7
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
performed. Revenues from data license agreements that do not require the
Company to provide updated information are recognized upon delivery of the data
to the customer. Revenues from data license agreements that provide for updated
information are recognized ratably over the contract term. Revenues from fixed-
price consulting contracts are recognized under the percentage of completion
basis, measured by the percentage of total costs incurred to date to estimated
total costs for each contract. Provisions for losses on a given contract are
recognized when probable.
Deferred revenue represents amounts invoiced prior to rending the related
services while unbilled revenue, which is included in accounts receivable in
the accompanying balance sheet, represents the billing value of services
rendered prior to being invoiced. Substantially all of the deferred revenue and
unbilled revenue will be earned and billed, respectively, within twelve months
of the respective period ends.
Research and Development Costs:
Research and development costs include costs incurred to develop or
design new products, services or processes or significantly enhance existing
products, services and processes and are expensed as incurred.
Equipment and Leasehold Improvements:
Equipment and leasehold improvements are recorded at cost, net of
accumulated depreciation and amortization. Depreciation and amortization is
provided on a straight-line basis over the estimated lives of the respective
assets, which range from 3 to 10 years. Leasehold improvements are depreciated
over the life of the related lease or asset, if shorter. Amortization of assets
acquired under capital leases is included in depreciation and amortization.
Intangible Assets:
Intangible assets result from the purchase of IQ2.net and include the
assembled workforce, goodwill, acquired databases, and customer lists. Goodwill
represents the excess of the purchase price over the estimated fair value of
the net assets acquired. The Company amortizes intangible assets on a straight-
line basis over the estimated useful life of two years for the assembled
workforce and four years for goodwill and other intangibles.
The Company periodically evaluates whether events and circumstances have
occurred that indicate these intangible assets may not be recoverable. When
factors indicate these intangible assets should be evaluated for possible
impairment, the Company uses the projected undiscounted net cash flows of the
related businesses acquired in measuring the recoverability of the intangible
assets.
Amortization of intangible assets totaled $3.9 million for the year ended
December 31, 1999.
Income Taxes:
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based upon the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
F-8
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Historical Net Loss Per Share:
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the conversion of convertible preferred
shares (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method). Common equivalent
shares were excluded from the computation for all years presented, as their
effect was anti-dilutive.
Pro Forma Net Loss Per Share:
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding during
the period and gives effect to the subsequent conversion of Series A, Series B,
Series C and Series D preferred shares into common stock upon effectiveness of
an initial public offering as if such conversion occurred on January 1, 1999 or
at the date of original issuance, if later. The resulting pro forma adjustment
includes an increase in the weighted average shares of 20,083,016 used to
compute basic and diluted net loss per share for the year ended December 31,
1999. Shares of common stock issuable upon the exercise of stock options and
warrants are excluded from the calculation, as the effect of their inclusion
would be anti-dilutive.
Stock Based Compensation:
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and complies with
the disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation." Under APB 25,
compensation cost is recognized over the vesting period based upon the
difference, if any, on the date of grant between the fair value of the
Company's stock and the amount an employee must pay to acquire the stock. The
Company accounts for options granted to non-employees as prescribed by SFAS No.
123.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, which include
cash, cash equivalents, accounts receivable, accounts payable and accrued
expenses is considered to approximate fair value due to the relatively short
maturities of the respective instruments.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the
period from January 1, 1997 through May 1, 1997, the period from May 2, 1997
through December 31, 1997 and the years ended December 31, 1998 and 1999 was
$43,000, $92,000, $179,000 and $1.1 million, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the
F-9
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
balance sheet as either an asset or liability measured at its fair value. It
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met and that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000 and cannot be applied retroactively. The Company
is currently evaluating this statement, but does not expect that it will have a
material effect on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue
in financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the impact of
SAB 101 will have no material effect on the financial position or results of
operations of the Company.
3. Acquisition:
Effective August 31, 1999, the Company purchased the outstanding common
stock and the related net assets of IntelliQuest's IQ2.net division for a total
purchase price of $47.4 million including transaction costs of $868,000.
IQ2.net provides registration services, data licensing, and data processing
services to Internet, high tech, and other companies. The acquisition was
accounted for by the purchase method. Accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values at the date of acquisition. The excess of purchase price
over the fair value of amounts assigned to the net assets acquired has been
recorded as goodwill in the amount of $39.4 million, which is being amortized
on a straight-line basis over four years. The results of operations of IQ2.net
are included in the financial statements from the date of acquisition.
The unaudited pro forma results of operations for the years ended
December 31, 1998 and 1999, as if IQ2.net had been acquired at the beginning of
1998 and 1999, respectively, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Net revenues....................................... $ 28,427 $ 30,478
Net loss........................................... (16,861) (25,270)
Net loss per share................................. ($1.67) ($2.58)
Pro forma shares outstanding....................... 10,125,000 10,455,645
</TABLE>
F-10
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Accounts Receivable:
The allowance for doubtful accounts was $52,000 and $333,000 at December
31, 1998 and 1999, respectively. Unbilled receivables of $697,000 and $2.8
million are included in accounts receivable at December 31, 1998 and 1999,
respectively.
Revenues from certain significant customers are as follows:
<TABLE>
<CAPTION>
Period from
Period from May 2, 1997
January 1, 1997 through December 31,
through December 31, ---------------
May 1, 1997 1997 1998 1999
--------------- ------------ ------ ------
<S> <C> <C> <C> <C>
Customer 1.................... --% --% --% 26%
Customer 2.................... 33% 34% 12% 2%
Customer 3.................... 18% 21% 21% 1%
Customer 4.................... --% --% 13% --%
Customer 5.................... 15% 6% --% --%
Customer 6.................... 13% 8% --% --%
</TABLE>
5. Equipment and Leasehold Improvements:
Equipment and leasehold improvements consists of the following at
December 31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
Lives 1998 1999
--------- ------- -------
<S> <C> <C> <C>
Computer and office equipment.................... 3-5 years $ 1,531 $ 3,814
Furniture and fixtures........................... 3-7 years 280 980
Leasehold improvements........................... 10 years 133 392
------- -------
1,944 5,186
Accumulated depreciation and amortization........ (1,054) (1,417)
------- -------
$ 890 $ 3,769
======= =======
</TABLE>
Depreciation and amortization expense for the period from January 1, 1997
through May 1, 1997, the period from May 2, 1997 through December 31, 1997 and
the years ended December 31, 1998 and 1999 amounted to $70,000, $233,000,
$429,000, and $729,000, respectively.
Included in the December 31, 1999 balances of computer and office
equipment and furniture and fixtures are $694,000 of assets acquired under
lease. Accumulated amortization for these assets was $72,000 at December 31,
1999, and amortization expense was $72,000 for the year ended December 31,
1999.
6. Intangible Assets:
Intangible assets consist of the following at December 31, 1999 (in
thousands):
<TABLE>
<S> <C>
Goodwill, net of accumulated amortization of $3,281................. $36,110
Assembled workforce, net of accumulated amortization of $367........ 1,833
Other intangibles, net of accumulated amortization of $242.......... 2,950
-------
$40,893
=======
</TABLE>
F-11
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Redeemable Convertible Preferred Stock:
At December 31, 1998 and 1999 redeemable convertible preferred stock
outstanding is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Series A, $.01 par value; 3,375,000 shares authorized,
issued and outstanding (liquidation value of $3,375)....... $3,375 $ 3,375
Series B, $.01 par value; 1,500,000 shares authorized,
issued and outstanding (liquidation value of $1,500)....... 1,500 1,500
Series C, $.01 par value; 8% cumulative dividend, 50,925,926
shares authorized, 42,037,037 issued and outstanding
(liquidation value of $58,104)............................. -- 57,894
Series D, $.01 par value; 8% cumulative dividend, 8,888,889
shares authorized, issued and outstanding (liquidation
value of $12,285).......................................... -- 12,242
------ -------
4,875 75,011
Less: stockholder loans receivable.......................... -- (750)
------ -------
$4,875 $74,261
====== =======
</TABLE>
Preferred Stock--Series A. In May 1997, the Company sold 3,375,000 shares
of Series A redeemable convertible preferred stock for $3.4 million. The
holders are not entitled to cumulative dividends, but are entitled to dividends
at the amount declared on common stock, based on the number of shares into
which the preferred shares would be convertible. The holders are entitled to
voting rights similar to those of the common stockholders. The Company has
3,375,000 shares of common stock reserved for issuance upon conversion. The
holders of preferred shares vote as a single class with common stock.
The holders may voluntarily convert their preferred stock to shares of
common stock at any time, at defined conversion rates. The initial conversion
rate is one to one and is subject to adjustment for common stock issuances, if
any. The preferred shares automatically convert to common shares immediately
preceding a public offering of common stock that meets defined criteria.
The Series A stock is redeemable in March 2006 at the option of the
holders for $1.00 per share plus any accrued and unpaid dividends.
In the event of any liquidation, dissolution or winding up of the
Company, the Series A stockholders receive no distributions until the Series C
and D stockholders receive $1.35 per share and the Series B stockholders
receive $1.00 per share. Series A stockholders are entitled to $1.00 per share,
subject to defined adjustments, after the initial distributions to Series B, C
and D stockholders. Series A stockholders are also entitled to the equivalent
of a 30% annual return on their initial investment after (i) initial
distributions to preferred and common stockholders, and (ii) secondary
distributions to Series B, C and D stockholders.
Preferred Stock--Series B. In October 1998, the Company issued 1,500,000
shares of Series B redeemable convertible preferred stock in exchange for $1.5
million received in June 1998.
The holders are not entitled to cumulative dividends, but are entitled to
dividends at the amount declared on common stock, based on the number of shares
into which the preferred shares would be convertible. The holders are entitled
to voting rights similar to those of the common stockholders and Series A
preferred stockholders. The Company has 1,500,000 shares of common stock
reserved for issuance upon conversion. The holders are entitled to voting
rights similar to those of common stockholders.
F-12
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The holders may voluntarily convert their preferred stock to shares of
common stock at any time, at defined conversion rates. The initial conversion
rate is one to one and is subject to adjustment for common stock issuances, if
any. The preferred shares automatically convert to common shares immediately
preceding a public offering of common stock that meets defined criteria.
The Series B stock is redeemable in March 2006 at the option of the
holders for $1.00 per share plus any accrued and unpaid dividends.
In the event of any liquidation, dissolution or winding up of the
Company, the Series B stockholders receive no distributions until the Series C
and D stockholders receive $1.35 per share. Series B stockholders are entitled
to $1.00 per share, subject to defined adjustments, after the initial
distributions to Series C and D stockholders. Series B stockholders are also
entitled to the equivalent of a 30% annual return on their initial investment
after (i) initial distributions preferred and common stockholders, and (ii)
secondary distributions to Series C and D stockholders.
Preferred Stock--Series C and D. On September 15, 1999, the Company sold
39,074,074 shares of Series C redeemable convertible preferred stock and
8,888,889 shares of Series D non-voting redeemable convertible preferred stock
at $1.35 per share for an aggregate of $64.8 million.
On November 17, 1999, the Company sold an additional 2,962,963 shares of
Series C stock for an aggregate of $4.0 million.
The Series C and D stockholders received warrants to purchase, at the
initial public offering price, their pro rata share of 5% of the aggregate
number of common shares sold in such initial public offering at the offering
price. The warrants are only exercisable upon closing of the initial public
offering and expire if not exercised. The estimated fair value of the warrants
of $50,000 was allocated to additional paid-in capital.
The Company received cash proceeds of $68.0 million and a note receivable
of $750,000. The Series C and D stock is recorded net of issuance costs of
$229,000. The Series C and Series D stock is redeemable in September 2004 at
the option of the stockholders. The carrying value of the Series C and D stock
is periodically adjusted to increase the carrying value to the redemption value
of $68.8 million in September 2004. Accretion for the year ended December 31,
1999 was approximately $1.7 million, including cumulative unpaid dividends at
8%.
The Series C and D stockholders are entitled to receive dividends at an
annual rate of 8%. The Series C stockholders are in parity with the Series D
stockholders and in preference to the Series A, Series B and common
stockholders with respect to dividends. Dividends accrue from the date of
issuance, are cumulative, and are payable only upon redemption.
The Series C stock is convertible at the option of the holder into common
stock at defined conversion rates. The Series D preferred stock is convertible
at the option of the holder into non-voting common stock at defined conversion
rates. The initial conversion rate for the Series C and Series D preferred
stock is one to one and is subject to adjustment for subsequent common stock
issuances, if any. The preferred shares automatically convert to common shares
immediately preceding a public offering of common stock that meets defined
criteria.
The note receivable is due from an officer and stockholder for the
purchase of 555,556 shares of Series C stock, bears interest at 5.42% annually
and is due September 2001. The note is collateralized with full recourse by the
Series C shares and a general pledge of the officer's assets.
F-13
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The holders of the Series C shares vote as a single class with Series A
preferred stock, Series B preferred stock and common stock. In addition, the
holders of the Series C are entitled to elect five of the Company's board of
directors. The Series D preferred stock is non-voting.
The Company has reserved 50,925,926 shares of common stock for issuance
upon conversion of Series C preferred stock and 8,888,889 shares of non-voting
common stock for issuance upon conversion of Series D preferred stock.
In the event of any liquidation, dissolution or winding up of the
Company, the Series C and D stockholders rank senior to the Series A, Series B
and common stockholders. The Series C and D stockholders are initially entitled
to receive $1.35 per share. After distributions of $1.00 per share to the
Series A, B and common stockholders, the Series C and D stockholders are
entitled to the equivalent of a 30% return on their initial investment.
8. Stockholders' Equity:
Stockholder Loan Receivables:
In November and December 1999, 14 option holders exercised 4,047,914
options. In connection with these exercises, the Company provided loans of $3.7
million to 12 individuals, which included officers, employees and two
directors, to exercise stock options into 3,663,540 shares of common stock. The
notes receivable bear interest at 6.08%. The principal and accrued interest
under the notes is due and payable on November 30, 2003. If the holders sell or
otherwise transfer any shares purchased with the proceeds of the notes, the
principal and interest attributable to the purchase of those shares is
immediately due and payable. The shares of Company's common stock and other
assets of the holders collateralize the stockholder loans receivables with full
recourse. The shares vest in accordance with the terms of the option agreements
and the Company has the right to repurchase unvested shares at the exercise
price. At December 31, 1999, 625,000 shares were fully vested. The remaining
shares vest as follows: 1,771,257 upon a qualified initial public offering,
1,609,657 in September 2000, and the remainder over 3 to 4 years.
Warrants
In November 1999, the Company issued a warrant to purchase 778,000 shares
of common stock to a customer in connection with a three-year contract. The
warrant has an exercise price of $2.00 per share, vested immediately, and is
exercisable until the earlier of 7 years or an initial public offering which
meets defined criteria. The Company will record the fair value of the warrant
of $839,000 as a reduction of related revenue to the extent revenue is
recognized, and record the remainder as a cost of revenue over the contract
term. The fair value of the warrant was estimated using the Black-Scholes
option-pricing model with the following assumptions: expected volatility of
120%; risk-free interest of 6.15%; contractual term of 7 years; and dividend
yield of 0%.
In December 1999, the Company issued a warrant to a member of its
advisory board to purchase 100,000 shares of common stock at an exercise price
of $3.00 per share. The warrant vested immediately and expires on February 15,
2000. The Company recorded the fair value of the warrant of $12,000 as a
general and administrative expense in 1999. The fair value of the warrant was
estimated using the Black-Scholes option-pricing model with the following
assumptions: expected volatility of 120%; risk free interest rate of 5.45%;
contractual term of 1.5 months; and dividend yield of 0%.
Stock option and purchase plans
The Company maintains the 1997 Stock Option Plan (the "1997 Plan") under
which the Company could grant incentive and non-statutory stock options to
certain employees and directors. The Company amended the 1997 Plan during 1998
to increase the number of options from 1,500,000 to 1,800,000. Options
F-14
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
under the 1997 Plan are issued with exercise prices equal to or greater than
the fair market value of the common stock as determined by the board of
directors, vest over varying periods and expire seven years from the date of
grant. All stock options granted under the 1997 Plan became fully vested and
exercisable in connection with the purchase of IQ2.net.
In 1999, the Company established the 1999 Stock Option/Stock Issuance
Plan (the "1999 Plan"), providing for two separate equity programs: (i) the
option grant program providing for grants of both incentive and non-statutory
stock options, and (ii) the stock issuance program providing for the issuance
of common stock directly, either through the immediate purchase of such shares
or for services rendered to the Company.
The Company reserved 13,029,000 shares for the grant of stock options or
issuance of shares under the 1999 Plan. Incentive options under the 1999 Plan
are issued only to employees with exercise prices not less than the fair market
value of the common stock as determined by the board of directors, vest over
varying periods and expire ten years from the date of grant. Incentive options
issued to stockholders that own greater than 10% of the Company's common stock
have exercise prices not less than 110% of the fair market value of the common
stock and expire five years from the date of grant. Non-statutory stock options
under the 1999 Plan may be granted to employees, board members and consultants
at exercise prices determined by the board. The 1999 Plan allows for options to
be immediately exercisable, subject to the Company's right of repurchase for
unvested shares at the original exercise price.
The stock issuance program under the 1999 Plan allows eligible persons to
purchase shares of common stock at an amount that may be less than, equal to or
greater than the fair market value of the common shares on the issuance date.
Such shares may be fully vested when issued or may vest over time as the
recipient provides services or as specified performance objectives are attained
as determined by the board of directors or a committee appointed by the board
to administer the 1999 Plan. The Company retains the right to repurchase shares
issued in conjunction with the stock issuance program upon voluntary or
involuntary termination of service, provided that the stock purchase right has
not been exercised, at an amount equal to the original price paid by the
purchaser. The Company has issued no shares under the stock issuance program.
<TABLE>
<CAPTION>
Period from May 2, Year Ended December 31,
1997 through ---------------------------------------
December 31, 1997 1998 1999
------------------ ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Shares Price Shares Price Shares
-------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the
period................. -- -- $1.00 1,424,800 $1.00 1,386,600
Granted............... $1.00 1,466,700 1.00 642,100 1.00 10,957,784
Exercised............. -- -- -- -- 1.00 (4,047,914)
Canceled.............. 1.00 (41,900) 1.00 (680,300) 1.00 (480,600)
----- --------- ----- --------- ----- ----------
Outstanding at the end
of the year............ $1.00 1,424,800 $1.00 1,386,600 $1.00 7,815,870
===== ========= ===== ========= ===== ==========
Options exercisable at
year-end............... $1.00 120,000 $1.00 415,050 $1.00 7,815,870
===== ========= ===== ========= ===== ==========
Options vested at year-
end.................... $1.00 120,000 $1.00 415,050 $1.00 1,791,000
===== ========= ===== ========= ===== ==========
Weighted average fair
value of options
granted during the
year................... $0.32 $0.30 $0.49
===== ===== =====
</TABLE>
F-15
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The exercise price of all stock options issued under the plans as of
December 31, 1999 was $1.00. The weighted-average remaining contractual life of
stock options outstanding as of December 31, 1999 was 9.6 years.
The Company issued options during 1999 with exercise prices less than the
fair market of the common stock at the date of grant, resulting in compensation
expense of approximately $106,000 for the year ended December 31, 1999.
Additional expense to be recognized related to these options is estimated as
follows: 2000--$448,000, 2001--$448,000, 2002--$448,000, 2003--$342,000. These
amounts may vary due to forfeitures from employee terminations. Certain of
these options vest upon a qualified initial public offering. Compensation
expense to be recognized upon a qualified initial public offering is $448,000.
The Company applies APB Opinion No. 25 in accounting for its plans and
recognizes compensation expense for its employee stock-based awards based upon
the intrinsic value method. If the Company had elected to recognize
compensation expense using the fair value method prescribed by FAS No. 123, the
Company's net loss and net loss per share for the period from May 2, 1997
through December 31, 1997 and the years ended December 31, 1998 and 1999 would
have been as follows (in thousands):
<TABLE>
<CAPTION>
Period from
May 2, 1997 Year Ended
through December 31,
December 31, -----------------
1997 1998 1999
------------ ------- --------
<S> <C> <C> <C>
Net loss:
As reported............................... $(1,410) $(3,175) $(10,554)
======= ======= ========
Pro forma................................. $(1,458) $(3,272) $(11,260)
======= ======= ========
Net loss per share:
As reported, basic and diluted............ $ (0.14) $ (0.31) $ (1.17)
======= ======= ========
Pro forma, basic and diluted................ $ (0.14) $ (0.32) $ (1.24)
======= ======= ========
</TABLE>
The fair value for these options was estimated at the grant date using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1999
----------- -----------
<S> <C> <C>
Expected volatility.................................. 0% 0%
Risk-free interest rate.............................. 4.51-5.72% 4.66-6.42%
Expected life........................................ 6 years 6 years
Expected dividend yield.............................. 0% 0%
</TABLE>
Approximately 2,036,000 options vest upon a qualified initial public
offering of the Company's common stock. The Company assumed vesting of these
options in 2000 for purposes of the pro forma disclosures above.
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding table and because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of the pro forma effects of option grants on
reported net income (loss) for future years.
F-16
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings per Share
The following table sets forth the calculation for the loss (numerator)
and shares (denominator) for earnings per share (in thousands):
<TABLE>
<CAPTION>
Period from
May 2, 1997
through Year Ended December 31,
December 31, ------------------------
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Basic and diluted earnings per share:
Loss (numerator):
Net loss............................. $ (1,410) $ (3,175) $ (10,554)
Less: Preferred stock dividends...... -- -- (1,638)
Less: Accretion of preferred stock... -- -- (30)
----------- ----------- -----------
Loss available to common stockholders.... $ (1,410) $ (3,175) $ (12,222)
=========== =========== ===========
Shares (denominator):
Weighted average common shares........... 10,125,000 10,125,000 10,455,645
=========== =========== ===========
Basic and diluted earnings per share..... $ (0.14) $ (0.31) $ (1.17)
=========== =========== ===========
</TABLE>
Preferred stock convertible into 3,375,000, 4,875,000 and 55,800,926
shares of common stock in the period May 2, 1997 through December 31, 1997, and
the years ended December 31, 1998 and 1999, respectively, is not included in
the earnings per share computation because the effect of its inclusion would be
anti-dilutive. Options and warrants to purchase 1,424,800, 1,386,600 and
8,693,870 shares of common stock in the period May 2, 1997 through December 31,
1997, and the years ended December 31, 1998 and 1999, respectively, are not
included in the earnings per share calculation because the effect of their
inclusion would be anti-dilutive.
9. Income Taxes:
Income tax benefit is as follows (in thousands):
<TABLE>
<CAPTION>
Period from Period from Year ended
January 1, 1997 May 2, 1997 December 31,
through through --------------
May 1, 1997 December 31, 1997 1998 1999
--------------- ----------------- ------ ------
<S> <C> <C> <C> <C>
Current benefit............. $-- $-- $ -- $ --
Deferred benefit:
Federal .................. (296) (477) (1,074) (3,537)
State..................... (47) (74) (167) (549)
Change in valuation
allowance.................. 343 551 1,241 4,086
---- ---- ------ ------
$-- $-- $ -- $ --
==== ==== ====== ======
</TABLE>
F-17
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The reconciliation of income taxes at the statutory federal rate to the
provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
For the years
Period from Period from ended
January 1, 1997 May 2, 1997 December 31,
through through ----------------
May 1, 1997 December 31, 1997 1998 1999
--------------- ----------------- ------ ------
<S> <C> <C> <C> <C>
Income taxes at the
statutory federal rate.. (34)% (34)% (34)% (34)%
Increase (reduction) in
income taxes resulting
from:
State income taxes, net
of federal benefit.... (5) (5) (5) (5)
Changes in valuation
allowance............. 38 38 38 39
Other, net............. 1 1 1 --
--- --- ------ ------
-- % -- % -- % -- %
=== === ====== ======
</TABLE>
The components of deferred income tax assets (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Tax assets:
Intangible assets........................................ $ -- $ 1,075
Allowance for doubtful accounts.......................... 20 131
Net operating loss carryforwards......................... 1,767 4,737
Other.................................................... 21 124
------- -------
Gross deferred tax assets................................ 1,808 6,067
Tax liabilities:
Depreciation............................................. (13) (76)
Accrued liabilities...................................... (49) (117)
------- -------
Gross deferred tax liabilities........................... (62) (193)
Net deferred tax asset................................... 1,746 5,874
Valuation allowance........................................ (1,746) (5,874)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
Deferred tax assets are offset by a full valuation allowance as the lack
of earnings history gives rise to uncertainty as to whether the assets are
realizable.
The net increase in the valuation allowance of $1.2 million and $4.1
million in 1998 and 1999 relates primarily to income tax net operating losses
generated from the current year operating loss. The Company has federal net
operating loss carryforwards of approximately $11.1 million at December 31,
1999. The federal net operating loss carryforwards expire in years 2012 through
2019. Due to substantial changes in the Company's ownership, there will be an
annual limitation on the amount of the carryforwards that can be utilized.
11. Benefit Plans:
The Company has a 401(k) Savings Plan covering substantially all
employees. Under this plan, the Company makes matching contributions equal to
the participant's contributions, subject to a maximum of 5% of the
participant's salary. The Company's contributions to the plan for the period
May 2, 1997 through December 31, 1997 and the years ended December 31, 1998 and
1999 totaled $295,000, $263,000 and $301,000 respectively.
F-18
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
12. Related Party Transactions:
MRJ charged the Company for various administrative expenses, including
employee benefits until December 31, 1997. Charges for the period May 2, 1997
through December 31, 1997 and the years ended December 31, 1998 and 1999
amounted to $572,000, $16,000 and $28,000, respectively. In addition, the
Company paid MRJ a one-time management fee of $113,000 in 1999. As of December
31, 1999, the Company had a balance due to MRJ of $17,000. The Company
recognized revenues of $133,000 from MRJ during the year ended December 31,
1999, and had accounts receivable and unbilled revenues of $99,000 due from MRJ
at December 31, 1999.
On September 30, 1999, the Company entered into a five year contract with
a data provider that is a Series C stockholder and a customer. The contract
establishes pricing and provides for annual target minimum payments as follows:
2000-$1.4 million, 2001-$1.9 million, 2002-$2.4 million, 2003-$2.9 million,
2004-$2.4 million. After three years, either party can terminate the agreement
with six months prior notice. As part of the agreement, the Company will
receive annual license payments of $100,000 in years 2000 through 2004. The
Company recognized revenues of $140,000, and incurred $2.6 million in expenses
from this related party in 1999. At December 31, 1999, the Company had accounts
receivable of $140,000 due from, and accounts payable of $2.1 million due to
this related party.
On October 1, 1999, the Company entered an agreement with a vendor to
provide data processing and development services. Certain of this vendor's
officers and directors indirectly own shares of the Company's Series C stock.
The contract requires minimum payments of $750,000 through December 31, 1999,
and minimum annual payments thereafter as follows: 2000-$6.5 million, 2001-$7.0
million, 2002-$7.5 million, 2003-$8.0 million, 2004-$8.5 million. The Company
will also sublicense specified data from the vendor with minimum annual
payments of $556,000 in calendar year 2000 and minimum annual payments of
$500,000 in calendar year 2001 through 2004. The vendor will license data from
the Company. Minimum annual revenue commitments due the Company under the
license agreement are as follow: 1999-$540,000, 2000-$2.2 million, 2001-$3.2
million, 2002-$3.7 million, 2003-$4.2 million, 2004-$4.7 million. The Company
recognized revenues of $1.0 million, and incurred $791,000 in expenses from
this related party in 1999. At December 31, 1999, the Company had accounts
receivable of $500,000 due from, and accounts payable of $791,000 due to this
related party.
On September 30, 1999, the Company entered into an agreement with a
vendor that is a Series C stockholder. Under the contract, the Company will
receive a percentage of advertising dollars generated by users referred to the
vendor as a result of the Company's registration services. The Company is
obligated to purchase minimum amounts of advertising from the vendor during
certain terms of the agreement. Annual minimum purchase commitments under the
agreement are as follows: 2000-$1.0 million, 2001-$3.3 million, 2002-$1.2
million.
The Company has several agreements with a customer that is a Series C
stockholder with board of directors representation. Under one agreement, it
sublicenses data to the customer. The Company recognized license revenues of
$96,000 in 1999 and has deferred revenue of $225,000 related to the contract at
December 31, 1999. In September 1999, the Company entered into an agreement
with this customer to license other data to the customer in exchange for data
received from the customer. Under the agreement, the Company will also purchase
banner advertising inventory from the customer. The Company recognized e-CRM
revenues of $4.8 million from this customer during 1999 and had accounts
receivable services and unbilled receivables of $2.9 million due from this
customer at December 31, 1999.
The Company has a three-year agreement with a warrant holder and customer
under which it will provide affinity, registration and data licensing services.
In connection with the agreement, the Company
F-19
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
received a limited license to certain of the customer's data received in
connection with the services provided. Minimum revenues due to the Company
under the agreement are $750,000 in years 2000 through 2003. The Company can
also receive additional revenues of up to $250,000 per year in years 2000
through 2003 if certain contractual conditions are met.
13. Segment Reporting:
Statement of Financial Accounting Standards No.131 ("SFAS No. 131"),
Disclosures about Segments of a Business and Related Information established
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating segments
in interim financial reports issued to stockholders. It also established
standards for related disclosures about products and services, and geographic
areas. Operating segments are defined using the management approach, and are
the components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker or
decision making group in deciding how to allocate resources and in assessing
performance.
The Company is managed as one business, with the same senior management
personnel having functional responsibility over all of the Company's product
lines. The Company does not track net income, losses or assets by product line.
The Company's primary services are registration services ("e-Registration"),
consulting and processing services ("e-CRM"), and precision marketing services.
During 1999, the Company provided data processing services to one customer
under a contract that will expire in 2000. Revenues from these services totaled
$1.7 million and are included in services in the table below.
The table below presents information about the reported segments for the
period from January 1, 1997 through May 1, 1997, the period from May 2, 1997
through December 31, 1997, and the years ended December 31, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
Period from Period from
January 1, 1997 May 2, 1997 Year ended Year ended
through through December 31, December 31,
May 1, 1997 December 31, 1997 1998 1999
--------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
e-Registration:
Revenues.............. $ -- $ -- $ -- $ 2,747
Cost of revenues...... -- -- -- 1,408
------ ------ ------ -------
Gross profit.......... -- -- -- 1,339
Precision Marketing:
Revenues.............. -- -- -- 3,926
Cost of revenues...... -- -- -- 2,064
------ ------ ------ -------
Gross profit.......... -- -- -- 1,862
e-CRM:
Revenues.............. 4,533 9,630 9,717 11,380
Costs of revenues..... 2,442 4,062 4,067 5,459
------ ------ ------ -------
Gross profit.......... $2,091 $5,568 $5,650 $ 5,921
</TABLE>
F-20
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A reconciliation of total segment revenues and gross profit to total
operating loss for the period from January 1, 1997 through May 1, 1997, the
period from May 2, 1997 through December 31, 1997 and the years ended December
31, 1998 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Period from Period from
January 1, 1997 May 2, 1997 Year ended Year ended
through through December 31, December 31,
May 1, 1997 December 31, 1997 1998 1999
--------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Total segment revenues.. $ 4,533 $ 9,630 $ 9,717 $ 18,053
Total segment cost of
revenues............... 2,442 4,062 4,067 8,931
------- ------- ------- --------
Total segment gross
profit................. 2,091 5,568 5,650 9,122
Corporate expenses...... (2,973) (7,004) (8,865) (19,899)
------- ------- ------- --------
Operating loss.......... (882) (1,436) (3,215) (10,777)
Interest income......... -- 26 40 223
------- ------- ------- --------
Net loss................ $ (882) $(1,410) $(3,175) $(10,554)
======= ======= ======= ========
</TABLE>
14. Commitments and Contingencies:
Leases Agreements:
The Company leases its office space and certain equipment under operating
leases. The office space leases generally contain renewal options and
escalation clauses based on increases in the Consumer Price Index (CPI) over a
base year CPI. The Company also leases certain other furniture and equipment
under capital leases. Future minimum lease payments at December 31, 1999 under
noncancellable operating and capital leases with terms in excess of one year
were as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Lease
--------- -------
<S> <C> <C>
2000....................................................... $1,573 $ 282
2001....................................................... 1,443 264
2002....................................................... 1,398 175
2003....................................................... 1,407 --
2004....................................................... 1,328 --
Thereafter................................................. 2,099 --
------ -----
Total minimum lease payments............................... $9,248 721
======
Less: amounts representing interest........................ (101)
-----
Present value of minimum capital
lease payments........................................... 620
Less: current portion...................................... (242)
-----
$ 378
=====
</TABLE>
Rent expense for the period from January 1, 1997 through May 1, 1997, the
period May 2, 1997 through December 31, 1997 and the years ended December 31,
1998 and 1999 was $193,000, $369,000, $640,000, and $763,000, respectively.
F-21
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Contingencies:
The Company is subject to various legal claims in the ordinary course of
business. In the opinion of management, none of these claims will have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
15. Non-Cash Investing and Financing Activities:
The amount due to MRJ was reduced by $2.3 million through a capital
contribution during the period from May 2, 1997 through December 31, 1997.
Computer and office equipment and furniture and fixtures of $694,000 were
acquired in 1999 through capital leases.
Stockholder loans receivable of $3.7 million and short-term stockholder
receivables of $160,000 were received for the exercise of stock options in
December 1999. The short-term stockholder receivables were repaid in cash in
January 2000.
Stockholder loans receivable of $750,000 were received in 1999 for the
purchase of Series C preferred stock.
Accounts payable at December 31, 1999 include $293,000 for database
additions.
16. Subsequent Events:
In February 2000, the Company purchased Impco Enterprises, Inc. d/b/a SDG
("SDG") for consideration of $9.9 million consisting of: 3,625,926 shares of
Series C redeemable convertible preferred stock valued at $2.70 per share and
estimated direct acquisition costs of $150,000.
In March 2000, the Company entered into an agreement with Young & Rubicam
Inc. ("Young & Rubicam") under which Young & Rubicam purchased 5,555,555 shares
of Naviant's Series F redeemable convertible preferred stock at $2.70 per share
for an aggregate purchase price of $15.0 million. The Company expects net
proceeds of $14.5 million, after estimated direct offering expenses of
$500,000. In connection with the preferred stock purchase, Young & Rubicam
received an option to purchase up to $5.0 million of common stock concurrent
with the Company's initial public offering at the initial public offering
price.
In March 2000, the Company entered into agreements with certain of its
Series C and Series D stockholders under which these stockholders will purchase
3,681,996 shares of Series F redeemable convertible preferred stock for an
aggregate purchase price of $9.9 million. The Company expects net proceeds of
$9.8 million, after direct offering expenses of $100,000. The Series F
stockholders have rights and privileges similar to the Series C stockholders.
The Series F stockholders rank senior to all preferred and common stockholders
and, in the event of a liquidation within 15 months of the issuance, are
entitled to a first liquidation preference of $5.40 per share. After 15 months,
the first liquidation preference decreases to $2.70 per share. The Series F
stock includes a provision under which a maximum of 3,328,335 additional shares
of common stock may be issued upon conversion.
In March 2000, the Company entered into an agreement to purchase SOFTBANK
Content Services, Inc. d/b/a Softbank Marketing Solutions ("SMS") for
consideration of $30.4 million consisting of: 11,000,000 shares of Series E
redeemable convertible preferred stock valued at $2.70 per share and estimated
direct acquisition costs of $700,000. The Company anticipates closing on this
transaction in April 2000, subject to certain conditions of closing including
approval of the Company's Hart-Scott-Rodino filing.
F-22
<PAGE>
NAVIANT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In March 2000, the Company entered into an agreement with SOFTBANK
Capital Partners L.P. ("SOFTBANK") under which SOFTBANK will purchase 9,259,259
shares of Naviant's Series F redeemable convertible preferred stock at $2.70
per share for an aggregate purchase price of $25.0 million. The Company expects
net proceeds of $24.9 million, after estimated direct offering expenses of
$100,000. The Company anticipates closing on this transaction in April 2000,
subject to certain conditions of closing including approval of the Company's
Hart-Scott-Rodino filing.
The Series C, E and F preferred stock issued in February and March 2000
are convertible at any time at defined conversion rates. The initial conversion
rate is one to one and is subject to adjustment for certain common stock
issuances, if any. The Series C preferred stock has a liquidation preference of
$1.35 per share; the Series E and F preferred stock has a liquidation
preference of $2.70 per share. The Company will record the beneficial
conversion feature of these preferred shares, which represents the difference
between the conversion price and the fair market value of the common stock,
upon issuance. The accretion resulting from this beneficial conversion feature
may have a material effect on net income or loss available to common
stockholders in calendar 2000. The accretion will not affect net income or
loss, financial position or cash flows.
On January 25, 2000, the board of directors adopted the 2000 Stock
Incentive Plan as a successor plan to both the 1997 Stock Option Plan and the
1999 Stock Option/Stock Issuance Plan. The 2000 Plan provides for (i)
discretionary option grants for employees and other eligible individuals, (ii)
stock issuances for employees and eligible individuals through purchase or
bonus, (iii) salary investment option grants for highly compensated employees,
and (iv) automatic option grants at periodic intervals for non-employee board
members. The Company has reserved 16,989,570 shares of common stock for
issuance under the 2000 Plan, which includes amounts reserved for options
granted under the 1997 Plan and 1999 Plan, plus an additional 9,000,000 shares.
On January 25, 2000, the board of directors adopted the Employee Stock
Purchase Plan, which allows eligible employees to purchase common stock on
semiannual purchase dates through payroll deductions of up to 15% of their
salary. The purchase price of the common stock is the lower of the fair market
value (or, after the initial purchase period, 85% of the fair market value) of
the common stock on either the beginning date of the two-year purchase period
or the purchase date. The Company has reserved 1,000,000 shares of common stock
for issuance under the Employee Stock Purchase Plan, with annual increases of
up to 250,000 shares.
On February 29, 2000, the board of directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the offering is consummated under the terms presently anticipated,
all of the currently outstanding redeemable convertible preferred stock
outstanding at December 31, 1999, will convert to 55,800,926 shares of common
stock. The accompanying unaudited pro forma redeemable convertible preferred
stock and stockholders' equity (deficit) reflect the conversion of all
redeemable convertible preferred stock outstanding at December 31, 1999 into
common stock.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Naviant, Inc.:
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity (deficit), and of cash flows present
fairly, in all material respects, the financial position of SOFTBANK Content
Services, Inc. (d/b/a Softbank Marketing Solution or "SMS") at December 31,
1999, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2000, except as to the information in Note 8, for which the date is
March 9, 2000
F-24
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
BALANCE SHEET
December 31, 1999
(in thousands, except share data)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 23
Accounts receivable, net of allowance for doubtful accounts of $5... 98
Prepaid expenses and other current assets........................... 20
-------
Total current assets.............................................. 141
Equipment, furniture and fixtures, net................................ 142
-------
Total assets...................................................... $ 283
=======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses............................... $ 151
Accrued payroll and benefits........................................ 191
Due to affiliate.................................................... 360
-------
Total liabilities................................................. 702
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value; 1,000 shares authorized, issued and
outstanding........................................................ 1
Additional paid-in capital.......................................... 7,027
Accumulated deficit................................................. (7,447)
-------
Total stockholders' deficit....................................... (419)
-------
Total liabilities and stockholders' deficit....................... $ 283
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
STATEMENT OF OPERATIONS
for the year ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
Revenues.............................................................. $ 123
Cost of revenues.................................................... 334
-------
Gross loss............................................................ (211)
Operating expenses:
Sales and marketing................................................. 1,344
General and administrative.......................................... 1,046
Research and development............................................ 1,301
-------
Total operating expenses.......................................... 3,691
-------
Operating loss........................................................ (3,902)
Interest income....................................................... 9
-------
Net loss.............................................................. $(3,893)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
for the year ended December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999......... 1,000 $ 1 $4,645 $(3,554) $ 1,092
Capital contribution............. -- -- 2,382 -- 2,382
Net loss......................... -- -- -- (3,893) (3,893)
----- --- ------ ------- -------
Balance, December 31, 1999....... 1,000 $ 1 $7,027 $(7,447) $ (419)
===== === ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
STATEMENT OF CASH FLOWS
for the year ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................................. $(3,893)
Adjustment to reconcile net loss to cash used in operating
activities:
Depreciation and amortization....................................... 78
Provision for uncollectible accounts................................ 5
Changes in assets and liabilities:
Accounts receivable................................................ (103)
Prepaid expenses and other current assets.......................... 20
Accounts payable and accrued expenses.............................. 78
Accrued payroll and benefits....................................... (151)
Due to affiliate................................................... 226
-------
Cash flows used in operating activities............................ (3,740)
-------
Cash flows from investing activities:
Purchase of equipment, furniture and fixtures........................ (71)
-------
Cash flows used in investing activities............................. (71)
-------
Cash flows from financing activities:
Advances from SOFTBANK Holdings, Inc................................ 2,382
-------
Cash flows provided by financing activities........................ 2,382
-------
Net decrease in cash and cash equivalents............................. (1,429)
Cash and cash equivalents, beginning of year.......................... 1,452
-------
Cash and cash equivalents, end of year................................ $ 23
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
NOTES TO FINANCIAL STATEMENTS
1. The Company:
SOFTBANK Content Services, Inc. d/b/a Softbank Marketing Solutions ("SMS"
or the "Company") provides registration services which capture customer
information for technology and consumer electronic manufacturers and software
publishers. Registration data allows clients to identify and communicate with
their customers. The Company generates revenues from affinity programs whereby
consumers are presented with marketing and advertising offers at the end of the
product registration process. The Company's headquarters is in Foster City,
California, with its technology group located in Medford, Massachusetts.
2. Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Revenue Recognition:
The Company's revenues are derived from affinity programs. Revenues are
recognized when the consumer accepts an affinity program offer.
Research and Development Costs:
Research and development costs include costs incurred to develop or
design new products, services and processes or significantly enhance existing
products, services and processes and are expensed as incurred.
Equipment, Furniture and Fixtures:
Equipment, furniture and fixtures are recorded at cost, net of
accumulated depreciation and amortization. Depreciation and amortization are
provided on a straight-line basis over estimated useful lives of the respective
assets of three years.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, which include
cash, cash equivalents, accounts receivable, accounts payable, accrued expenses
and due to affiliate is considered to approximate fair value due to the
relatively short maturities of the respective instruments.
F-29
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes:
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based upon the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Concentration of Credit Risk:
The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral from its customers.
The Company maintains an allowance for uncollectible accounts receivable for
potential credit losses.
3. Equipment, Furniture and Fixtures:
Equipment, furniture and fixtures consists of the following at December
31, 1999 (in thousands):
<TABLE>
<S> <C>
Computer hardware and software........................................ $ 242
Furniture and fixtures................................................ 5
-----
247
Accumulated depreciation and amortization............................. (105)
-----
$ 142
=====
</TABLE>
Depreciation and amortization expense for the year ended December 31,
1999 amounted to $78,000.
4. Income Taxes:
Income tax benefit for 1999 is as follows (in thousands):
<TABLE>
<S> <C>
Current benefit..................................................... $ --
Deferred benefit:
Federal........................................................... (1,214)
State............................................................. (311)
Change in valuation allowance....................................... 1,525
-------
Total benefit from income tax................................... $ --
=======
</TABLE>
The difference between the income tax provisions in the financial
statements and the tax at the statutory federal rate for 1999 are as follows:
<TABLE>
<S> <C>
Income tax benefit at statutory rate................................... (34)%
State taxes, net of federal benefit.................................... (5)
Expense attributable to change in valuation allowance.................. 39
---
Total provision.................................................... -- %
===
</TABLE>
F-30
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The principal of the Company's deferred taxes at December 31, 1999 are
as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
Depreciation...................................................... $ (2)
Deferred tax assets:
Allowance for doubtful accounts................................... 2
Net operating loss carryforward................................... 2,935
------
Gross deferred tax assets........................................... 2,937
Less valuation allowance............................................ (2,935)
------
Net deferred tax asset.............................................. $ --
======
</TABLE>
The Company has placed a full valuation allowance against its net
deferred tax assets as the lack of consistent earnings history gives rise to
uncertainty regarding realization. As of December 31, 1999, the Company had a
net operating loss carryforward of approximately $6.8 million, which expires
in 2019.
5. Benefit Plans:
The Company has a 401(k) Savings Plan covering substantially all
employees. Under this plan, the Company makes matching contributions equal to
the participant's contributions, subject to a maximum of 3% of the
participant's salary. The Company's contributions to the plan for the year
ended December 31, 1999 totaled $39,000.
6. Related Party Transactions:
SOFTBANK Holdings, Inc. provides working capital on a monthly basis to
fund the operations of the business accounted for as additional paid-in
capital.
An affiliate of the Company with common ownership provides internet
hosting, administrative, and facility services to the Company. The affiliate
has charged the Company its share of these services in the amount of $226,000
for the year ended December 31, 1999. Amount due the affiliate was $360,000 at
December 31, 1999.
F-31
<PAGE>
SOFTBANK Content Services, Inc.
(d/b/a SMS)
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Commitments and Contingencies:
Leases Agreements:
The Company leases its office spaces under operating leases with an
affiliate of the Company. Future minimum lease payments at December 31, 1999
under noncancellable operating leases with terms in excess of one year were as
follows (in thousands):
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
2000............................................................... $34
2001............................................................... 34
---
Total minimum lease payments..................................... $68
===
</TABLE>
Rent expense for the year ended December 31, 1999 was $89,000.
8. Subsequent Event:
On March 7, 2000, SOFTBANK Holdings, Inc., the parent of the Company,
entered into an agreement to sell the net assets of the Company to Naviant,
Inc. for preferred stock with an estimated value of $29.7 million.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Naviant, Inc.
In our opinion, the accompanying combined carve-out balance sheets and
the related combined carve-out statements of operations and of cash flows
present fairly, in all material respects, the combined financial position of
IQ2.net & Austin Registration (the "Company"), as defined in Note 1 to the
combined carve-out financial statements at December 31, 1997 and 1998 and the
results of their operations and their cash flows for each of the two years
ending December 31, 1998, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with accounting standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 1 and 14, effective August 31, 1999, the Company's
parent entered into an agreement to sell the net assets of the Company. The
purchaser's basis in the net assets will differ from that reflected in the
accompanying historical financial statements. No adjustments have been made in
the accompanying historical combined carve-out financial statements to reflect
this transaction.
PricewaterhouseCoopers LLP
January 21, 2000
Austin, Texas
F-33
<PAGE>
IQ2.net & Austin Registration
COMBINED CARVE-OUT
BALANCE SHEETS
December 31, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 203 $ 484
Accounts receivable, net of allowance for doubtful accounts of
$75 and $275, respectively................................... 2,925 5,281
Unbilled revenue.............................................. 300 725
Prepaid expenses.............................................. 6 258
------ -------
Total current assets........................................ 3,434 6,748
Property and equipment, net..................................... 800 796
Intangible assets............................................... 582 8,488
Other assets.................................................... 13 13
------ -------
Total assets................................................ $4,829 $16,045
====== =======
Liabilities and Equity
Current Liabilities:
Accounts payable.............................................. $ 640 $ 2,531
Accrued liabilities........................................... 673 1,579
Deferred revenues............................................. 348 821
------ -------
Total current liabilities................................... 1,661 4,931
Commitments and contingencies
Equity.......................................................... 3,168 11,114
------ -------
Total liabilities and equity................................ $4,829 $16,045
====== =======
</TABLE>
The accompanying notes are an integral part of these combined carve-out
financial statements.
F-34
<PAGE>
IQ2.net & Austin Registration
COMBINED CARVE-OUT
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Revenue...................................................... $13,143 $18,600
Operating expenses:
Cost of revenue............................................ 8,209 9,218
Selling, general and administrative........................ 3,830 9,445
Product development........................................ 774 458
Depreciation and amortization.............................. 386 1,422
------- -------
Total operating expenses................................. 13,199 20,543
------- -------
Operating loss............................................... (56) (1,943)
Interest income............................................ 10 --
------- -------
Net loss before income taxes................................. (46) (1,943)
Provision for income taxes................................... -- --
------- -------
Net loss..................................................... $ (46) $(1,943)
======= =======
</TABLE>
The accompanying notes are an integral part of these combined carve-out
financial statements.
F-35
<PAGE>
IQ2.net & Austin Registration
COMBINED CARVE-OUT
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (46) $(1,943)
Adjustments to reconcile net loss to cash provided by (used
in) operating activities:
Depreciation and amortization.............................. 386 684
Write-off of capitalized software.......................... -- 738
Provision for (recovery of) doubtful accounts.............. (5) 200
Changes in assets and liabilities:
Accounts receivable....................................... 326 (2,556)
Unbilled revenue.......................................... 79 (425)
Prepaid expenses and other assets......................... 11 (252)
Accounts payable.......................................... (335) 1,891
Accrued liabilities....................................... 538 906
Deferred revenue.......................................... 102 473
------- -------
Net cash provided by (used in) operating activities...... 1,056 (284)
------- -------
Cash flows from investing activities:
Purchase of property and equipment.......................... (501) (368)
Acquisition of intangible assets............................ -- (8,796)
Capitalization of software development costs................ (582) (156)
------- -------
Net cash used in investing activities.................... (1,083) (9,320)
------- -------
Cash flows from financing activities:
Net equity investment from parent........................... 33 9,885
------- -------
Net cash provided by financing activities................ 33 9,885
------- -------
Net increase in cash and cash equivalents.................... 6 281
Cash and cash equivalents, beginning of year................. 197 203
------- -------
Cash and cash equivalents, end of year....................... $ 203 $ 484
======= =======
</TABLE>
The accompanying notes are an integral part of these combined carve-out
financial statements.
F-36
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS
December 31, 1997 and 1998
1. Description of Business and Basis of Presentation
IQ2.net & Austin Registration (the "Company") creates and sells databases
of detailed information about specific technology buyers and Internet users.
Databases are created for clients through the Company's outsource product
registration services which capture customer information for technology product
manufacturers and software publishers. Registration data allows clients to
identify and communicate with customers, who have purchased their products
through indirect sales channels, enhancing their ability to support, cross-sell
or up-sell those customers. The Company has offices in Austin, Texas, Atlanta,
Georgia and New York, New York.
The accompanying combined carve-out financial statements and related
notes reflect the combined carve-out historical results of operations,
financial position and cash flows of the Company. These financial statements
are not necessarily indicative of results that would have occurred if the
Company had been a separate stand-alone entity during the periods presented or
of future results of the Company.
Effective August 31, 1999, IntelliQuest Information Group, Inc.
("IntelliQuest"), the former parent of the Company, sold the net assets of
IQ2.net & Austin Registration to Naviant, Inc. ("Naviant"). The purchase price
was $46.5 million.
2. Summary of Significant Accounting Policies
Principles of Combination
The combined carve-out financial statements include the accounts of the
Company. All significant intercompany transactions with combined entities have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are derived from the sale of registration
services, data licensing and data processing services. Revenue from
registration and data processing services is generally recorded as the services
are performed. Revenues from data licensing agreements that do not require the
Company to provide updated information are recognized upon delivery to the
customer. Revenues from data license agreements that provide for updated
information are recognized ratably over the contract term.
Deferred revenue represents amounts invoiced prior to rendering the
related services while unbilled revenue represents the billing value of
services rendered prior to being invoiced. Substantially all the deferred
revenue and unbilled revenue will be earned and billed, respectively, within
twelve months of the respective year ends.
F-37
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
Product Development Costs
Product development costs include costs incurred to develop or design new
products, services or processes or to significantly enhance existing products,
services and processes and are expensed as incurred. If material, costs to
develop software, which is an integral part of a product or service, that are
incurred subsequent to attaining technological feasibility are capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed". These costs are then amortized on a straight line basis over the
estimated economic life or the ratio of current revenues to total projected
product revenues, whichever is greater.
The Company capitalized internal software development costs of $582,000
and $156,000 for the years ended December 31, 1997 and 1998, respectively.
Based on changes in management's plan, the Company recorded an impairment
charge of $738,000 related to capitalized software development costs during the
year ended December 31, 1998. This charge is included in depreciation and
amortization for the year ended December 31, 1998.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization is provided on a straight-line
basis over the estimated useful lives of the respective assets, which range
from three to seven years. Leasehold improvements are amortized over the life
of the related lease or asset life, whichever is shorter. Amortization of
assets acquired under capital leases is included in depreciation and
amortization.
Intangible Assets
Intangible assets consist of goodwill resulting from a business
acquisition (Note 3), representing the excess of purchase price over the
estimated fair value of net assets acquired, deferred acquisition costs and an
exclusive licensing agreement (Note 5). The Company periodically evaluates
whether events and circumstances have occurred that indicate that these
intangibles may not be recoverable. When factors indicate that these
intangibles should be evaluated for possible impairment, the Company uses the
projected undiscounted net cash flows of the related businesses acquired in
measuring the recoverability of these intangibles. Useful lives for the
Company's intangible assets range from 18 months to 12 years. Total
amortization expense for the Company's intangible assets totaled $312,000 for
the year ended December 31, 1998.
Income Taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based upon the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, including
cash, short-term investments, and trade receivables and payables, approximates
fair value.
F-38
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company maintains its cash and cash equivalents in bank deposit
accounts which, at times, may exceed federally insured limits. The Company
sells its products to various companies in the technology and publication
industries. The Company performs ongoing credit evaluations of its customers
and maintains reserves for potential credit losses.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation
cost is recognized over the vesting period based upon the difference, if any,
on the date of grant between the fair value of the Company's stock and the
amount an employee must pay to acquire the stock. The Company accounts for
options granted to non-employees as prescribed by SFAS No. 123.
3. Acquisition-Information Technology Forum
Effective January 1, 1998, the Company purchased certain assets of
Information Technology Forum, Inc. ("ITF"), a company wholly-owned by a member
of the board of directors of IntelliQuest at the time of the acquisition. The
assets were purchased with cash and unregistered stock of IntelliQuest. The
transaction was accounted for under the purchase method, and accordingly, the
assets purchased were recorded at their fair value at the time of purchase. The
excess of the purchase price over the fair value of the net tangible assets
purchased has been assigned to goodwill in the amount of $895,000. Amortization
of goodwill totaled $70,000 for the year ended December 31, 1998.
4. Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Equipment.................................................... $ 962 $1,166
Purchased software........................................... 147 164
Furniture and fixtures....................................... 156 250
Leasehold improvements....................................... 67 120
------ ------
1,332 1,700
Accumulated depreciation and amortization.................... (532) (904)
------ ------
$ 800 $ 796
====== ======
</TABLE>
Depreciation and amortization expense was $386,000 and $372,000 for the
years ended December 31, 1997 and 1998, respectively.
F-39
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
5. License Agreement
On December 22, 1997, IntelliQuest paid $7.5 million for an exclusive
perpetual licensing agreement (cancelable under certain conditions) to market
and sell database products to the high-tech, telecommunications, cable and
utility industries. The licensing agreement was contributed to the Company from
IntelliQuest in 1998. In conjunction with the agreement, the Company will pay
the licensor royalties and fees on revenue generated from the sale of data and
services. The amortizable rights in data and the non-compete portion of the
license agreement of $2.5 million are amortized on a straight-line basis over
12 years. Amortization expense for the Company's license agreement totaled
$211,000 for the year ended December 31, 1998.
Of the total license fee of $7.5 million, $5.0 million is refundable
under certain conditions. Should the license be canceled by the Company, or
canceled due to the acquisition by the Company of a competitor of the licensor
or to the acquisition of the Company by a competitor of the licensor, or under
certain other conditions, the refundable $5.0 million portion may not be
recoverable by the Company. The Company prepares an annual assessment to
identify any potential impairment of assets.
The agreement provides for annual target minimum payments. Royalties and
service fees for the database marketing products were less than that required
to satisfy the annual target minimum payments under this agreement; therefore,
the Company recognized a liability at December 31, 1998 of $803,000 for the
difference between the actual and target minimum payments.
6. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1997 1998
---- ------
<S> <C> <C>
Accrued payroll and benefits.................................... $324 $ 459
Accrued target minimum payments................................. -- 803
Accrued commissions............................................. 293 88
Other accrued liabilities....................................... 56 229
---- ------
$673 $1,579
==== ======
</TABLE>
7. Commitments and Contingencies
The Company leases office space, equipment and software under certain
noncancellable operating lease agreements. These leases have expiration dates
ranging from 1999 through 2008. Rent expense under operating leases totaled
$310,000 and $433,000 for the years ended December 31, 1997 and 1998,
respectively.
F-40
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under all leases as of December 31, 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1999............................................................... $344
2000............................................................... 143
2001............................................................... 145
2002............................................................... 133
2003............................................................... 89
----
Total minimum lease payments....................................... $854
====
</TABLE>
8. Income Taxes
Income tax benefit is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- -----
<S> <C> <C>
Current provision............................................... $-- $ --
Deferred provision (benefit):
Federal....................................................... (38) (635)
State......................................................... (7) (96)
Change in valuation allowance................................... 45 731
---- -----
Total benefit from income tax............................... $-- $ --
==== =====
</TABLE>
The difference between the income tax provisions in the combined carve-
out financial statements and the tax at the statutory federal rate are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- -----
<S> <C> <C>
Income tax benefit at statutory rate........................... $(16) $(661)
State taxes, net of federal benefit............................ (5) (63)
Expense attributable to change in valuation allowance.......... 45 731
Other.......................................................... (24) (7)
---- -----
Total provision.............................................. $-- $ --
==== =====
</TABLE>
F-41
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
The principal components of the Company's deferred taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998
----- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and other..................................... $(205) $ --
Cash to accrual adjustments................................ (82) (45)
----- -------
Gross deferred tax liability............................. (287) (45)
Deferred tax assets:
Property and equipment..................................... -- 69
Allowance for doubtful accounts............................ 30 110
Accrued compensation, vacation pay and other............... 80 125
Net operating loss carryforward............................ 592 887
----- -------
Gross deferred tax assets................................ 702 1,191
Less valuation allowance................................... (415) (1,146)
----- -------
Net deferred tax asset................................... $ -- $ --
===== =======
</TABLE>
The Company has placed a full valuation allowance against its net
deferred tax asset as the lack of consistent earnings history gives rise to
uncertainty regarding realization. As of December 31, 1998, the Company had a
net operating loss carryforward of approximately $1.8 million, which expires in
2018.
9. Stock Options
1996 Stock Plan
IntelliQuest has reserved an aggregate of 700,000 shares of Common Stock
for issuance under its 1996 Stock Plan (the "1996 Plan"). The 1996 Plan
provides for grants of incentive stock options or nonstatutory options to
employees and consultants (including officers and directors) of IntelliQuest
and its subsidiaries. With respect to incentive stock options granted under the
1996 Plan, the exercise price must be at least equal to the fair market value
per share of the Common Stock on the date of grant, and the exercise price of
any incentive stock options granted to a participant who owns more than 10% of
the voting power of all classes of IntelliQuest's outstanding capital stock
must be equal to at least 110% of the fair market value of the Common Stock on
the date of grant (five years in the case of a participant who owns more than
10% of the voting power of all classes of IntelliQuest's outstanding capital
stock). In the event of termination of an optionee's employment or consulting
arrangement, incentive stock options may only be exercised, to the extent
vested as of the date of termination, for a period not to exceed 90 days (12
months in the case of termination due to death or disability) following the
date of termination. Options under the 1996 Plan generally vest and become
exercisable at a rate of 25% on the first anniversary of the commencement of
vesting and 1/48 upon the last day of the calendar month thereafter. Options
outstanding under the 1996 Plan generally have a term of ten years.
1996 Director Option Plan
Non-employee directors are entitled to participate in IntelliQuest's 1996
Director Option Plan (the "Director Plan"). A total of 100,000 shares of Common
Stock have been reserved for issuance under the Director Plan. The Director
Plan provides that each non-employee director shall be granted, at the
discretion of the Board of Directors, a nonstatutory option to purchase shares
of Common Stock (the "First Option") upon
F-42
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
the date such non-employee director first becomes a director. In addition, each
non-employee director who has been a non-employee director for longer than six
months will annually be granted, at the discretion of IntelliQuest's Board of
Directors, a nonstatutory option to purchase shares of Common Stock (a
"Subsequent Option"). Each First Option and Subsequent Option will have a term
expiring on the earlier of the tenth anniversary of the date of grant or twelve
months after the date on which the optionee ends his or her service as a
director. The vesting terms to both the First Option and the Subsequent Option
shall be at the discretion of IntelliQuest's Board of Directors. The exercise
price for director options are comparable to options granted under the 1996
Plan described above.
1997 Stock Plan
IntelliQuest has reserved an aggregate of 375,000 shares of Common Stock
for issuance under IntelliQuest's 1997 Supplemental Option Plan (the "1997
Plan"). The 1997 Plan provides for grants of nonstatutory stock options to
employees, directors and consultants of the Company and its subsidiaries. The
1997 Plan provides that vesting terms shall be at the discretion of
IntelliQuest's Board of Directors. The terms and exercise price for options
granted under the 1997 Plan are comparable to those granted under the 1996 Plan
described above.
Subsequent Option Policy
In 1997, IntelliQuest's Board of Directors adopted a policy that provides
for immediate monthly vesting for option grants to persons who have a
preexisting option agreement with the Company ("Subsequent Options"). The
policy applies to Subsequent Options under all of IntelliQuest's plans for
grants dated on or after April 29, 1997.
Re-pricing of Stock Options
In 1998, IntelliQuest's Board of Directors twice approved the 1998 re-
pricing of stock options. The grant date of the first re-pricing was February
4, 1998, where the price was reduced to $11.00. The vesting period for these
re-priced stock options was extended by an additional 12 months. The second re-
pricing grant date was October 16, 1998, where the stock option price was
reduced to $5.00. Unvested stock options on October 16, 1998 will vest over the
next 48 months. These re-pricing policies apply to options granted under all of
the Company's plans for stock grants.
The Company applies APB No. 25 and related Interpretations in accounting
for its stock plans, which are described above. Accordingly, no compensation
cost has been recognized for its stock plans. Had compensation cost for the
Company's stock plans been determined based on the fair market value at the
grant dates for awards under those plans consistent with the method provided by
SFAS No. 123, the Company's net loss would have been increased as follows for
the years ended December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------
1997 1998
--------- ----------
<S> <C> <C>
Net loss
As reported.......................................... $ (46) $ (1,943)
Pro Forma............................................ $ (280) $ (2,504)
</TABLE>
F-43
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants during the years ended December 31, 1997
and 1998:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Dividend yield....................................... -- --
Expected volatility.................................. 60.60% 67.60%
Risk-free rate of return............................. 6.35% 4.69%
Expected life........................................ 3.54 years 3.97 years
</TABLE>
The following table summarizes activity under all Plans for each of the
two years ended December 31, 1998:
<TABLE>
<CAPTION>
1997 1998
---------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Price Shares Price Shares
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the
year.................................... $17.67 68,158 $16.48 123,028
Granted 15.89 124,500 8.16 549,642
Exercised 9.63 (6,071) --
Canceled 17.25 (63,559) 12.91 (396,039)
------ ------- ------ --------
Outstanding at the end of the year....... $16.48 123,028 $ 5.05 276,631
====== ======= ====== ========
Options exercisable at year end.......... $16.06 26,238 $ 5.06 52,259
====== ======= ====== ========
Weighted average fair value of options
granted during the year................. $ 7.52 $ 2.38
====== ======
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exerciseable
--------------------------------------------------- ----------------------------------
Number Weighted-Average Number
Outstanding at Remaining Weighted-Average Exerciseable at Weighted-Average
Range of Exercise Prices December 31, 1998 Contractual Life Exercise Price December 31, 1998 Exercise Price
- ------------------------ ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$5.00................... 273,321 9.0 $ 5.00 50,318 $ 5.00
$6.75-$11.00............ 3,024 5.4 10.03 1,925 10.03
$16.50.................. 286 1.8 16.50 16 16.50
------- ---- ------ ------ ------
$5.00-$10.00............ 276,631 8.97 $ 5.05 52,259 $ 5.06
======= ==== ====== ====== ======
</TABLE>
Options canceled represent the unexercised options of former employees,
returned to the option pool in accordance with the terms of the stock option
plan.
Acceleration of Vesting
In conjunction with the purchase of the Company by Naviant, as discussed
in Note 1, IntelliQuest accelerated the vesting of all outstanding stock
options for the Company's employees. The Company recorded a charge of $915,000
related to this acceleration of vesting in accordance with APB No. 25.
F-44
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
1996 Employee Stock Purchase Plan
IntelliQuest has reserved an aggregate of 100,000 shares of common stock
for issuance under its 1996 Employee Stock Purchase Plan (the "ESPP"). The ESPP
permits eligible employees of the Company to purchase Common Stock through
payroll deductions of up to 15% of their compensation provided that no employee
may purchase more than $25,000 worth of stock in any calendar year. The ESPP
has been implemented as a series of successive six-month offering periods, the
first of which commenced on July 1, 1996. The price of common stock purchased
under the ESPP will be 85% of the lower of the fair market value of the common
stock on the first and last day of each offering period. Shares of common stock
issued under the ESPP totaled 2,435 and 5,378 for the years ended December 31,
1997 and 1998, respectively.
The fair value of the employees' purchase right was estimated using the
Black-Scholes model with the following assumptions for the years ended December
31, 1997 and 1998:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Dividend yield....................................... $ -- $ --
Expected volatility.................................. 60.60% 67.60%
Risk-free rate of return............................. 5.24% 5.28%
Expected life........................................ 0.5 years 0.4 years
Weighted-average fair value of purchase rights grant-
ed.................................................. $ 3.98 $ 3.67
</TABLE>
10. Employees' Savings Plan
IntelliQuest's 401(k) Savings and Retirement Plan (the "401(k) Plan"), in
which the Company's employees participated is a defined contribution retirement
plan with a cash or deferred arrangement as described in Section 401(k) of the
Code. The 401(k) Plan is intended to be qualified under Section 401(a) of the
Code. All employees of the Company are eligible to participate in the 401(k)
Plan after approximately one year of employment. The 401(k) Plan provides that
each participant make elective contributions from 1% to 15% of his or her
compensation, subject to statutory limits. Under the terms of the 401(k) Plan,
allocation of the matching contribution is integrated with Social Security, in
accordance with applicable nondiscrimination rules under the Code. The Company
makes discretionary matching contributions. The match vests over a 5 year
period. The Company made matching contributions in the amount of $0 and $42,000
during the years ended December 31, 1997 and 1998, respectively.
11. Significant Clients and Credit Risks
The Company has relied on a limited number of key customers for the
majority of its revenues. In addition, there has been significant consolidation
of companies in the technology industries served by the Company, a trend which
the Company believes will continue. The loss of one or more of the Company's
large customers or a significant reduction of business from such customers,
regardless of the reason, would have a material adverse effect on the Company.
F-45
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
Revenues from certain significant clients are, as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Client 1........................................................... -- 12%
Client 2........................................................... -- 32%
Client 3........................................................... 6% 10%
Client 4........................................................... 36% 4%
</TABLE>
Additionally, at December 31, 1997 and 1998, certain clients had accounts
receivable and unbilled revenue balances with the Company which represented the
following amounts of total net accounts receivable and unbilled revenues:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Client 1.......................................................... 22% 30%
Client 2.......................................................... -- 15%
Client 3.......................................................... 14% 3%
Client 4.......................................................... 16% --
</TABLE>
The Company sells its products to various companies in technology and
publication industries. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses.
12. Equity
An analysis of the IntelliQuest equity investment activity is as follows
(in thousands):
<TABLE>
<CAPTION>
For the year
ended December
31,
---------------
1997 1998
------ -------
<S> <C> <C>
Balance as of the beginning of the year..................... $3,180 $ 3,168
Net loss.................................................... (46) (1,943)
Net cash distributions from Intelliquest, net............... (752) 312
Purchase of perpetual license............................... -- 7,500
ITF Acquisition............................................. -- 895
Revenue transactions with IntelliQuest...................... (559) (536)
Allocated charges from Intelliquest......................... 1,345 1,718
------ -------
Balance at the end of the year.............................. $3,168 $11,114
====== =======
</TABLE>
IntelliQuest funds the working capital requirements of its businesses
based upon a centralized cash management system. The IntelliQuest equity
investment includes accumulated equity as well as any payables and receivables
due to/from IntelliQuest resulting from cash transfers and any other
intercompany activity. IntelliQuest generally does not charge the Company
interest on intercompany balances.
13. Related Party Transactions
IntelliQuest provides the Company with certain general and administrative
services and corporate functions, including purchasing, payroll, human
resources, investor relations, accounting and systems and technology support.
IntelliQuest has charged the Company for its share of these services in the
amount of
F-46
<PAGE>
IQ2.net & Austin Registration
NOTES TO COMBINED CARVE-OUT FINANCIAL STATEMENTS--(Continued)
$1.3 million and $1.7 million for the years ending December 31, 1997 and 1998,
respectively. IntelliQuest allocates the cost for these services to the Company
based on the Company's payroll cost relative to the total payroll cost of
IntelliQuest. Management believes the methodology used to allocate charges for
the services described above from IntelliQuest to the Company is reasonable.
The Company, through the normal course of business, is involved in
transactions with companies owned or affiliated with IntelliQuest. The
Company's financial statements include revenue from IntelliQuest totaling
$559,000 and $536,000 for the years ended December 31, 1997 and 1998,
respectively.
14. Subsequent Events
Effective August 31, 1999, IntelliQuest, the former parent of the
Company, sold the net assets of IQ2.net and Austin Registration to Naviant. The
purchase price was $46.5 million. In conjunction with the acquisition of the
Company, the exclusive perpetual license agreement (Note 5) was cancelled by
Naviant.
F-47
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(amounts in thousands, except share data)
The pro forma statement of operations for the year ended December 31,
1999 includes: (i) the issuances of our Series C and D convertible preferred
stock in September and November 1999 and the issuances of our Series C, E and F
convertible preferred stock in 2000; (ii) the acquisition of IQ2.net, effective
August 31, 1999, (iii) the acquisition of SDG and (iv) the pending acquisition
of SMS as if all of the transactions had occurred on January 1, 1999.
The pro forma combined balance sheet at December 31, 1999 includes (i)
the acquisition of SDG, (ii) the pending acquisition of SMS and (iii) the sale
of Series F preferred stock as if all had occurred on December 31, 1999.
The acquisitions are accounted for using the purchase method of
accounting. The total costs of such acquisitions are allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values. The allocation of the purchase price to the underlying
assets and liabilities included in the pro forma financial information is
preliminary and subject to change.
The pro forma adjustments are based upon available information and upon
certain assumptions that we believe are reasonable. The pro forma consolidated
financial information should be read in conjunction with the historical
financial statements and related notes of Naviant, IQ2.net and SMS, which are
included in this Prospectus.
The pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the future financial
position or future results of operations of the consolidated company after the
acquisitions, or of the financial position or results of operations of the
consolidated company that would have actually occurred if the acquisitions had
been effected as of the dates described above.
F-48
<PAGE>
NAVIANT, INC.
PRO FORMA BALANCE SHEET
At December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro forma adjustments
-----------------------------------------
Pending
Naviant, Inc. SMS SDG Financings Total
------------- ------- ------- ---------- --------
(a) (b) ( c)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... $ 10,997 $ 23 $ -- $49,241 $ 60,261
Accounts receivable,
net.................. 13,265 98 1,157 14,520
Prepaid expenses and
other current
assets............... 1,498 20 134 1,652
-------- ------- ------- --------
Total current
assets............. 25,760 141 1,291 76,433
Equipment and leasehold
improvements, net...... 3,769 142 2,697 6,608
Other assets
Intangible assets,
net.................. 40,893 29,279 6,701 76,873
Other assets.......... 931 -- -- 931
-------- ------- ------- --------
Total assets........ $ 71,353 $29,562 $10,689 $160,845
======== ======= ======= ========
Current liabilities:
Current portion of
capital lease
obligations.......... $ 242 $ -- $ 227 $ 469
Accounts payable and
accrued expenses..... 6,490 1,042 501 8,033
Accrued payroll and
benefits............. 2,175 -- 150 2,325
Deferred revenue...... 767 -- -- 767
Due to MRJ............ 17 -- -- 17
Accrued stock-based
compensation......... 106 -- -- 106
-------- ------- ------- --------
Total current
liabilities........ 9,797 1,042 878 11,717
Capital lease
obligations............ 378 -- 21 399
-------- ------- ------- --------
Total liabilities... 10,175 1,042 899 12,116
Redeemable convertible
preferred stock........ 74,261 29,700 9,790 49,241 162,992
Stockholders' deficit:
Common stock.......... 142 -- -- 142
Additional paid-in
capital.............. 5,578 -- -- 5,578
Accumulated deficit... (15,139) (1,180) -- (16,319)
Stockholder loans
receivable........... (3,664) -- -- (3,664)
-------- ------- ------- --------
Total stockholders'
deficit............ (13,083) (1,180) -- (14,263)
-------- ------- ------- --------
Total liabilities,
redeemable
convertible
preferred stock and
stockholders'
deficit............ $ 71,353 $29,562 $10,689 $160,845
======== ======= ======= ========
</TABLE>
F-49
<PAGE>
NAVIANT, INC.
PRO FORMA STATEMENT OF OPERATIONS
for the year ended December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Naviant Inc. IQ2.net Sub SMS SDG Pro Forma
1/1-12/31/99 1/1-8/31/99 Total 1/1-12/31/99 1/1-12/31/99 Adjustments Total
------------ ----------- -------- ------------ ------------ ----------- -----------
(d) (e) (f)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 18,053 $12,425 $ 30,478 $ 123 $ 5,332 $ 35,933
Cost of revenues........ 8,931 6,747 15,678 334 4,804 20,816
-------- ------- -------- ------- ------- -----------
Gross profit (deficit).. 9,122 5,678 14,800 (211) 528 15,117
Operating expenses:
Sales and marketing.... 5,781 2,397 8,178 1,344 1,230 10,752
General and
administrative........ 9,500 6,101 15,601 1,046 856 17,503
Research and
development........... 728 223 951 1,301 -- 2,252
Amortization of
intangibles........... 3,890 187 4,077 -- -- 19,594 (g) 23,671
-------- ------- -------- ------- ------- -----------
Total operating
expenses.............. 19,899 8,908 28,807 3,691 2,086 54,178
Operating loss.......... (10,777) (3,230) (14,007) (3,902) (1,558) (39,061)
Other income (expense).. 223 -- 223 9 (25) 207
-------- ------- -------- ------- ------- -----------
Net loss................ (10,554) (3,230) (13,784) (3,893) (1,583) (38,854)
Accretion and dividends
on redeemable
convertible preferred
stock.................. (1,668) -- (1,668) -- -- (5,056) (h) (6,724)
-------- ------- -------- ------- ------- -----------
Net loss available to
common stockholders.... $(12,222) $(3,230) $(15,452) $(3,893) $(1,583) $ (45,578)
======== ======= ======== ======= ======= ===========
Pro forma loss per
share--basic and
diluted................ $ (0.39)
===========
Weighted average common
shares outstanding--pro
forma.................. 99,397,307 (i)
===========
</TABLE>
F-50
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
1. Basis of Presentation
The pro forma financial information for Naviant has been prepared based
on the historical financial statements of Naviant, SDG and SMS for the year
ended December 31, 1999, and the historical statement of operations of the
IQ2.net business for the eight months ended August 31, 1999.
Naviant acquired the business of IQ2.net effective August 31, 1999.
Accordingly, the assets and liabilities of IQ2.net are included in the
December 31, 1999 balance sheet of Naviant. The results of operations of
IQ2.net for the period from September 1, 1999 through December 31, 1999 are
included in the statement of operations of Naviant for the year ended December
31, 1999.
2. Pro Forma Adjustments
(a) Records the pending acquisition of SMS for consideration of $30.4
million consisting of: (i) 11,000,000 shares of Series E preferred stock
valued at $2.70 per share, and (ii) estimated direct acquisition costs of
$700,000. The Company anticipates recording a charge to operations of $1.2
million in the first quarter of calendar 2000 for purchased in-process
research and development. Goodwill and other intangible assets recorded total
$29.3 million.
(b) Records the acquisition of SDG for consideration of $9.9 million
consisting of: (i) 3,625,926 shares of Series C preferred stock, and (ii)
estimated direct acquisition costs of $150,000. Goodwill and other intangible
assets recorded total $6.7 million.
(c) Records (i) the pending sale of 9,259,259 shares of Series F
preferred stock to Softbank at $2.70 per share, less direct offering expenses
of $100,000, for net proceeds of $24.9 million, (ii) the sale of 5,555,555
shares of Series F preferred stock to Young & Rubicam at $2.70 per share, less
direct offering expenses of $500,000, for net proceeds of $14.5 million, and
(iii) the pending sale of 3,681,996 shares of Series F preferred stock to
existing investors at $2.70 per share, less direct offering expenses of
$100,000, for net proceeds of $9.8 million.
(d) Records the results of operations for IQ2.net for the period from
January 1, 1999 through August 31, 1999.
(e) Records the historical results of operations of SMS for the year
ended December 31, 1999.
(f) Records the historical results of operations of SDG for the year
ended December 31, 1999.
(g) Records an incremental $7.6 million, $2.2 million and $9.8 million
in amortization of goodwill and other intangible assets that would have been
recorded during the year ended December 31, 1999 related to the acquisitions
of IQ2.net, SDG and SMS, respectively. These amortization charges assume that
the entire amount of goodwill and intangible assets related to the SDG and SMS
acquisitions will be amortized on a straight-line basis over a three-year
period. The purchase accounting, including the valuation of intangible assets
is preliminary and subject to adjustment. Upon completion of the purchase
accounting, certain intangible assets may be amortized over periods different
than the three years assumed in the pro forma statement of operations.
Additionally, a portion of the purchase price of SDG may be identified as in-
process research and development and charged to operating results in Naviant's
calendar year 2000 financial statements.
(h) Records additional preferred dividends and accretion related to the
issuances of our Series C and D redeemable convertible preferred stock in
September and November 1999 as if such issuances had occurred on January 1,
1999, together with preferred dividends and accretion related to our issuances
of Series C, E and F redeemable convertible preferred stock in 2000 as if
these issuances had occurred on January 1, 1999. The
F-51
<PAGE>
Series F preferred stock is convertible into common stock at a defined
conversion rate. The initial conversion rate is one to one and is subject to
adjustment for certain common stock issuances, if any. The Series F shares will
be issued prior to a proposed initial public offering with a conversion price
below the anticipated initial public offering price. When the offering price is
known, the intrinsic value of the beneficial conversion feature will be
allocated to additional paid-in capital in the pro forma condensed balance
sheet. The total beneficial conversion amount allocated to additional paid-in
capital will immediately be recorded as accretion on the date the Series F
shares first become convertible, which is the issuance date. The accretion
recorded may materially increase the net loss available to common shareholders
in the pro forma earnings per share calculations.
(i) Weighted average earnings per share calculations assume (i) the
conversion of Series A and Series B preferred stock at January 1, 1999, (ii)
the issuance and conversion of Series C and Series D preferred stock at January
1, 1999, (iii) the issuance and conversion of Series C preferred stock issued
for the acquisition of SDG at January 1, 1999, (iv) the issuance and conversion
of Series E preferred stock issued for the acquisition of SMS at January 1,
1999, and (v) the issuance and conversion of Series F preferred shares to
SOFTBANK, Young & Rubicam and certain of our current stockholders at January 1,
1999 and therefore excludes preferred dividends and accretion on such
issuances. Weighted average shares outstanding exclude (vi) up to 778,000
shares of common stock issuable upon the automatic exercise of an outstanding
warrant which will occur upon consummation of the offering (subject to
reduction in the event the holder elects cashless exercise), (vii) shares
issuable upon the exercise of warrants issued in connection with our Series C
and D preferred stock which entitle holders to purchase shares of our common
stock equal to 5% of the shares issued in this offering at the initial public
offering price, (viii) 3,328,335 additional shares of common stock, the maximum
number of additional shares issuable upon conversion of the Series F preferred
stock and (ix) shares issuable upon exercise of Young & Rubicam's option to
purchase up to $5.0 million of common stock concurrent with this offering at
the mutual public offering price.
F-52
<PAGE>
[INSIDE BACK COVER ART]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Shares
naviant
Common Stock
-----------------
P R O S P E C T U S
-----------------
Merrill Lynch & Co.
Robertson Stephens
U.S. Bancorp Piper Jaffray
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS.
All capitalized terms used and not defined in Part II of this
registration statement shall have the meaning assigned to them in the
Prospectus which forms a part of this registration statement.
Item 13. Other Expenses of Issuance and Distribution.
The following table sets for the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................... $13,200.00
NASD fee....................................................... 5,500.00
Nasdaq National Market listing fee............................. *
Printing and engraving expenses................................ *
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Blue sky fees and expenses..................................... *
Transfer agent fees............................................ *
Miscellaneous.................................................. *
Total........................................................ $ *
</TABLE>
- --------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a
party to any threatened, pending or completed action, suit or proceeding
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonably cause to believe his or her conduct was
unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
of Chancery or such other court shall deem proper.
II-1
<PAGE>
Section 145 further provides that to the extent a director or officer of
a corporation has been successful on the merits or otherwise in the defense of
any such action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 or in the defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith; that the
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights which the indemnified party may be entitled; that
indemnification provided by Section 145 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify such person
against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law or the State of Delaware
provides that a certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of the 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 Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
Article of our Amended and Restated Certificate of Incorporation
provides that, to the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as it may hereafter be amended, no
director of the registrant shall be personally liable to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section of our Bylaws further provides that the registrant shall, to
the maximum extent and in the manner permitted by the General Corporation Law
of Delaware, indemnify each of its directors and officers against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the registrant.
The registrant has entered into indemnification agreements with each of
its directors and executive officers that provide for indemnification and
expense advancement to the fullest extent permitted under the Delaware General
Corporation Law.
The registrant maintains officers' and directors' liability insurance.
Reference is made to Section 6 of the Purchase Agreement filed as Exhibit
1.1 hereto, indemnifying officers and directors of the registrant against
certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Since inception, the registrant has issued and sold the following
unregistered securities:
1. The registrant issued and sold 712,600 shares (net of repurchases)
of its common stock to employees and directors for an aggregate
purchase price of $712,600 pursuant to exercises of options under
its 1997 Stock Option Plan.
2. The registrant issued and sold 3,616,614 shares (net of repurchases)
of its common stock to employees and directors for an aggregate
purchase price of $3,704,614 pursuant to exercises of options under
its 1999 Stock Option/Stock Issuance Plan.
II-2
<PAGE>
3. On March 9, 2000, the registrant agreed to issue 11,000,000 shares
of its Series E convertible preferred stock to SOFTBANK Content
Services Inc. (which does business under the name of "Softbank
Marketing Solutions") in exchange for substantially all of the
assets of such company. This acquisition is subject to regulatory
approvals.
4. On March 9, 2000, the registrant agreed to issue and sell 9,259,259
shares of its Series F preferred stock to SOFTBANK Capital Partners
LP, and sold to a group of 22 investors 9,237,551 shares of its
Series F preferred stock.
5. On February 24, 2000, the registrant issued 3,625,926 shares of its
Series C preferred stock to Webcraft, Inc. in exchange for the stock
of Webcraft's Impco Enterprises, Inc. subsidiary.
6. On December 22, 1999, the registrant issued, in connection with a
strategic relationship, a warrant to purchase 100,000 shares of
common stock at an exercise price of $3.00 per share to Dr. Martha
Rogers. Such warrant was exercised, and 100,000 shares of common
stock were issued, on February 14, 2000.
7. On November 17, 1999, the registrant issued and sold to a group of
four investors (i) 2,962,963 shares of Series C preferred stock and
(ii) warrants to purchase shares of common stock equal to 0.291% of
the number of shares in this offering at an exercise price equal to
the initial offering price, for an aggregate purchase price of
$4,000,000.
8. On November 5, 1999, the registrant issued, without consideration, a
warrant to purchase 778,000 shares of common stock at an exercise
price of $2.00 per share to MP3.com, Inc.
9. On September 13, 1999, the registrant issued and sold to a group of
17 investors (i) 39,074,074 shares of Series C preferred stock, (ii)
8,888,889 shares of Series D preferred stock and (iii) warrants to
purchase shares of common stock equal to 4.709% of the number of
shares in this offering at an exercise price equal to the initial
offering price, for an aggregate purchase price of $64,750,000.
10. On October 26, 1998, the registrant issued and sold 1,500,000
shares of its Series B preferred stock at a price of $1.00 per
share to MRJ Group, Inc. and a group of three investors.
11. On May 14, 1997, the registrant issued and sold 3,375,000 shares of
its Series A preferred stock at a price of $1.00 per share to a
group of three investors.
12. On May 2, 1997, the registrant issued 10,125,000 shares of common
stock to MRJ, Inc. in exchange for certain assets used to form the
registrant.
These issuances were deemed exempt from registration under the Securities
Act in reliance upon Rule 701 promulgated under the Securities Act or Section
4(2) of the Securities Act. In addition, the recipients of securities in each
such transaction represented their intentions to acquire the securities for
investment only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<C> <S>
1.1* Form of Purchase Agreement.
3.1* Certificate of Incorporation, as amended.
3.2* Bylaws, as amended.
4.1* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP
9.1* Naviant Technology Solutions, Inc. Voting Trust Agreement
10.1* Lease for Newtown Square, Pennsylvania Office
10.2 Lease for Agreement dated October 28, 1999, by and between the
Registrant and Spring Street, L.L.C.
10.3* Lease for Chicago Office
10.4 Lease Agreement dated December 15, 1999, by and between the Registrant
and Barrister Executive Suites, Inc.
10.5* Lease for San Francisco Office
10.6* Lease for Rochester Office
10.7 Lease Agreement dated April 1, 1998, by and between IntelliQuest
Information Group, Inc. and 475 Park Avenue So. Co.
10.8* 1997 Stock Option Plan
10.9 1999 Stock Option/Stock Issuance Plan
10.10* 2000 Stock Incentive Plan
10.11* Employee Stock Purchase Plan
10.12 Form of Non-Employee Director Stock Option Grant
10.13 Form of Non-Employee Director Stock Option Agreement
10.14 Form of Non-Employee Director Stock Purchase Agreement
10.15 Employment Agreement dated September 15, 1999, by and between the
Registrant and Raymond T. Butkus
10.16 Employment Agreement dated September 15, 1999, by and between the
Registrant and James M. Flynn
10.17 Employment Agreement dated September 15, 1999, by and between the
Registrant and William J. Tobia
10.18 Employment Agreement dated September 15, 1999, by and between the
Registrant and Charles W. Stryker
10.19* Form of Indemnification Agreement with Officers and Directors
10.20 Form of Secured convertible Promissory Note made by certain officers
and directors in favor of the Registrant
10.21 Form of Pledge Agreement by and between Messrs. Butkus, Becker, Flynn,
Stryker, Inscoe, Tobia and Hodges in favor of the Registrant
10.22 Note and Pledge Agreement dated September 13, 1999, by and between the
Registrant and Dr. Stryker
10.23* Series B Preferred Stock Purchase Agreement
10.24 Preferred Stock Purchase Agreement dated as of September 13, 1999, by
and among the Registrant, TL Ventures III L.P., TL Ventures III
Offshore L.P., TL Ventures III Interfund L.P., TL Ventures IV L.P., TL
Ventures IV Interfund L.P., GE Capital Equity Investments, Inc., First
Union Investors, Inc., At Home Corporation, 24/7 Media, Inc., BCI
Growth V, LLC, BCI Investors, LLC, XL Ventures LLC, Catterton Partners
IV, L.P., Catterton Partners IV Offshore, L.P., Citicorp and Charles
W. Stryker
10.25* Series F Preferred Stock Purchase Agreement
10.26* Amended and Restated Registration Rights Agreement
10.27* Amended and Restated Stockholders Agreement
10.28* Form of Common Stock Purchase Warrant issued to purchasers of Series C
and Series D preferred stock
10.29 Asset Purchase Agreement dated as of July 22, 1999, by and between the
Registrant and IntelliQuest Information Group, Inc.
10.30 Exchange Agreement dated February 18, 2000, by and among the
Registrant, Impco Enterprises, Inc. and Webcraft, Inc.
10.31 Purchase Agreement dated March 7, 2000, by and among the Registrant,
SOFTBANK Content Services, Inc. and SOFTBANK Holdings, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.32* Database License Agreement by and between the Registrant and Young & Rubicam Inc.
10.33* Mutual Business Agreement by and between the Registrant and Young & Rubicam Inc.
10.34* Joint Database License Agreement by and between the Registrant and infoUSA, Inc.
10.35* Professional Services Agreement by and between the Registrant and Convergys Corporation
10.36* Database Development Agreement by and between the Registrant and 24/7 Media, Inc.
10.37* Consulting Service Agreement by and between the Registrant and 24/7 Media, Inc.
10.38* Customer Acquisition and Advertising Agreement by and between the Registrant and
At Home Corporation
10.39* Processing Agreement by and between the Registrant and eData.com, Inc.
10.40* Data Sublicensing Agreement by and between the Registrant and eData.com, Inc.
10.41* Mutual Business Agreement between the Registrant and Webcraft, Inc.
11.1* Statement regarding computation of per share earnings.
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP with respect to Naviant, Inc.
23.2 Consent of PricewaterhouseCoopers LLP with respect to SOFTBANK Content Services, Inc.
23.3 Consent of PricewaterhouseCoopers LLP with respect to IQ2.net and Austin Registration
23.4* Consent of Brobeck, Phleger & Harrison LLP. Reference is made to Exhibit 5.1
24.1 Power of attorney (See page II-6).
27.1* Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
(b) Financial Statement Schedules.
Not included because the information required to be set forth therein is
not applicable or is shown in registrant's Financial Statements or the related
Notes.
Item 17. Undertakings.
The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Purchase Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the registrant, the Purchase Agreement, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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.
The undersigned registrant 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 Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newtown
Square, Commonwealth of Pennsylvania, on this 10th day of March, 2000.
NAVIANT, INC.
/s/ Charles W. Stryker
By: _________________________________
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Charles W. Stryker, James M. Flynn,
Robert L. R. Munden and William J. Tobia and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration
statement, and to sign any registration statement for the same offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Charles W. Stryker Chairman, Director, March 10, 2000
______________________________________ President and Chief
Charles W. Stryker, Ph.D. Executive Officer
/s/ William J. Tobia Senior Vice President and March 10, 2000
______________________________________ Chief Financial Officer
William J. Tobia
/s/ J. Kenneth Driessen Director March 10, 2000
______________________________________
J. Kenneth Driessen
/s/ David A. Finley Director March 10, 2000
______________________________________
David A. Finley
/s/ Ted A. Gardner Director March 10, 2000
______________________________________
Ted A. Gardner
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ George L. Hashbarger Director March 10, 2000
______________________________________
George L. Hashbarger
/s/ Mark E. Hastings Director March 10, 2000
______________________________________
Mark E. Hastings
/s/ Robert E. Keith, Jr. Director March 10, 2000
______________________________________
Robert E. Keith, Jr.
/s/ Jeffrey M. Killeen Director March 10, 2000
______________________________________
Jeffrey M. Killeen
/s/ David J. Moore Director March 10, 2000
______________________________________
David J. Moore
/s/ Kristopher A. Wood Director March 10, 2000
______________________________________
Kristopher A. Wood
</TABLE>
II-7
<PAGE>
EXHIBIT 10.2
MIDTOWN HEIGHTS
1330 AND 1350 SPRING STREET
ATLANTA, GEORGIA
LEASE AGREEMENT
BY AND BETWEEN
SPRING STREET, L.L.C., AS LANDLORD
AND
NAVIANT, INC., AS TENANT
October 28, 1999
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the 28th day
of October, 1999, by and between SPRING STREET, L.L.C., a Georgia limited
liability company ("Landlord"), whose address is 1330 Spring Street, Fifth
--------
Floor, Atlanta, Georgia 30309 and Naviant, Inc., a Delaware corporation
("Tenant") whose address is 14 Campus Boulevard, Suite 200, Newtown Square,
------
Pennsylvania 19073. Subject to all of the terms, provisions, covenants and
conditions of this Lease, and in consideration of the mutual covenants,
obligations and agreements contained in this Lease, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Landlord and Tenant agree as follows:
ARTICLE I
BASIC LEASE PROVISIONS
----------------------
Landlord, for and in consideration of the rents and all other charges and
payments hereunder and of the covenants, agreements, terms, provisions and
conditions to be kept and performed hereunder by Tenant, demises and leases to
Tenant, and Tenant hereby hires and takes from Landlord, the premises described
below, subject to all matters hereinafter set forth and upon and subject to the
covenants, agreements, terms, provisions and conditions of this Lease for the
term hereinafter stated. For purposes of this Lease, the following terms shall
have the meanings ascribed to them below:
Base Year shall mean calendar year 2000.
- ---------
Building shall mean the approximately 83,453 square foot structure located at
- --------
1350 Spring Street, Atlanta, Georgia 30309 and situated upon the Land
(hereinafter defined) constituting the Project commonly known as Midtown
Heights, as the same currently exists or as it may from time to time hereafter
be expanded or modified.
Commencement Date shall mean the date that is the earlier of: (i) fourteen (14)
- -----------------
days following Tenant's written notice to Landlord of "Substantial Completion"
----------------------
(as defined in Exhibit "E" herein) of Tenant's Work; or (ii) January 22, 2000
-----------
(as such date may be extended by an event of Force Majeure (as defined in
Section 7.2 herein)).
Expiration Date shall mean the last day of the sixtieth (60th) complete calendar
- ---------------
month following the Commencement Date.
Land shall mean that certain tract of land situated in Fulton County, Georgia,
- ----
and more particularly described on "Exhibit A" attached hereto and hereby made a
---------
part hereof, as "Exhibit A" may be revised from time to time to include adjacent
---------
or additional parcels of land.
Lease Year shall mean each twelve (12) consecutive complete calendar month
- ----------
period during the Term commencing with the Commencement Date.
2
<PAGE>
Market Rate shall mean the generally prevailing parking rate charged by property
- -----------
owners and/or parking facility operators within the Midtown Atlanta area.
Separate Market Rates shall apply for spaces in surface parking lots and for
spaces in parking structures.
Project shall mean the Building, the adjacent building located at 1330 Spring
- -------
Street (the "Adjacent Building"), the Land, the parking garage and/or parking
-----------------
areas serving the Building, if any, all other improvements situated on the Land
or directly benefiting the Project, as more particularly reflected on Exhibit
-------
"A-1" attached hereto and hereby made a part hereof, as Exhibit "A-1" may be
- ----- -------------
revised from time to time to include any additional buildings, facilities or
other improvements directly benefiting the Project that may be constructed in
subsequent years.
Term shall mean sixty (60) complete calendar months following the Commencement
- ----
Date. In addition, provided that Tenant is not then in default hereunder and,
provided further, that Tenant has not entered into a Transfer (other than a
Permitted Transfer), whether or not consented to by Landlord, Tenant shall have
the right, at the expiration of the initial Term hereof, to extend the Term of
this Lease for two (2) successive periods of five (5) Lease Years each, such
extension(s) to be on the same terms, covenants and conditions as are herein
contained, except that the Base Rent for the first Lease Year of each extended
term s shall be an amount equal to the then current Base Rent increased by an
amount equal to two and one-half percent (2.5%) of the Base Rent for the last
Lease Year of the then current Term (the initial Term, and any extensions or
renewal, thereof, being hereinafter referred to as the "Term"). Base Rent for
----
the second and all subsequent Lease Years of each extended term shall be
increased, on the first day of the second and each such subsequent Lease Year
during such extended term, by an amount equal to two and one-half percent (2.5%)
of the Base Rent for the immediately preceding Lease Year. Such right to
extend, or further extend, as the case may be, shall be exercised by Tenant
giving written notice to Landlord at least one hundred eighty (180) days, but
not more than three hundred sixty five (365) days prior to the expiration of the
current Term or extended term hereof. At such time, Tenant may only exercise
its extension right with respect to the extended term which commences upon the
expiration of the current initial Term or the extended term, as applicable.
ARTICLE II
Section 2.1 Premises. The Premises demised by this Lease are deemed to be
--------
23,760 square feet known or to be known as the sixth and seventh floors of the
Building, together with the exclusive right to use a certain portion of the roof
(the "Roof Space") containing not more than 735 square feet (collectively, the
----------
"Demised Premises") and together with the nonexclusive use of the common areas
of the Project made available by Landlord from time to time to all tenants of
the Project (together with the Demised Premises, collectively, the "Premises").
The Premises are outlined on Exhibit "B" attached hereto and hereby made a part
-----------
hereof. All square footage utilized in this Lease has been or will be as to
future space, made in accordance with "Standard Method for Measuring Floor Area
in Office Buildings", published by the Secretariat, Buildings Owners and
Managers Association International (ANSI/BOMA Z65.1 1996), approved June 7,
1996. Unless otherwise specifically designated, all references to square footage
or square feet in this Lease are to rentable square footage or square feet.
Section 2.2 Term. The Term of this Lease shall begin on the Commencement
----
Date and shall continue in full force and effect through and including the
Expiration Date of this Lease
3
<PAGE>
unless extended or sooner terminated in accordance with the provisions of this
Lease. After the occurrence of the Commencement Date, Tenant and Landlord shall
execute a certificate in the form attached as Exhibit "D" stipulating and
-----------
agreeing to the Commencement Date and the Expiration Date, if applicable. If the
Commencement Date should be changed for any reason, including a change pursuant
to the terms of Exhibit "E" hereto, except for a change due to the gross
-----------
negligence or willful misconduct of Landlord, its agents, contractors or
employees, Landlord shall not be liable or responsible for any claims, damages
or liabilities in connection therewith or by reason thereof. If Landlord is
unable to deliver possession of the Premises to Tenant on the Commencement Date
for any reason other than pursuant to the terms of Exhibit "E" hereto,
-----------
including, without limitation, then the term Commencement Date shall mean such
subsequent date upon which Landlord is able to deliver possession of the
Premises to Tenant, and such failure to deliver possession of the Premises on
the earlier date shall not constitute a default by Landlord hereunder or render
Landlord liable for any loss or damage that may be incurred as a result of such
failure, except if such delay is due to the gross negligence or willful
misconduct of Landlord, its agents, contractors or employees.
Section 2.3 Use. The Premises are to be used only for general office
---
purposes. In addition, the Premises may be occupied by no more than five (5)
persons per one thousand (1,000) square feet of office space (with any
fractional product being rounded downward). No act shall be done in or about the
Premises that is unlawful or that will increase the existing rate of insurance
on the Building. In the event of a breach of this covenant, Tenant shall
immediately cease the performance of such unlawful act or such act that is
increasing or has increased the existing rate of insurance and shall pay to
Landlord any and all increases in insurance premiums resulting from such breach.
Tenant shall not commit or allow to be committed any waste upon the Premises, or
any public or private nuisance or other act or thing which disturbs the quiet
enjoyment of any other tenant in the Building. If any of Tenant's office
machines or equipment causes interruption with any other Building tenant's
business, then Tenant shall provide adequate insulation, or take such other
action as may be necessary to eliminate the noise or disturbance at its sole
cost and expense. Tenant shall not, without Landlord's prior consent, such
consent not to be unreasonably withheld, conditioned or delayed, install any
equipment, machine, device, tank or vessel which is subject to any federal,
state or local permitting requirement. Tenant, at its expense, shall comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements governing the installation, operation and removal of any such
equipment, machine, device, tank or vessel. Tenant, at its expense, shall comply
with all laws, statutes, ordinances, governmental rules, regulations or
requirements, and the provisions of any recorded documents now existing or
hereafter in effect relating to its use, operation or occupancy of the Demised
Premises and shall observe such reasonable rules and regulations as may be
adopted and made available to Tenant by Landlord from time to time for the
safety, care and cleanliness of the Premises or the Building and for the
preservation of good order therein. The current rules and regulations for the
Building are attached hereto as "Exhibit F". Without limiting the foregoing,
---------
Tenant agrees to be wholly responsible at Tenant's sole cost and expense for any
accommodations or alterations which need to be made to the Demised Premises to
comply with the provisions of the Americans With Disabilities Act of 1990, as
amended.
Section 2.4 Right Of First Offer. Beginning on the Commencement Date and
--------------------
continuing through the Term of this Lease as the same may be extended, if there
should become available for occupancy any space on the fifth floor of the
Building (the "Offer Space"), then
-----------
4
<PAGE>
prior to the time Landlord makes or responds to an offer from a potential
occupant (the "Offeree"), Landlord shall so notify Tenant in writing of such
-------
availability, and shall provide in such notice the base rent (which base rent
shall be the proposed base rent for the Offer Space to the Offeree), the
operating expenses, the term, and any other terms and conditions on which
Landlord is willing to lease the Offer Space to the Offeree (the "Offer").
-----
Notwithstanding the terms of the Offer, as applied to Tenant, the term of the
Offer shall be equal to the Term of this Lease, without including any options
which have not been exercised by the Tenant by the date of the Offer is
accepted. Notwithstanding the terms of the Offer, if any tenant improvement
allowance is offered to the Offeree, such tenant improvement allowance shall be
offered to Tenant; provided, however, if the term of the Offer is greater than
the Term of this Lease, then the tenant improvement allowance offered to Tenant
shall be a number equal to the tenant improvement allowance in the Offer
multiplied by a fraction, the numerator of which is the number of Lease Years
remaining on the Term of this Lease and the denominator of which is the number
of years in the term of the Offer [Example: tenant improvement allowance in the
Offer is $21.00, number of Lease Years remaining in the Term is 3, term of Offer
is 7 years: 21* (3/7) = 9]. Landlord shall notify Tenant of the Offer by
providing to Tenant a proposed amendment to this Lease which shall incorporate
all terms of the Offer (the "Amendment"). Tenant shall have ten (10) business
---------
days within which to accept the Offer as embodied in the Amendment in its
entirety by the execution and return to Landlord of the Amendment. If Tenant
does not accept any Offer in accordance with its terms by executing and
returning the Amendment to Landlord within said ten (10) business day period,
Landlord shall be free to rent such Offer Space on such terms and conditions as
it deems appropriate. Tenant shall not be permitted to accept an Offer in the
event that less than one (1) year remains on the Term of this Lease, as the same
may be extended, and Tenant has not exercised (or does not exercise as allowed)
its option to extend the Term of this Lease. This right of first offer is
personal to Tenant, and is not assignable or transferable to any assignee,
sublessee or successor in interest or title of Tenant, unless such assignee is a
successor in interest to Tenant pursuant to a Permitted Transfer.
Section 2.5 Right Of First Refusal. Beginning On The Commencement Date And
----------------------
Continuing Through The Term Of this Lease as the same may be extended, if there
should become available for occupancy any space on the fifth floor of the
Building which Landlord has not previously leased to another party (the "First
-----
Generation Offer Space"), then prior to the time Landlord makes or responds to
- ----------------------
an offer (the "First Generation Offer") from a potential occupant, Landlord
----------------------
shall notify Tenant in writing of the existence (but not the terms) of the First
Generation Offer for the First Generation Offer Space by providing to Tenant a
proposed amendment to this Lease which shall incorporate the First Generation
Offer Space into the definition of Demised Premises and shall revise Section
3.1(a) to incorporate the additional rentable square feet of the Demised
Premises and accordingly recalculate the Base Rent calculations (the "First
-----
Generation Amendment"). If any tenant improvement allowance is included in the
- --------------------
First Generation Offer, such tenant improvement allowance shall be offered to
Tenant; provided, however, if the term of the First Generation Offer is greater
than the Term of this Lease, then the tenant improvement allowance offered to
Tenant shall be a number equal to the tenant improvement allowance in the First
Generation Offer multiplied by a fraction, the numerator of which is the number
of Lease Years remaining on the Term of this Lease and the denominator of which
is the number of years in the term of the First Generation Offer [Example:
tenant improvement allowance in the First Generation Offer is $21.00, number of
Lease Years
5
<PAGE>
remaining in the Term is 3, term of First Generation Offer is 7 years: 21* (3/7)
= 9]. Tenant shall have ten (10) business days within which to accept the First
Generation Offer as embodied in the First Generation Amendment in its entirety
by the execution and return to Landlord of the First Generation Amendment. If
Tenant does not accept the First Generation Offer in accordance with its terms
by executing and returning the Amendment to Landlord within said ten (10)
business day period, Landlord shall be free to rent such First Generation Offer
Space on such terms and conditions as it deems appropriate. Tenant shall not be
permitted to accept an First Generation Offer in the event that less than one
(1) year remains on the Term of this Lease, as the same may be extended, and
Tenant has not exercised (or does not exercise as allowed) its option to extend
the Term of this Lease. This right of first refusal is personal to Tenant, and
is not assignable or transferable to any assignee, sublessee or successor in
interest or title of Tenant, unless such assignee is a successor in interest to
Tenant pursuant to a Permitted Transfer.
ARTICLE III
Section 3.1 Rental Payment
--------------
(a) Base Rent. Commencing on the Commencement Date and continuing
---------
thereafter throughout the Term, Tenant shall pay the Base Rent described in this
paragraph, which is due and payable each Lease Year during the Term hereof in
twelve (12) equal installments on the first (1st) day of each calendar month
during the Term, and Tenant shall make such installments to Landlord at
Landlord's address specified in this Lease (or such other address as may be
designated by Landlord from time to time) monthly in advance. Base Rent during
the Term shall be as follows:
Base Rent Per Base Rent
Lease Year Rentable Square Foot Annually Base Rent Monthly
---------- -------------------- ----------- -----------------
1 $18.50 $439,560.00 $36,630.00
2 $18.96 $450,489.60 $37,540.80
3 $19.43 $461,656.80 $38,471.40
4 $19.92 $473,299.20 $39,441.60
5 $20.42 $485,179.20 $40,431.60
Landlord and Tenant agree that, at Tenant's election based upon the Plans (as
defined in Exhibit "E"), the Allowance (as defined in Exhibit "E") shall be
----------- -----------
based upon an amount no less than Twenty-one Dollars ($21.00) per square foot
and no greater than Twenty-eight Dollars (28.00) per square foot. If Tenant's
Work costs more than Twenty-eight Dollars (28.00) per square foot, then such
additional work shall be at Tenant's sole cost and expense. In the event that
the Allowance is based upon an amount greater than Twenty-one dollars ($21.00),
then the Base Rent shall be increased by an amount sufficient to amortize
(straight line basis) the amount of the Allowance greater than Twenty-one
dollars ($21.00) over the initial five (5) year Term of this Lease at an
interest rate of ten percent (10.0 %) per anum.
6
<PAGE>
(b) Rent Escalation. The Base Rent payable for the second and each
---------------
subsequent Lease Year shall be increased, on the first day of the second and
each such subsequent Lease Year, by an amount equal to two and one-half percent
(2.5%) of the Base Rent for the immediately preceding Lease Year, as reflected
in the "Base Rent per Rentable Square Foot" column in the table described above
in Section 3.1(a).
(c) Partial Month. If the Commencement Date is other than the first (1st)
-------------
day of a calendar month or if this Lease expires or terminates on a day other
than the last day of a calendar month, then the installments of Base Rent for
such month or months shall be prorated based upon multiplying the applicable
Base Rent by a fraction, the numerator of which shall be the number of days of
the Term occurring during said commencement or termination month, as the case
may be, and the denominator of which shall be the number of days in such month.
(d) Payment: Late Charge; Past Due Rate. The Base Rent, the Additional
-----------------------------------
Rent (hereinafter defined), any Prepaid Rent and any and all other payments
which Tenant is obligated to make to Landlord under this Lease shall constitute
and are sometimes hereinafter collectively referred to as "Rent". Except as may
----
otherwise be provided in this Lease, Tenant shall pay all Rent and other sums of
money as shall become due from and payable by Tenant to Landlord in lawful money
of the United States of America at the times and in the manner provided in this
Lease, without demand, deduction, abatement, setoff, counterclaim or prior
notice. Tenant hereby acknowledges that late payment to Landlord of Rent or
other sums due hereunder will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
If any Rent or other sum due from Tenant is not received on or before its due
date, then Tenant shall pay to Landlord immediately upon Landlord's demand
therefor a late charge in an amount equal to five percent (5%) of such overdue
amount, plus any reasonable and actual attorneys' fees and costs incurred by
Landlord by reason of Tenant's failure to pay Rent and other charges when due
hereunder. Additionally, all Rent under this Lease shall bear interest from the
date due until paid at the lesser of twelve percent (12%) or the maximum
nonusurious rate of interest then permitted by the applicable laws of the state
in which the Project is located or the United States of America, whichever shall
permit the higher nonusurious rate, such interest being in addition to and
cumulative of any other rights and remedies which Landlord may have with regard
to the failure of Tenant to make any such payments under this Lease.
Notwithstanding the foregoing, Landlord shall not declare Tenant in default and
shall not charge Tenant a late charge with respect to the first late payment of
Rent to be paid by Tenant under this Lease during any Lease Year; provided,
however, Tenant shall make such payment of Rent no later than five (5) calendar
days after Tenant receives written notice from Landlord that such sum was due.
Section 3.2 Additional Rent.
---------------
(a) Definitions:
-----------
(i) "Base Operating Expenses" means Operating Expenses (hereinafter
-----------------------
defined) for the Base Year.
(ii) "Operating Expenses" means all expenses, costs and disbursements
------------------
of every kind and nature relating to or incurred or paid in connection with the
ownership and
7
<PAGE>
operation of the Project, computed on an accrual basis in accordance with
generally accepted accounting principles consistently applied, including but not
limited to the following:
(A) wages and salaries of all full and part-time persons engaged in
the operation, maintenance, security or access control of the Project, including
all taxes, insurance and benefits relating thereto;
(B) the cost of all supplies, tools, equipment and materials used in
the operation and maintenance of the Project, including rental fees for the
same, if such items are not purchased and amortized pursuant to this Section 3.2
below;
(C) the cost of all utilities for the Project, including but not
limited to the cost of water and power, heating, lighting, air conditioning and
ventilating (excluding those costs billed to specific tenants) of the Building
and the Project;
(D) the cost of all maintenance and service agreements for the
Project and the equipment therein, including but not limited to alarm service,
security service, access control, landscaping and landscaping replacement,
window cleaning, pest control, elevator maintenance and janitorial service;
(E) the cost of repairs and general maintenance, excluding (y)
repairs and general maintenance paid by proceeds of insurance, by Tenant or by
other third parties, and (z) alterations attributable solely to tenants of the
Building;
(F) amortization (together with reasonable financing charges) of the
cost of capital investment items which are installed for the purpose of reducing
operating expenses, promoting safety, complying with governmental requirements
or maintaining the Building in good and normal operating condition and repair;
(G) the cost of all insurance relating to the Project, including, but
not limited to, the cost of property insurance, casualty, rental loss and
liability insurance applicable to the Project and Landlord's personal property
used in connection therewith and the cost of deductibles paid on claims made by
Landlord;
(H) Landlord's and/or Landlord's managing agent's accounting and
audit costs and attorneys' fees applicable to the Project;
(I) all property management fees for the Project; and
(J) All taxes, assessments and governmental charges, whether or not
directly paid by Landlord, whether federal, state, county or municipal and
whether they are imposed by taxing districts or authorities currently taxing the
Project or by others subsequently created or otherwise, and any other taxes and
assessments, assessed against or attributable to the Project or its operation,
excluding, however, federal and state taxes on income, death taxes, franchise
taxes and any taxes imposed or measured on or by the income of Landlord from the
operation of the Project or imposed in connection with any change of ownership
of the Project together with the reasonable, actual cost (including attorneys,
consultants and appraisers) of any negotiation, contest or appeal pursued by
Landlord in an effort to reduce any such tax,
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assessment or charge, and all of Landlord's administrative costs in relation to
the foregoing ("Real Estate Taxes"); provided, however, that if at any time
-----------------
during the Term the current method of taxation or assessment shall be so changed
that the whole or any part of the taxes, assessments, levies, impositions or
charges now levied, assessed or imposed on real estate and the improvements
thereof shall be changed and as a substitute therefor, or in lieu of or in
addition thereto, taxes, assessments, levies, impositions or charges shall be
levied, assessed or imposed wholly or partially as a capital levy or otherwise
on the rents received from the Project or the rents reserved herein or any part
thereof, then such substitute or additional taxes, assessments, levies,
impositions or charges, to the extent so levied, assessed or imposed, shall be
deemed to be included within the Real Estate Taxes to the extent that such
substitute or additional tax would be payable if the Project were the only
property of the Landlord subject to such tax.
(iii) "Adjustment Period" means each calendar year occurring during
-----------------
the Term beginning with calendar year 2001, which shall be the first Adjustment
Period.
(iv) "Tenant's Pro Rata Share" means the percentage calculated by
-----------------------
dividing the rentable area of the Premises (numerator) by the total rentable
area of the Buildings comprising the Project (denominator), and expressing the
fraction as a percentage.
(b) Gross-Up Adjustment. If the Project is less than fully occupied during
-------------------
the Base Year or any Adjustment Period, then Operating Expenses for the Base
Year or such Adjustment Period shall be "grossed up" by Landlord to that amount
of Operating Expenses that, using reasonable projections, would normally be
expected to be incurred during the Base Year or Adjustment Period if the Project
were ninety-five percent (95%) occupied during the Base Year or Adjustment
Period.
(c) Payment by Tenant. If the Operating Expenses for any Adjustment Period
-----------------
exceed the Base Operating Expenses (any such excess being known collectively as
the "Expense Increase"), then Tenant agrees to pay Landlord as additional rent
----------------
(the "Additional Rent") Tenant's Pro Rata Share of the Expense Increase.
---------------
Notwithstanding the foregoing, in calculating the Expense Increase, certain
Operating Expenses such as those described in Section 3.2(a)(ii)(D)(H) and (I)
shall be limited to an increase no more than five percent (5%) per Adjustment
Period.
(d) Manner of Payment.
-----------------
(i) Landlord may give Tenant notice of Landlord's estimate of
amounts payable under this Section 3.2 for each Adjustment Period. By the first
day of each month during the Adjustment Period, Tenant shall pay Landlord one-
twelfth (1/12th) of the estimated amount. If for any reason the estimate is not
given before the Adjustment Period begins, Tenant shall continue to pay on the
basis of the previous year's estimate, if any, until the month after the new
estimate is given.
(ii) Within one hundred twenty (120) days after each Adjustment
Period ends, or as soon thereafter as reasonably practical, Landlord shall give
Tenant a statement (the "Statement") showing the: (A) actual Operating Expenses
---------
for the Adjustment Period; (B) Base Operating Expenses; (C) the Expense Increase
for the Adjustment Period; (D) the amount of
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Tenant's Pro Rata Share of the Expense Increase; (E) the amount, if any, paid by
Tenant during the Adjustment Period toward the Expense Increase; and (F) the
amount Tenant owes toward the Expense Increase or the amount Landlord owes as a
refund. Delay by Landlord in providing to Tenant any Statement shall not relieve
Tenant from the obligation to pay any Expense Increase upon the rendering of
such Statements.
(iii) If the Statement shows that the actual amount Tenant owes for
the Adjustment Period is less than any estimated Expense Increase paid by Tenant
during the Adjustment Period, Landlord shall return the difference (the
"Overpayment"). If the Statement shows that the actual amount Tenant owes is
-----------
more than any estimated Expense Increase paid by Tenant during the Adjustment
Period, Tenant shall pay the difference (the "Underpayment"). The Overpayment or
------------
Underpayment shall be paid within thirty (30) days after the Statement is
delivered to Tenant.
(iv) During any Adjustment Period in which this Lease is not in
effect for a complete calendar year, unless it was ended due to Tenant's
Default, Tenant's obligation for Additional Rent for those Adjustment Periods
shall be prorated by multiplying the Additional Rent for the Adjustment Period
by a fraction expressed as a percentage, the numerator of which is the number of
days of the Adjustment Period included in the Term and the denominator of which
is 365.
(e) Audit Right. Tenant shall have the right for up to one hundred twenty
-----------
(120) days after Tenant's receipt of the Statement, to elect to audit Landlord's
calculation of the Operating Expenses for the Lease Year pertaining to the
Statement. If Tenant elects by written notice received by Landlord prior to the
expiration of such one hundred twenty (120) day period to perform such audit,
Tenant shall be permitted, within fifteen (15) business days thereafter, to
inspect certain of Landlord's records reasonably necessary (as determined by
Landlord) to determine the accuracy of the Statement. Such audit shall occur at
reasonable times during regular business hours and shall take place at
Landlord's business office, or at any other location in the Atlanta metropolitan
area reasonably selected by Landlord. The audit shall be performed by an
independent certified public accountant (selected by Tenant with Landlord's
reasonable approval) or by a qualified employee of Tenant. The auditors may not
be compensated on the basis of any discrepancies revealed by their audit.
Landlord shall have the right to be present at all times during such audit. If
it is determined that the Operating Costs for such Lease Year are in error by
more than five percent (5%), then Landlord shall pay to Tenant the cost of such
audit, otherwise, Tenant shall bear all such costs and expenses. If such an
audit is performed by or on behalf of Tenant or another tenant of the Project,
Landlord shall pay any Overpayment to Tenant and Tenant shall pay any
Underpayment to Landlord within thirty (30) days after a copy of such audit is
delivered to Tenant. All information received by such auditor shall be kept
strictly confidential.
Section 3.3 Security Deposit. As security for its full and faithful
----------------
performance of this Lease, Tenant shall pay Landlord a security deposit of
Thirty-five Thousand and No/100 Dollars ($35,000.00) upon execution of this
Lease (the "Security Deposit"). If Tenant defaults with respect to any covenant
----------------
or condition of this Lease, including but not limited to the payment of Rent or
any other payment due under this Lease, Landlord may apply all or any part of
the Security Deposit to the payment of any sum in default or any other sum which
Landlord may be
10
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required to or deem necessary to spend or incur by reason of Tenant's default.
Upon Landlord's draw of all or any part of the Security Deposit, Tenant shall
deposit with Landlord the amount so applied to replenish the Security Deposit.
Any draw by Landlord of the Security Deposit shall not be deemed to have cured
Tenant's default by reason of which the application is made, until such time as
the amount of the Security Deposit is fully restored. Within thirty (30) days
following the expiration or sooner termination of this Lease, Landlord will
refund Tenant the Security Deposit less any amounts necessary to cure any
default of Tenant under this Lease.
Section 3.4 Letter Of Credit.
----------------
(a) Lease Obligations. As security for its full and faithful performance
-----------------
of Tenant's monetary obligations under this Lease, Tenant shall deliver to
Landlord concurrently with the execution of this Lease, a clean, irrevocable
letter of credit in favor or Landlord in the principal amount of Two Hundred
Fifty Thousand Dollars and No/l00 ($215,000.00) from a bank or other financial
institution reasonably acceptable to Landlord (the "Letter of Credit"). In the
----------------
event that Tenant is in Monetary Default (as hereinafter defined in Section
8.1), then Landlord shall have the right to draw that portion of the Letter of
Credit necessary for the payment of any such Rent in default or for any other
sum which Landlord may expend or be required to expend by reason of Tenant's
Monetary Default, including, without limitation, any verifiable damages related
to such Monetary Default or deficiency in the reletting of the Premises, whether
such damages or deficiency may accrue before or after reentry by Landlord. It is
expressly understood and agreed that the Letter of Credit is not an advance
rental deposit or a measure of Landlord's damages in case of Tenant's default.
Upon Landlord's draw of all or any part of the Letter of Credit deposited as
security hereunder, Tenant shall take such action with the issuing bank for the
Letter of Credit as necessary to restore the Letter of Credit to its current
amount. Any draw by Landlord under the Letter of Credit shall not be deemed to
have cured Tenant's default by reason of which the application is made, until
such time as the current amount of the Letter of Credit is fully restored. Any
sum of money drawn by Landlord under the Letter of Credit shall be credited
against any sum of money Tenant owes Landlord which is due and payable. Actions
by Landlord against Tenant for breach of this Lease shall in no way be limited
to or restricted by the amount of the Letter of Credit and any draw under the
Letter of Credit shall not waive any other rights or constitute an election of
remedies which Landlord may have. If Tenant is not and has not been in Monetary
Default hereunder, upon expiration of the second Lease Year, this Letter of
Credit shall be returned to Tenant.
(b) Tenant Improvements. In the event that the Cash Allowance (as defined
-------------------
in Exhibit "E") exceeds Nineteen and No/100 dollars ($19.00) per square foot
-----------
(the "Excess Cash Allowance"), as security for the repayment of the Excess Cash
---------------------
Allowance, Tenant shall deliver to Landlord concurrently with the execution of
this Lease, a clean, irrevocable letter of credit in favor of Landlord in the
principal amount of the Excess Cash Allowance from a bank or other financial
institution reasonably acceptable to Landlord (the "Cash Allowance Letter of
------------------------
Credit"). In the event that Tenant is in Monetary Default (as hereinafter
- ------
defined in Section 8.1), then Landlord shall be entitled to draw the entire
amount of the Cash Allowance Letter of Credit or a portion thereof, at
Landlord's election, for the payment of any such Rent in default or for any
other sum which Landlord may expend or be required to expend by reason of
Tenant's Monetary Default, including, without limitation, any damages or
deficiency in the reletting of the Premises, whether such damages or deficiency
may accrue before or after reentry by Landlord. It is
11
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expressly understood and agreed that the Cash Allowance Letter of Credit is not
an advance rental deposit or a measure of Landlord's damages in case of Tenant's
default. Upon Landlord's draw of all or any part of the Cash Allowance Letter of
Credit deposited as security hereunder, Tenant shall take such action with the
issuing bank for the Cash Allowance Letter of Credit as necessary to restore the
Cash Allowance Letter of Credit to its current amount. Any draw by Landlord
under the Cash Allowance Letter of Credit shall not be deemed to have cured
Tenant's default by reason of which the application is made, until such time as
the current amount of the Cash Allowance Letter of Credit is fully restored.
Actions by Landlord against Tenant for breach of this Lease shall in no way be
limited to or restricted by the amount of the Cash Allowance Letter of Credit
and any draw under the Cash Allowance Letter of Credit shall not waive any other
rights or constitute an election of remedies which Landlord may have. Provided
Tenant is not in Monetary Default hereunder, this Cash Allowance Letter of
Credit shall be reduced to a certain percentage of its initial amount as
follows: at the end of the first Lease Year to eighty percent (80%) of its
initial value; at the end of the second Lease Year to sixty percent (60%) of its
initial value; at the end of the third Lease Year to twenty-five percent (25%)
of its initial value; at the end of the fourth Lease Year to twelve and one-half
percent (12.5%) of its initial value; and shall be terminated at the end of the
fifth Lease Year.
ARTICLE IV
SECTION 4.1 Services.
--------
(a) Services Provided. Landlord shall furnish to Tenant while Tenant is
-----------------
occupying the Premises:
(i) Hot and cold domestic water in common use restrooms and toilets
in locations provided for general use and as reasonably deemed by Landlord to be
in keeping with the Project standards.
(ii) Heating and air conditioning in season from 8:00 a.m. to 6:00
p.m. on Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturday, excluding
the hereinafter defined Holidays, subject to curtailment as required by
governmental laws, rules or regulations, in such amounts as are consistent with
buildings of similar age and class in the Midtown Atlanta market, but such
service at times during weekdays other than the hours stated above, and on
Saturdays, Sundays and Holidays, shall be furnished only upon request of Tenant,
and for such service Tenant shall pay Landlord, within thirty (30) days of
receipt of an invoice an amount equal to the rate Landlord at that time is
charging for such service.
(iii) Electric lighting service for all public areas and special
service areas of the Project in the manner and to the extent consistent with
buildings of similar age and class in the Midtown Atlanta area.
(iv) Janitorial service on a five (5) day per week basis in a manner
considered standard for buildings of similar age and class in Midtown Atlanta
market.
(v) Access control for the Project; provided, however, Landlord
shall have no responsibility to prevent, and shall not be liable to Tenant for,
any liability or loss to Tenant, its
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<PAGE>
agents, employees and visitors arising out of losses due to theft, burglary, or
damage or injury to persons or property caused by persons gaining access to the
Premises, and Tenant hereby releases Landlord from all liability for such
losses, damage or injury.
(vi) Sufficient electrical capacity to operate (i) incandescent
lights, typewriters, calculating machines, photocopying machines and other
machines of similar low voltage electrical consumption (120/208 volts), provided
that the total rated electrical design load for said lighting and machines of
low electrical voltage shall not exceed four (4.00) watts per square foot of
rentable area; and (ii) fluorescent lighting and equipment of high voltage
electrical consumption (277/480 volts), provided that the total rated electrical
design load for said lighting and equipment of high electrical voltage shall not
exceed two (2.00) watts per square foot of rentable area (each such rated
electrical design load to be hereinafter referred to as the "Building standard
-----------------
rated electrical design load"). Tenant shall be allocated Tenant's Pro Rata
- ----------------------------
Share of the Building standard circuits provided on the floor(s) Tenant
occupies.
Should Tenant's connected electrical load exceed the Building standard
rated electrical design loan for either high or low voltage, or if Tenant's
electrical design requires low voltage or high voltage circuits in excess of
Tenant's Pro Rata Share of Building standard circuits, Landlord will (at
Tenant's expense) install one (1) additional high voltage panel and/or one (1)
additional low voltage panel with associated transformer in a closet located
within the Premises or in another location selected by the Landlord at
Landlord's reasonable discretion (which additional panels and transformers shall
be hereinafter referred to as the "additional electrical equipment"). If the
-------------------------------
additional electrical equipment is installed because Tenant's low or high
voltage rated electrical design load exceeds the applicable Building standard
rated electrical design load, then a meter shall also be added (at Tenant's
expense) to measure (in kilowatt hours) the electricity consumed by the
additional electrical equipment and Tenant shall pay the cost of the additional
associated consumption of electricity at a rate per kilowatt hour which shall be
the average rate per kilowatt hour (including all surcharges and taxes) for each
respective month charged to the Building by the utility selected by Landlord to
supply electricity to the Building. Landlord's obligation to install additional
panels and transformers shall be limited by the overall capacity of the
Building's existing electrical service and existing floor to floor distribution
to accommodate Tenant's request for additional panels or for circuits in excess
of Tenant's Pro Rata Share of Building standard circuits.
The design and installation of any additional electrical equipment (or
related meter) required by Tenant shall be subject to the prior approval of
Landlord, such approval not to be unreasonably withheld, conditioned or delayed.
All actual and reasonable expenses incurred by Landlord in connection with the
review and approval of any additional electrical equipment shall also be
reimbursed to Landlord by Tenant. Tenant shall also pay within thirty (30) days
the actual metered cost of electricity consumed through the additional
electrical equipment (if applicable), plus any actual accounting expenses
incurred by Landlord in connection with the metering thereof.
If any of Tenant's electrical equipment requires conditioned air in excess
of Building standard air conditioning, the same shall be installed by Landlord
(on Tenant's behalf), and Tenant shall pay all design, installation, metering
and operating costs relating thereto.
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If Tenant requires that certain areas within the Premises must operate in
excess of the normal Building operating hours set forth above, the electricity
provided to serve such areas (measured in kilowatt hours) shall be estimated by
Landlord, using a method selected by Landlord consistent with good engineering
practice, and Tenant shall be billed each month during the Term the cost of the
electricity consumed (in kilowatt hours) by Tenant during hours other than
Building operating hours at a rate per kilowatt hour which shall be the average
rate per kilowatt hour (including all surcharges and taxes) for each respective
month charged to the Building by the utility selected by Landlord to supply
electricity to the Building.
(vii) All fluorescent bulb and ballast replacement for Building
standard lighting in all areas and all incandescent bulb replacement in public
areas, toilet and restroom areas and stairwells.
(viii) Nonexclusive operatorless passenger elevator service to the
Premises twenty-four (24) hours per day; provided, that Landlord may reasonably
limit the number of elevators in operation on weekdays after normal business
hours and on Saturdays, Sundays and Holidays.
(b) Cessation of Services.
---------------------
(i) To the extent the services described in Section 4.1(a) of this
Lease require electricity, gas and water supplied by public utilities,
Landlord's covenants thereunder shall only impose on Landlord the obligation to
use commercially reasonable efforts to cause the applicable public utilities to
furnish the same. Failure by Landlord to furnish the services described in this
Section 4.1 to any extent, or any cessation thereof, shall not render Landlord
in default hereunder or liable in any respect for damages to either person or
property, or be construed as an eviction of Tenant, or work an abatement of
Rent, or relieve Tenant from fulfillment of any covenant or agreement hereof. In
addition to the foregoing, should any of the equipment or machinery break down,
cease to function properly for any cause, or be intentionally turned off for
testing or maintenance purposes, Tenant shall have no claim for abatement or
reduction of Rent or damages on account of an interruption in service occasioned
thereby or resulting therefrom; provided, however, Landlord agrees to use
diligent efforts to repair said equipment or machinery and to restore said
services.
(ii) Notwithstanding the provisions of Section 4.1(a)(i), if
Landlord fails to furnish or delays in furnishing any service Landlord is
obligated to provide under this Lease, Tenant shall be entitled to abate Rent
until the service is restored, but only under the following terms and
conditions:
(A) the loss of service was not caused by, through or under
Tenant or those within Tenant's control;
(B) the loss of service must be of a material nature so as to
render the Demised Premises substantially unusable for the purposes contemplated
by this Lease;
(C) Tenant must give written notice promptly to Landlord of
the loss of service and its claim for abatement under this provision, if the
loss of service is the result of a cause within Landlord's reasonable control,
Tenant shall be entitled to abatement of Rent,
14
<PAGE>
assuming all other conditions of this Section 4.1(b)(ii) are satisfied,
commencing on the sixth (6th) business day following the day such service is
curtailed, provided that if such service is restored or replaced within five (5)
business days of Landlord's receipt of such notice, then Tenant shall not be
entitled to any such abatement; and
(D) Landlord may prevent or stop abatement by providing
substantially the same service by temporary or alternative means until the cause
of the loss of service can be corrected; provided that such temporary or
alternative means permits Tenant to use the Demised Premises for the purposes
contemplated by this Lease.
(c) Holidays. The following dates shall collectively be known as
--------
"Holidays" and individually known as a "Holiday": New Year's Day; Memorial Day;
-------
Independence Day; Labor Day; Thanksgiving Day; Friday following Thanksgiving
Day; Christmas Day; and any other holiday designated from time to time by
Landlord. If in the case of any Holiday, a different day shall be observed than
the respective day above described, then that day which constitutes the day
observed by national banks in the city or proximate area in which the Building
is located, on account of such Holiday, shall constitute the Holiday under this
Lease.
SECTION 4.2 Keys and Locks. Landlord shall initially furnish Tenant with
--------------
___ keys for the standard corridor doors serving the Premises. Additional keys
will be furnished by Landlord upon an order signed by Tenant and at Tenant's
expense. All such keys shall remain the property of Landlord. Without the prior
written consent of Landlord, such consent not to be unreasonably withheld,
conditioned or delayed, no additional locks shall be allowed on any door of the
Premises, and Tenant shall not make or permit to be made any duplicate keys,
except those furnished by Landlord. Upon termination or expiration of this Lease
or a termination of possession of the Premises by Tenant, Tenant shall surrender
to Landlord all keys to any locks on doors entering or within the Premises.
SECTION 4.3 Graphics and Building Directory. Landlord shall provide and
-------------------------------
install, at Landlord's expense, all letters or numerals at the entrance to the
Premises, and a strip containing a listing of Tenant's name on the Building
directory board to be placed in the main lobby of the Building. All such letters
and numerals shall be in Building standard graphics. Except for the grossly
negligent acts or omissions of Landlord, its agents, contractors or employees,
Landlord shall not be liable for any inconvenience or damage occurring as a
result of any error or omission in any directory or graphics. No signs,
numerals, letters or other graphics shall be used or installed by Tenant on the
exterior of, or which may be visible from outside, the Premises, unless approved
in writing by Landlord, such approval not to be unreasonably withheld,
conditioned or delayed.
SECTION 4.4 Building Signage. Tenant, at Tenant's expense, shall have the
----------------
right to have the Landlord install a sign with Tenant's name on the western
exterior side of the Building (the "Exterior Sign"). Tenant shall be responsible
-------------
for all necessary governmental approvals and permits. Tenant shall have the
right to the maximum square footage of signage that is permitted on the western
exterior side of the Building. Tenant shall provide Landlord with the plans and
specifications for the Exterior Sign, which shall be subject to Landlord's
reasonable approval. Landlord's approval shall only mean that Landlord is
satisfied that the plans and specifications are in compliance with the terms and
conditions of this Lease (except as the same relate to
15
<PAGE>
compliance with all applicable governmental laws, regulations or ordinances),
are aesthetically pleasing and consistent with the overall design of the
Project. If Landlord does not approve the Exterior Sign, Landlord will inform
Tenant in writing of its objections and Tenant will coordinate with Landlord to
revise the same and deliver a corrected version to Landlord for its approval.
The Tenant shall remain solely responsible for the design, inspection, and
compliance with all applicable governmental laws, rules or ordinances. Tenant's
failure to obtain exterior signage for any reason shall in no event not be a
default by the Landlord.
ARTICLE V
SECTION 5.1 Occupancy of Premises. Tenant shall throughout the Term of
---------------------
this Lease, at its own expense, maintain the Demised Premises and all
improvements thereon and keep them free from waste, damage or nuisance, and
shall deliver up the Demised Premises in a clean and sanitary condition at the
expiration or termination of this Lease or the termination of Tenant's right to
occupy the Premises by Tenant, in good repair and condition, reasonable wear and
tear excepted. In the event Tenant should neglect to maintain and/or return the
Demised Premises in such manner, Landlord shall have the right, but not the
obligation, to cause repairs or corrections to be made, and any actual and
reasonable costs therefor shall be payable by Tenant to Landlord within thirty
(30) days of demand therefor by Landlord. Upon the expiration or termination of
this Lease or the termination of Tenant's right to occupy the Premises by
Tenant, Landlord shall have the right to reenter and resume possession of the
Premises. No act or thing done by Landlord or any of Landlord's agents
(hereinafter defined) during the Term of the Lease shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless the same be made in writing and executed by
Landlord. Tenant shall notify Landlord at least fifteen (15) days prior to
vacating the Demised Premises and shall arrange to meet with Landlord for a
joint inspection of the Demised Premises. If Tenant fails to give such notice or
to arrange for such inspection, then Landlord's inspection of the Demised
Premises shall be deemed correct for the purpose of determining Tenant's
responsibility for repair and restoration of the Demised Premises.
SECTION 5.2 Roof Space. Tenant acknowledges and agrees that Landlord makes
----------
no representation or warranty, express or implied, regarding the suitability,
tenantability or habitability of the Roof Space. Tenant intends to use the Roof
Space for general office purposes, and for no other business or purpose in
accordance with Section 2.3 ("Tenant's Intended Use of the Roof Space"). Tenant
---------------------------------------
acknowledges that the Roof Space may not be developable for Tenant's Intended
Use of the Roof Space; however, if the Roof Space may be so developed and used
by Tenant, Landlord hereby grants Tenant the right to design, construct and
install improvements on the Roof Space and to use the Roof Space only for
Tenant's Intended Use of the Roof Space. If improvements are required to the
Building, other than the Premises, to permit development of the Roof Space for
Tenant's Intended Use of the Roof Space, Tenant shall be responsible for all
costs related to the design and construction of such improvements; however,
Landlord shall have no obligation to make or approve any such improvements, even
if Landlord's failure to make such improvements results in Tenant not being able
to use the Roof Space for Tenant's Intended Use of the Roof Space. If Tenant is
unable to develop or use the Roof Space for any reason whatsoever, including
Landlord's failure to make improvements necessary for the development of the
Roof Space, such failure shall not be a default by Landlord under this Lease. If
Tenant elects to develop or use the Roof Space, Tenant shall do so in
16
<PAGE>
compliance all provisions of this Lease; however, Tenant agrees that Landlord
shall have no obligations of any kind whatsoever with respect to the Roof Space.
Any improvements or alterations to the Roof Space shall be in accordance with
Section 6.1(b). For purposes of the Roof Space, the indemnity in Section 6.5
shall also include the development, design, and construction of improvements in
the Roof Space. Prior to development of the Roof Space, Tenant shall provide
Landlord an engineering report from a registered structural engineer stating
that the construction of a deck in the Roof Space is structurally feasible.
Upon completion of the deck, Tenant shall provide Landlord an engineering report
from a registered structural engineer stating the maximum load capacity of the
completed deck.
SECTION 5.3 Entry for Repairs and Inspection. By giving reasonable notice
--------------------------------
and by not unreasonably interfering with Tenant's business, Tenant shall permit
Landlord and its agents to enter the Premises at all reasonable times to inspect
the same; to show the Premises to prospective tenants (within six (6) months of
the expiration of the Term of this Lease), or interested parties such as
prospective lenders and purchasers; to exercise its rights under this Lease; to
clean, repair, alter or improve the Premises or the Building; to discharge
Tenant's obligations when Tenant has failed to do so within the time required
under this Lease or within a reasonable time after written notice from Landlord,
whichever is earlier; to post "For Sale" signs at any time and to place "For
Lease" signs upon or adjacent to the Building at any time within twelve (12)
months of the expiration of the Term of this Lease. Tenant shall permit Landlord
and its agents to enter the Premises at any time in the event of an emergency.
In case of an emergency, Landlord may temporarily close entrances, doors,
corridors, elevators or other facilities without liability to Tenant by reason
of such closure.
SECTION 5.4 Hazardous Materials.
-------------------
(a) As used in this Lease, the term "Hazardous Material" shall mean and
------------------
include any substance that is or contains petroleum, asbestos, polychlorinated
biphenyls, lead, or any other substance, material or waste which is now or is
hereafter classified or considered to be hazardous or toxic under any federal,
state or local law, rule, regulation or ordinance relating to pollution or the
protection or regulation of human health, natural resources or the environment
(collectively, "Environmental Laws") or poses or threatens to pose a hazard to
------------------
the health or safety of persons on the Premises or the Project. To Landlord's
knowledge, without independent inquiry, but based upon a Phase I Environmental
Report prepared by Schnabel Engineering Associates, Inc., dated April 23, 1998,
Landlord has removed all asbestos bearing materials requiring abatement from the
Building.
(b) Tenant agrees that during its use and occupancy of the Premises it
will not permit Hazardous Materials to be present on or about the Demised
Premises or the Project except in a manner and quantity necessary for the
ordinary performance of Tenant's business and that it will comply with all
Environmental Laws relating to the use, storage or disposal of any such
Hazardous Materials.
(c) If Tenant's use of Hazardous Materials on or about the Demised
Premises or the Project results in a release, discharge or disposal of Hazardous
Materials on, in, at, under, or emanating from, the Premises, the Project or the
Land, Tenant agrees to investigate, clean up, remove or remediate such Hazardous
Materials in full compliance with (a) the requirements of
17
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(i) all Environmental Laws and (ii) any governmental agency or authority
responsible for the enforcement of any Environmental Laws; and (b) any
additional requirements of Landlord that are reasonably necessary to protect the
value of the Premises or the Land. Landlord shall also have the right, but not
the obligation, to take whatever action with respect to any such Hazardous
Materials that it deems reasonably necessary to protect the value of the
Premises, the Project or the Land. All costs and expenses paid or incurred by
Landlord in the exercise of such right shall be payable by Tenant within thirty
(30) days.
(d) By first giving notice and by not unreasonably interfering with
Tenant's business, Landlord may inspect the Premises for the purpose of
determining whether there exists on the Premises any Hazardous Materials or
other condition or activity that is in violation of the requirements of this
Lease or of any Environmental Laws. The right granted to Landlord herein to
perform inspections shall not create a duty on Landlord's part to inspect the
Premises or the Project, or liability on the part of Landlord for Tenant's use,
storage or disposal of Hazardous Materials, it being understood that Tenant
shall be solely responsible for all liability in connection therewith.
(e) Tenant shall surrender the Premises to Landlord upon the expiration or
earlier termination of this Lease free of debris, waste or Hazardous Materials,
placed on or about the Demised Premises or the Project by Tenant or its agents,
employees, contractors or invitees, and in a condition which complies with all
Environmental Laws.
(f) Except for the gross negligence of Landlord, its agents, contractors
or employees, Tenant agrees to indemnify and hold harmless Landlord from and
against any and all claims, losses (including, without limitation, loss in value
of the Demised Premises or the Project), liabilities and actual expenses
(including reasonable attorney's fees) sustained by Landlord attributable to (i)
any Hazardous Materials placed on or about the Demised Premises or the Project
by Tenant or its agents, employees, contractors or invitees or (ii) Tenant's
breach of any provision of this Section.
(g) The provisions of this Section shall survive the expiration or earlier
termination of this Lease.
SECTION 5.5 Compliance with Laws.
--------------------
(a) Americans with Disabilities Act. Tenant represents and warrants that
-------------------------------
any alterations or additions made by or on behalf of Tenant to the Demised
Premises will conform to the requirements of the Americans with Disabilities Act
(the "ADA"), Act of July 26, 1990, Pub. L. No. 101-336, 104 Stat. 327, 42 U.S.C
---
(S) 12101 et seq., as amended from time to time, and the regulations promulgated
pursuant thereto (the "Regulations"). Tenant hereby indemnifies and holds
-----------
harmless Landlord from and against any and all claims, damages, suits,
liabilities and actual attorneys' fees (including but not limited to appellate
attorneys' fees) asserted against or suffered by Landlord in any way relating to
or arising from in whole or in part, an actual or asserted claim that the
Demised Premises, or any portion thereof, is in violation of the ADA or the
Regulations.
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(b) Other Laws. Tenant represents and warrants that it shall comply with
----------
all applicable governmental laws, statutes, ordinances, rules, regulations or
other requirements with respect to any design plans, improvements, alterations
or additions made by or on behalf of Tenant to the Demised Premises.
ARTICLE VI
SECTION 6.1 Leasehold Improvements.
----------------------
(a) Acceptance of Premises. Tenant has made a complete inspection of the
----------------------
Premises and shall accept the Premises and the Project in its "AS IS," "WHERE
IS," and "WITH ALL FAULTS" condition on the Commencement Date without recourse
to Landlord, subject to the terms of Exhibit "E", attached hereto and hereby
----------
made a part hereof, and any structural defects, punchlist items and latent
defects. Except as expressly provided in this Lease, Landlord shall have no
obligation to furnish, equip or improve the Premises or the Project. The taking
of possession of the Premises by Tenant shall be conclusive evidence against
Tenant that (i) Tenant accepts the Premises and the Project as being suitable
for its intended purpose and in a good and satisfactory condition, except for
structural defects, punchlist items and latent defects which are not readily
apparent to Tenant, (ii) acknowledges that the Premises and the Project comply
fully with Landlord's covenants and obligations under this Lease and (iii)
waives any defects in the Premises and patent defects of a cosmetic nature in
the Project.
(b) Improvements and Alterations. Tenant shall not make or allow to be
----------------------------
made (except as otherwise provided in this Lease) any improvements, alterations
or physical additions (including fixtures) in or to the Premises or the Project,
without first obtaining the written consent of Landlord, including Landlord's
written approval of Tenant's contractor(s) and of the plans, working drawings
and specifications relating thereto, such approval not to be unreasonably
withheld, conditioned or delayed. Approval by Landlord of any of Tenant's
drawings and plans and specifications prepared in connection with any
alterations, improvements, modifications or additions to the Premises or the
Project shall not constitute a representation or warranty of Landlord as to the
adequacy or sufficiency of such drawings, plans and specifications, or
alterations, improvements, modifications or additions to which they relate, for
any use, purpose or conditions, but such approval shall merely be the consent of
Landlord as required hereunder. Except as otherwise expressly provided in
Exhibit "E" attached hereto, any and all furnishing, equipping and improving of
- ----------
or other alteration and addition to the Premises shall be: (i) made at Tenant's
sole cost, risk and expense, and Tenant shall pay for Landlord's actual costs
incurred in connection with and as a result of such alterations or additions;
(ii) performed in a prompt, good and workerlike manner with labor and materials
of such quality as Landlord may reasonably require; (iii) constructed in
accordance with all plans and specifications approved in writing by Landlord
prior to the commencement of any such work, such approval not to be unreasonably
withheld, conditioned or delayed; (iv) prosecuted diligently and continuously to
completion so as to minimize interference with the normal business operations of
other tenants in the Project, the performance of Landlord's obligations under
this Lease or any mortgage, deed to secure debt or ground lease covering or
affecting all or any part of the Project or the Land and any work being done by
contractors engaged by Landlord with respect to or in connection with the
Project; and (v) performed by contractors approved in writing by Landlord, such
approval not to be unreasonably withheld, conditioned or delayed.
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Except as provided in Exhibit "E", Tenant shall have no (and hereby waives all)
----------
rights to payment or compensation for any such item, Tenant shall notify
Landlord upon completion of such alterations, improvements, modifications or
additions and Landlord shall inspect same for workmanship and compliance with
the approved plans and specifications. Tenant and its contractors shall comply
with all reasonable requirements Landlord may impose on Tenant or its
contractors with respect to such work (including but not limited to, insurance,
indemnity and bonding requirements), and shall deliver to Landlord a complete
copy of the "as-built" or final plans and specifications for all alterations or
physical additions so made in or to the Premises within thirty (30) days of
completing the work. Tenant shall not place safes, vaults, filing cabinets or
systems, libraries or other heavy furniture or equipment within the Premises
without Landlord's prior written consent, such consent not to be unreasonably
withheld, conditioned or delayed. Except as provided herein and upon ten (10)
days prior written notice, Tenant shall have the right to make non-structural
alterations (walls and partitions being deemed to be structural) of up to Twenty
Thousand and No/100 Dollars ($20,000.00) without the consent of Landlord. For
any and all improvements, alterations or physical additions (including fixtures)
in or to the Premises or the Project that Tenant is permitted to perform
pursuant to the terms of this Lease, including, without limitation, the work
performed pursuant to the terms of the Work Letter Agreement, attached hereto as
Exhibit "E", but not including the installation or application of painting,
carpeting or of finishing materials performed subsequent to the work performed
pursuant to the terms of the Work Letter Agreement, Landlord shall charge Tenant
a construction management fee of two (2) percent of the total costs of such
improvements, alterations or physical additions (including fixtures).
(c) Title to Alterations. All alterations, physical additions,
--------------------
modifications or improvements in or to the Premises (including fixtures) shall,
when made, become the property of Landlord and shall be surrendered to Landlord
upon termination or expiration of this Lease or termination of Tenant's right to
occupy the Premises, whether by lapse of time or otherwise, without any payment,
reimbursement or compensation therefor; provided, however, that (i) Tenant shall
retain title to and shall remove from the Premises movable equipment or
furniture owned by Tenant, (ii) Tenant repairs any damage caused thereby, and
(iii) Tenant returns the Premises to their preexisting condition.
Notwithstanding any of the foregoing to the contrary, Landlord may require
Tenant to remove all alterations, additions or improvements to the Premises that
are other than Building Standard (as defined in Exhibit "E" attached hereto)
----------
including, without limitation, any cabling or other computer, satellite or
telecommunications equipment or hardware, whether or not such alterations,
additions, or improvements are located in the Premises upon the expiration or
earlier termination of this Lease or the termination of Tenant's right to
possession of the Premises and restore the same to Building Standard condition,
reasonable wear and tear excepted. The rights conferred upon Landlord under this
Section 6.1(c) shall be in addition to (and not in conflict with) any other
rights conferred upon Landlord by this Lease, in equity or at law.
(d) Personal Property Taxes; Sales, Use and Excise Taxes. Tenant shall be
----------------------------------------------------
responsible for and shall pay ad valorem taxes and other taxes, assessments or
charges levied upon or applicable to Tenant's personal property, the value of
Tenant's leasehold improvements in the Premises in excess of Building Standard
(and if the taxing authorities do not separately assess Tenant's leasehold
improvements, Landlord may make a reasonable allocation of the taxes assessed on
the Project to give effect to this Section 6.1(d)) and all license fees and
other
20
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fees or charges imposed on the business conducted by Tenant on the Premises
before such taxes, assessment, charges or fees become delinquent. Tenant shall
also pay to Landlord with all Rent due and owing under this Lease an amount
equal to any sales, rental, excise and use taxes levied, imposed or assessed by
the State or any political subdivision thereof or other taxing authority upon
any amounts classified as Rent.
SECTION 6.2 Repairs by Landlord. All repairs, alterations or additions
-------------------
that affect the Project's structural components or major mechanical, electrical
or plumbing systems shall be made by Landlord or its contractors only, and, in
the case of any damage to such components or systems caused by Tenant or
Tenant's agents or contractors, shall be paid for by Tenant in an amount equal
to Landlord's costs plus five percent (5%) as an overhead expense. Unless
otherwise provided herein, Landlord shall not be required to make any
improvements to or repairs of any kind or character to the leasehold
improvements located in the Premises during the Term, except such repairs as
Landlord deems necessary for normal maintenance operations of the Building.
SECTION 6.3 Repairs by Tenant. Subject to Section 6.2 of this Lease,
-----------------
Tenant shall be responsible, at its own cost and expense, for all repair or
replacement of any damage to the leasehold improvements in the Demised Premises,
together with any damage to the Project or any part thereof caused by Tenant or
any of Tenant's agents or contractors. Except insofar as Landlord is expressly
obligated under this Lease to maintain and repair the Building, in addition to
the maintenance and repair obligations of Tenant otherwise expressly set forth
in this Lease, Tenant is also obligated to perform, at Tenant's own cost and
expense and risk, all other maintenance and repairs necessary or appropriate to
cause the Premises to be maintained in good condition and suitable for Tenant's
intended commercial purpose.
SECTION 6.4 Liens. Tenant shall keep the Premises and the Building free
-----
from any liens, including but not limited to liens filed against the Premises by
any governmental agency, authority or organization, arising out of any work
performed, materials ordered or obligations incurred by or on behalf of Tenant,
and Tenant hereby agrees to indemnify and hold Landlord, its agents, employees,
independent contractors, officers, members, directors, partners, and
shareholders harmless from any liability, cost or expense for such liens. Tenant
shall cause any such lien imposed to be released of record by payment or posting
of the proper bond acceptable to Landlord within thirty (30) days after the
earlier of imposition of the lien or written request by Landlord. Tenant shall
give Landlord written notice of Tenant's intention to perform work on the
Premises which might result in any claim of lien, at least ten (10) days prior
to the commencement of such work to enable Landlord to post and record a notice
of nonresponsibility or other notice deemed proper before commencement of any
such work. If Tenant fails to remove any lien within the prescribed ten (10) day
period, then Landlord may do so at Tenant's expense and Tenant's reimbursement
to Landlord for such amount, including reasonable attorneys' fees and costs,
shall be deemed Additional Rent. Tenant shall have no power to do any act or
make any contract which may create or be the foundation for any lien, mortgage
or other encumbrance upon the reversion or other estate of Landlord, or of any
interest of Landlord in the Premises, the Building or the Project.
SECTION 6.5 Indemnification.
---------------
21
<PAGE>
(a) Indemnification by Tenant. Tenant shall defend, indemnify and hold
-------------------------
harmless Landlord, its agents, employees, officers, directors, members, partners
and shareholders ("Landlord's Related Parties") from and against any and all
--------------------------
liabilities, judgments, demands, causes of action, claims, losses, damages,
costs and expenses, including reasonable attorneys' fees and costs, arising out
of the use, occupancy, conduct, operation, or management of the Premises by, or
the negligence, gross negligence, recklessness or willful misconduct of, Tenant,
its officers, contractors, licensees, agents, servants, employees, guests,
invitees, or visitors in or about the Project, the Building or the Premises or
arising from any breach or default under this Lease by Tenant, or arising from
any accident, injury, or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Demised Premises. This
indemnification shall survive termination or expiration of this Lease. This
provision shall not be construed to make Tenant responsible for loss, damage,
liability or expense resulting from injuries to third parties caused by the sole
gross negligence or willful misconduct of Landlord, or its officers,
contractors, licensees, agents, employees, or invitees.
(b) Indemnification by Landlord. Except as otherwise stated in this
---------------------------
Lease, Landlord shall defend, indemnify and hold harmless Tenant, its agents,
employees, officers, directors, members, partners and shareholders ("Tenant's
--------
Related Parties") from and against any and all liabilities, judgments, demands,
- ---------------
causes of action, claims, losses, damages, costs and expenses, including
reasonable attorneys' fees and costs, arising out of the willful misconduct or
gross negligence of, Landlord, its officers, contractors, licensees, agents,
servants, employees, guests, invitees, or visitors in or about the Project, the
Building or the Premises. This indemnification shall survive termination or
expiration of this Lease. This provision shall not be construed to make Landlord
responsible for loss, damage, liability or expense resulting from injuries to
third parties caused by the sole negligence or willful misconduct of Tenant, or
its officers, contractors, licensees, agents, employees, or invitees.
ARTICLE VII
SECTION 7.1 Condemnation.
------------
(a) Total Taking. In the event of a taking or damage related to the
------------
exercise of the power of eminent domain, by any agency, authority, public
utility, person, corporation or entity empowered to condemn property (including
without limitation a voluntary conveyance by Landlord in lieu of such taking or
condemnation) (individually, a "Taking") of (i) the entire Premises; or (ii) so
------
much of the Premises as to prevent or substantially impair its use by Tenant
during the Term of this Lease (individually, a "Total Taking"), the rights of
------------
Tenant under this Lease shall cease and terminate as of the date upon which
title to the property taken passes to and vests in the condemnor or the
effective date of any order for possession if issued prior to the date title
vests in the condemnor ("Date of Taking").
--------------
(b) Partial Taking. In the event of a Taking of only a part of the
--------------
Premises which does not constitute a Total Taking during the Term of this Lease
(individually, a "Partial Taking"), the rights of Tenant under this Lease shall
--------------
cease and terminate as of the Date of Taking only with respect to the portion of
the Premises so taken, an adjustment to the Rent shall be made based upon the
reduced area of the Premises, and except as so modified, this Lease shall remain
in full force and effect with respect to the reduced area of the Premises.
22
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(c) Termination by Landlord. In the event of a Taking of the Building
-----------------------
(other than the Premises) such that, in Landlord's reasonable opinion, the
Building cannot be restored in a manner that makes its continued operation
practically or economically consistent with Landlord's current or projected
return on equity or if restoration cannot be completed within one hundred eighty
(180) days, Landlord may terminate this Lease by giving notice to Tenant within
ninety (90) days after the date notice of such Taking is received by Landlord.
Tenant shall vacate the Premises within ninety (90) days after receipt of
Landlord's notice to Tenant or the last day upon which Landlord is in possession
of the Building, if such date is shorter than said ninety (90) day period.
(d) Rent Adjustment. If this Lease is terminated pursuant to this
---------------
Section 7.1, Landlord shall refund to Tenant any prepaid unaccrued Rent and any
other sums due and owing to Tenant (less any sums then due and owing Landlord by
Tenant), and Tenant shall pay to Landlord any remaining sums due and owing
Landlord under this Lease, each prorated as of the Date of Taking where
applicable.
(e) Repair. If this Lease is not terminated as provided for in this
------
Section 7.1, then within one hundred eighty (180) days Landlord, at its expense,
shall promptly repair and restore the Building, Project and/or the Premises to
approximately the same condition that existed at the time Tenant entered into
possession of the Premises, wear and tear excepted (and Landlord shall have no
obligation to repair or restore Tenant's improvements to the Premises or
Tenant's personal property), except for the part taken, so as to render the
Building or Project as complete an architectural unit as practical, but only to
the extent of the condemnation award received by Landlord for the damage.
(f) Awards and Damages. Landlord reserves all rights to damages and
------------------
awards paid because of any Partial or Total Taking of the Premises or the
Project. Tenant assigns to Landlord any right Tenant may have to the damages or
award. Furthermore, Tenant shall not make claims against Landlord or the
condemning authority for damages. Notwithstanding, Tenant may claim and recover
from the condemning authority a separate award for Tenant's moving expenses,
business dislocation damages, Tenant's personal property and any other award
that would not reduce the award payable to Landlord.
(g) Temporary Taking. Notwithstanding anything to the contrary
----------------
contained in this Section 7.1, if, during the Term, the use or occupancy of any
part of the Building or the Premises shall be taken or appropriated temporarily
for any public or quasi-public use under any governmental law, ordinance, or
regulations, or by right of eminent domain for a period of less than seven (7)
days (all other Takings being a Total Taking or a Partial Taking), this Lease
shall be and remain unaffected by such taking or appropriation and Tenant shall
continue to pay in full all Rent payable hereunder by Tenant during the Term. In
the event of any such temporary appropriation or taking, Tenant shall be
entitled to receive that portion of any award which represents compensation for
the loss of use or occupancy of the Premises during the Term, and Landlord shall
be entitled to receive that portion of any award which represents the cost of
restoration and compensation for the loss of use or occupancy of the Premises
after the end of the Term.
23
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Section 7.2 Force Majeure. Neither Landlord nor Tenant shall be required
-------------
to perform any term, provision, agreement, condition or covenant in this Lease
(other than the obligations of Tenant to pay Rent as provided herein) so long as
such performance is delayed or prevented by "Force Majeure", which shall mean
-------------
acts of God, strikes, injunctions, lockouts, material or labor restrictions by
any governmental authority, civil riots, floods, fire, theft, public enemy,
insurrection, war, court order, requisition or order of governmental body or
authority, and any other cause not reasonably within the control of Landlord or
Tenant and which by the exercise of due diligence Landlord or Tenant is unable,
wholly or in part, to prevent or overcome. Neither Landlord nor any mortgagee
shall be liable or responsible to Tenant for any loss or damage to any property
or person occasioned by any Force Majeure, or for any damage or inconvenience
which may arise through repair or alteration of any part of the Project as a
result of any Force Majeure.
Section 7.3 Fire or Other Casualty Damage.
-----------------------------
(a) If any portion of the Premises shall be destroyed or damaged by fire
or any other casualty, Tenant shall immediately give notice thereof to Landlord.
If any portion of the Premises or Project shall be destroyed or damaged by fire
or any other casualty then, at the reasonable option of Landlord, Landlord may
restore and repair the portion of the Premises or Project damaged and, if the
Premises are rendered untenantable in whole or in part by reason of such
casualty as determined by Landlord, Tenant shall be entitled to an equitable
abatement of the Rent hereunder (subject to the limitation in Section 7.3(c)
below) until such time as the damaged portion of the Premises (exclusive of any
of Tenant's personal property) are repaired or restored by Landlord to the
extent required hereby or Landlord may terminate this Lease whereupon all Rent
accrued up to the time of such casualty and any other sums due and owing shall
be paid by Tenant to Landlord (less any sums then due and owing Tenant by
Landlord) and any remaining sums due and owing by Landlord to Tenant shall be
paid to Tenant. If not practical or if not consistent with Landlord's current or
projected return of equity, Landlord shall not have any obligation to repair or
restore any such destruction or damage.
(b) Repair. Landlord shall use reasonable efforts to give Tenant written
------
notice of its decisions, estimates or elections under this Section 7.3 within
thirty (30) days after any such damage or destruction. If Landlord has elected
to repair and restore the Premises or other portion of the Project within one
hundred eighty (180) days, this Lease shall continue in full force and effect,
and the repairs will be made within a reasonable time thereafter (not to exceed
one (1) year), subject to the provisions of Section 7.2 of this Lease. Should
the repairs not be completed within that period, both Landlord and Tenant shall
each have the option of terminating this Lease by written letter of termination.
If this Lease is terminated as herein permitted, Landlord shall refund to Tenant
any prepaid Rent (unaccrued as of the date of damage or destruction) and any
other sums due and owing by Landlord to Tenant (less any sums then due and owing
Landlord by Tenant) and any remaining sums due and owing by Tenant to Landlord
shall be paid to Landlord. If Landlord elects to rebuild the Premises or other
portion of the Project, Landlord shall only be obligated to restore or rebuild
the Premises or other portion of the Project to approximately the same condition
as existed at the time Tenant entered into possession of the Premises, wear and
tear excepted and not be required to rebuild, repair or replace any part of
Tenant's personal property. Notwithstanding anything contained in this Lease to
the contrary, if Landlord shall elect to repair and restore the Premises or
other portion of the Project pursuant
24
<PAGE>
to this Section 7.3, in no event shall Landlord be required to expend under this
Article VII any amount in excess of the proceeds actually received from the
insurance carried by Landlord pursuant to Section 7.4(a) of this Lease. Landlord
shall not be liable for any inconvenience or annoyance to Tenant or injury to
the business of Tenant resulting in any way from such damage or destruction or
the disregard of the repair thereof, except for the grossly negligent acts or
omissions of Landlord, its agents, contractors or employees.
(c) Negligence of Tenant. Notwithstanding the provisions of Sections
--------------------
7.3(a) and 7.3(b) of this Lease, if the Premises, the Project or any portion
thereof, are damaged by fire or other casualty resulting from the fault or
negligence of Tenant or any of Tenant's employees, agents or contractors, the
Rent under this Lease will not be abated during the repair of that damage, and
Tenant will be liable to Landlord for the cost and expense of the repair and
restoration of the Premises, the Project or any part thereof, caused thereby to
the extent that cost and expenses is not covered by insurance proceeds
(including without limitation the amount of any insurance deductible).
Section 7.4 Insurance.
---------
(a) Landlord shall maintain, or cause to be maintained, standard fire and
extended coverage insurance on the Project and Building Standard tenant
improvements (excluding leasehold improvements by Tenant in excess of Building
Standard and Tenant's personal property) in amounts considered by Landlord to be
reasonable and customary for similar buildings in the Midtown Atlanta market.
Landlord may carry any other types or forms of insurance which Landlord deems
necessary, desirable or prudent to carry from time to time. The insurance
required to be obtained by Landlord may be obtained through blanket or master
policies insuring other entities or properties owned or controlled by Landlord.
(b) At all times during the term of this Lease Tenant shall, at its sole
expense, procure and maintain the following types of insurance coverage:
(i) Commercial General Liability Insurance. Not less than One
--------------------------------------
Million and No/100 Dollars ($1,000,000.00) coverage of commercial general
liability insurance ("Liability Insurance") written on an "occurrence" policy
-------------------
form, covering bodily injury, property damage, personal injury and advertising
injury, arising out of or relating, directly or indirectly, to Tenant's business
operations, conduct, assumed liabilities or use or occupancy of the Premises or
any other part of the Project. Tenant's Liability Insurance will also include
the broadest available form of contractual liability coverage. It is the intent
of Landlord and Tenant that Tenant's contractual liability coverage will provide
coverage to the maximum extent possible of Tenant's indemnification obligations
under this Lease. Tenant will cause Landlord and any lender of Landlord to be
named as "additional insureds". Tenant's Liability Insurance policies will be
endorsed as needed to provide cross-liability coverage for Tenant, Landlord and
any lender of Landlord, and will provide for severability of interests. Not more
frequently than every five (5) years, Tenant shall adjust said insurance
coverage to maintain coverage of One Million and No/100 Dollars ($1,000,000.00)
after adjusting for changes in the Consumer Price Index (for Urban Wage Earners
and Clerical Workers U.S. City Average All Items (1982=100) published by the
Bureau of Labor Statistics, United States Department of Labor).
25
<PAGE>
(ii) Property Insurance. Tenant will procure and maintain property
------------------
insurance coverage ("Property Insurance") for the following: (i) all furniture,
------------------
trade fixtures, office equipment, merchandise and all other items of Tenant's
personal property in, on, at or about the Premises or any other part of the
Project; (ii) all leasehold improvements to the Premises constructed pursuant to
Tenant's obligations hereunder, and other improvements, betterments and
alterations to the Premises. Tenant's Property Insurance must be written on the
broadest available "all risk" ("special form") policy form or an equivalent form
acceptable to Landlord, include an agreed-amount endorsement for no less than
one hundred percent (100%) of the full replacement cost (new without deduction
for depreciation) of the covered items and property, be written in amounts of
coverage that meet any coinsurance requirements of the policy, and include
vandalism and malicious mischief coverage, and sprinkler leakage coverage.
Landlord must be named as an "insured as its interest may appear" under Tenant's
Property Insurance.
(iii) Workers' Compensation and Employer Liability Coverage. Tenant
-----------------------------------------------------
will procure and maintain workers' compensation insurance as required by law and
employer's liability insurance of at least One Hundred Thousand and No/100
Dollars ($100,000.00). Both such policies will contain waivers of subrogation in
favor of Landlord. Tenant, and not Landlord, will be liable for any costs or
damages in excess of the statutory limit for which Tenant would, in the absence
of workers' compensation, be liable.
(iv) Business Income and Extra Expense Coverage. Tenant will also
------------------------------------------
procure and maintain business income/business interruption insurance and extra
expense coverage (collectively, "Business Income Insurance") with coverage
-------------------------
amounts that will reimburse Tenant for all direct or indirect loss of income and
charges and costs incurred arising out of all named perils insured against by
Tenant's Property Insurance coverage, including prevention of, or denial of use
of or access to, all or part of the Premises or the Project, as a result of
those named perils. The Business Income Insurance coverage must provide coverage
for no less than twelve (12) months of the loss of income, charges, and costs
contemplated under this Lease.
(c) Landlord shall be named as an additional insured, with respect to
Liability Insurance, and as an additional insured, as its interests may appear,
with respect to Property Insurance, in all of Tenant's insurance policies
pertaining to the Premises and/or Project. Tenant shall deliver to Landlord, on
or prior to the Commencement Date (with respect to the initial policy or
policies) and not less than ten (10) days prior to the expiration date of such
policy or policies (with respect to all renewals of said policies), with respect
to both Liability Insurance and Property Insurance: (i) the policy or policies
of such insurance; (ii) a certificate of insurance using ACORD Form 27 (which
shall be appropriately modified to cover Liability Insurance) from its insurance
company, certifying (x) the existence and amounts of coverage of such insurance,
and (y) that Landlord is named as an additional insured as described in the
first sentence of this paragraph; and (iii) an endorsement on ISO Form 20 26
reflecting Landlord as an additional insured as described above. Any insurance
required to be maintained by Tenant under this Section 7.4 may be maintained
under a so-called blanket policy or policies; provided Tenant, at Tenant's sole
expense, procures a "per location" endorsement, or equivalent reasonably
acceptable to Landlord, so that the general aggregate and other limits apply
separately and specifically to the Premises. Landlord must give its prior
written approval to all deductibles and self-insured retentions under Tenant's
policies. Landlord shall have the right to approve the identity and financial
condition of Tenant's insurers, and such approval shall not be unreasonably
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withheld. Failure of Tenant to deliver any policies or certificates of insurance
to Landlord shall not release Tenant from the obligation of obtaining the above-
required coverage.
(d) In the event that Tenant fails to take out or maintain any policy
required by this Section 7.4 to be maintained by Tenant, such failure shall be a
defense to any claim asserted by Tenant against Landlord by reason of any loss
sustained by Tenant that would have been covered by such policy, notwithstanding
that such loss may have been proximately caused solely or partially by the
negligence or willful misconduct of Landlord or any of Landlord's Related
Parties. If Tenant does not procure insurance as required, Landlord may, upon
advance written notice to Tenant, cause this insurance to be issued and Tenant
shall pay to Landlord the premium for such insurance within ten (10) days of
Landlord's demand, plus interest at the past due rate provided for in Section
3.1(c) of this Lease until repaid by Tenant. All policies of insurance required
to be maintained by Tenant shall specifically make reference to the
indemnifications by Tenant in favor of Landlord under this Lease and shall
provide that Landlord shall be given at least thirty (30) days' prior written
notice of any cancellation or nonrenewal of any such policy. All insurance
policies obtained by Tenant shall be written as primary policies (primary over
any insurance carried by Landlord), not contributing with and not in excess of
coverage which Landlord may carry, if any.
(e) Landlord acknowledges that the insurance information stated in
Exhibit "H" attached hereto and by this reference incorporated herein meets the
- ----------
requirements of this Section 7.4 of this Lease.
Section 7.5 Waiver of Subrogation Rights. Each party hereto waives all
----------------------------
rights of recovery, claims, actions or causes of actions arising in any manner
in its (the "Injured Parties") favor and against the other party for loss or
---------------
damage to the Injured Party's property located within or constituting a part or
all of the Project, to the extent the loss or damage: (a) is covered by the
Injured Party's insurance; or (b) would have been covered by the insurance the
Injured Party is required to carry under this Lease, whichever is greater,
regardless of the cause or origin, including the sole, contributory, partial,
joint, comparative or concurrent negligence of the other party. This waiver also
applies to each party's directors, officers, employees, shareholders, partners,
representatives and agents. All insurance carried by either Landlord or Tenant
covering the losses and damages described in this Section 7.5 shall provide for
such waiver of rights of subrogation by the Injured Party's insurance carrier to
the maximum extent that the same is permitted under the laws and regulations
governing the writing of insurance within the state in which the Building is
located. Both parties hereto are obligated to obtain such a waiver and provide
evidence to the other party of such waiver. The waiver set forth in this Section
7.5 shall be in addition to, and not in substitution for, any other waivers,
indemnities or exclusions of liability set forth in this Lease.
ARTICLE VIII
Section 8.1 Default by Tenant. The occurrence of any one or more of the
-----------------
following events shall constitute a default (a "Default") by Tenant under this
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Lease:
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(a) Tenant shall fail to pay to Landlord any Rent, Additional Rent or
other monetary charges due (after ten (10) days prior written notice or as
otherwise specifically provided herein) from Tenant hereunder as and when due
and payable (a "Monetary Default");
(b) Tenant breaches or fails to comply with any term, provisions,
conditions or covenant of this Lease, other than as described in Section 8.1(a),
or with any of the Building rules and regulations now or hereafter established
to govern the operation of the Project, provided that such breach or failure is
not cured within thirty (30) days after written notice from Landlord of such
default or such longer period of time as may be reasonably necessary if Tenant
is proceeding with its best efforts to cure such default, but in no event later
than ninety (90) days from the date Tenant receives notice of such default;
(c) A Transfer (hereinafter defined) other than a Permitted Transfer (as
hereinafter defined) shall occur, without the prior written approval of
Landlord;
(d) The interest of Tenant under this Lease shall be levied on under
execution or other legal process;
(e) Any petition in bankruptcy or other insolvency proceedings shall be
filed by or against Tenant, or any petition shall be filed or other action taken
to declare Tenant a bankrupt or to delay, reduce or modify Tenant's debts or
obligations or to reorganize or modify Tenant's capital structure or
indebtedness or to appoint a trustee, receiver or liquidator of Tenant or of any
property of Tenant, or any proceeding or other action shall be commenced or
taken by any governmental authority for the dissolution or liquidation of Tenant
and, within thirty (30) days hereafter, Tenant fails to secure a discharge
thereof;
(f) Tenant shall become insolvent, or Tenant shall make an assignment for
the benefit of creditors, or Tenant shall make a transfer in fraud of creditors,
or a receiver or trustee shall be appointed for Tenant or any of its properties;
and
(g) Tenant shall do or permit to be done anything which creates a lien
upon the Premises or the Project.
Section 8.2 Landlord's Remedies. Upon occurrence of any default by Tenant
-------------------
under this Lease and (i) if the event of default described in Section 8.1(a) is
not cured within five (5) days after written notice from Landlord of such
default; or (ii) the events described in Sections 8.1(d) and (g) are not cured
within thirty (30) days after written notice from Landlord of such default or
such longer period of time as may be reasonably necessary if Tenant is
proceeding with its best efforts to cure such default, but in no event later
than ninety (90) days from the date Tenant receives notice of such default
(there being no notice and cure period for events of default described in
Sections 8.1(b), (c), (e) and (f) except as otherwise set forth herein),
Landlord shall have the option to do and perform any one or more of the
following in addition to, and not in limitation of, any other remedy or right
permitted it by law or in equity by this Lease:
(a) Continue this Lease in full force and effect, and this Lease shall
continue in full force and effect as long as Landlord does not terminate this
Lease, and Landlord shall have the right to collect Rent, Additional Rent, and
other charges when due.
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(b) Terminate this Lease, and Landlord may forthwith repossess the
Premises and be entitled to recover as damages a sum of money equal to the total
of (i) the cost of recovering the Premises, (ii) the actual and customary cost
of removing and storing Tenant's or any other occupant's property, (iii) the
unpaid Rent and any other sums accrued hereunder at the date of termination,
(iv) a sum equal to the amount, if any, by which the present value of the total
Rent and other benefits which would have accrued to Landlord under this Lease
for the remainder of the Term, if the terms of this Lease had been fully
complied with by Tenant, discounted at ten percent (10%) per annum, exceeds the
total fair market value of the Premises for the balance of the Term (it being
the agreement of the parties hereto that Landlord shall receive the benefit of
its bargain), (v) the actual and customary cost of reletting the Premises
including, without limitation, the actual and customary cost of restoring the
Premises to the condition necessary to rent the Premises at the prevailing
market rental rate, normal wear and tear excepted, (vi) the amount of any
unamortized improvements (straight line basis over 60 months) to the Premises
paid for by Landlord, (vii) the amount of any unamortized brokerage commission
or other costs paid by Landlord in connection with the leasing of the Premises
and (viii) any other sum of money or damages owed by Tenant to Landlord. In the
event Landlord shall elect to terminate this Lease, Landlord shall at once have
all the rights of reentry upon the Premises pursuant to Section 8.4 of this
Lease.
(c) Terminate Tenant's right of occupancy of the Premises and reenter and
repossess the Premises by entry, forcible entry or detainer suit or otherwise,
without acceptance of surrender of possession of the Premises, and without
becoming liable for damages or guilty of trespass, in which event Landlord may,
but shall be under no obligation to, relet the Premises or any part thereof for
the account of Tenant (nor shall Landlord be under any obligation to relet the
Premises before Landlord relets or leases any other portion of the Project or
any other property under the ownership or control of Landlord) for a period
equal to or lesser or greater than the remainder of the Term of the Lease on
whatever terms and conditions Landlord, at Landlord's sole discretion, deems
advisable, Tenant shall be liable for and shall pay to Landlord all Rent payable
by Tenant under this Lease (plus interest at the past due rate provided in
Section 3.1(c) of this Lease if in arrears) plus an amount equal to (i) the
actual and customary cost of recovering possession of the Premises, (ii) the
actual and customary cost of removing and storing any of Tenant's or any other
occupant's property left on the Premises or the Project after reentry, (iii) the
actual and customary cost of decorations, repairs, changes, alterations and
additions to the Premises and the Project, (iv) the actual and customary cost of
any attempted reletting or reletting and the collection of the rent accruing
from such reletting, (v) the actual and customary cost of any brokerage fees or
commissions payable by Landlord in connection with any reletting or attempted
reletting, (vi) any other actual and customary costs incurred by Landlord in
connection with any such reletting or attempted reletting, (vii) the amount of
any unamortized improvements (straight line basis over 60 months) to the
Premises paid for by Landlord, (viii) the amount of any unamortized brokerage
commissions or other costs paid by Landlord in connection with the leasing of
the Premises and (ix) any other sum of money or damages owed by Tenant to
Landlord at law, in equity or hereunder, all reduced by any sums received by
Landlord through any reletting of the Premises; provided, however, that in no
event shall Tenant be entitled to any excess of any sums obtained by reletting
over and above Rent provided in this Lease to be paid by Tenant to Landlord. For
the purpose of such reletting Landlord is authorized to decorate or to make any
repairs, changes, alterations or additions in or to the Premises that may be
necessary. Landlord may file suit to recover any sums falling due under the
terms of this
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Section 8.2(c) from time to time, and no delivery to or recovery by Landlord of
any portion due Landlord hereunder shall be any defense in any action to recover
any amount not theretofore reduced to judgment in favor of Landlord. No
reletting shall be construed as an election on the part of Landlord to terminate
this Lease unless a written notice of such intention is given to Tenant by
Landlord. Notwithstanding any such reletting without termination, Landlord may
at any time thereafter elect to terminate this Lease for such previous default
and/or exercise its rights under Section 9.3(b) of this Lease.
(d) Enter upon the Premises and do whatever Tenant is obligated to do
under the terms of this Lease; and Tenant agrees to reimburse Landlord within
thirty (30) days for any expenses which Landlord may incur in effecting
compliance with Tenant's obligations under this Lease plus five percent (5%) of
such cost to cover overhead plus interest at the past due rate provided in this
Lease, and Tenant further agrees that Landlord shall not be liable for any
damages resulting to Tenant from such action, except for the gross negligence of
Landlord, its agents, contractors and employees. No action taken by Landlord
under this Section 8.2(d) shall relieve Tenant from any of its obligations under
this Lease or from any consequences or liabilities arising from the failure to
perform such obligations.
(e) Without waiving such default, apply all or any part of the Letter of
Credit or the Cash Allowance Letter of Credit (collectively, the "Letters of
----------
Credit") to cure the Default or to any damages suffered as a result of the
- ------
Default to the extent of the amount of damages suffered. Such Default shall not
be deemed cured until Tenant causes the amount of the Letters of Credit to be
reinstated to the amount of the Letters of Credit immediately prior to the use
by Landlord of the Letters of Credit to cure the default of the Tenant.
(f) Change all door locks and other security devices of Tenant at the
Premises and/or the Project, and Landlord shall not be required to provide the
new key to the Tenant except during Tenant's regular business hours, and only
upon the condition that Tenant has cured any and all defaults hereunder and in
the case where Tenant owes Rent to the Landlord, reimbursed Landlord for all
Rent and other sums due Landlord hereunder. Landlord, on terms and conditions
satisfactory to Landlord in its sole discretion, may upon request from Tenant's
employees, enter the Premises for the purpose of retrieving therefrom personal
property of such employees, provided, Landlord shall have no obligation to do
so.
(g) Exercise any and all other remedies available to Landlord in this
Lease, at law or in equity.
Section 8.3 Waiver of Duty to Relet or Mitigate. Notwithstanding anything
-----------------------------------
contained herein to the contrary, to the full extent permitted under applicable
law, Tenant and Landlord agree that Landlord shall have no duty to relet the
Premises or otherwise mitigate damages under this Lease and Tenant hereby
releases Landlord from any and all duty to relet the Premises or otherwise
mitigate damages. Tenant agrees that Landlord shall not be liable, nor shall
Tenant's obligations hereunder be diminished, because of Landlord's failure to
relet the Premises or collect rent due with respect to such reletting.
Furthermore, Tenant hereby waives any and all rights to plead such failure of
Landlord to mitigate damages as an affirmative defense in any proceeding based
on any Default by Tenant under this Lease. In the event, and only in the event,
that (despite such waiver and contrary to the intent of the parties hereunder)
applicable
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law requires Landlord to attempt to mitigate damages, Landlord and Tenant agree
that any such duty to mitigate shall be satisfied and Landlord shall be deemed
to have used objectively reasonable efforts to fill the Premises by doing the
following: (a) posting a "For Lease" sign on the Premises; (b) advising
Landlord's leasing agent of the availability of the Premises; and (c) advising
at least one outside commercial brokerage entity of the availability of the
Premises; provided, however, that Landlord shall not be obligated to relet the
Premises before leasing any other unoccupied portions of the Building, the
Project and any other property under the ownership or control of Landlord or
Landlord's affiliates. If Landlord receives any payments from the reletting of
the Premises and is required by law to mitigate damages (despite the intent of
the parties hereunder), any such payment shall first be applied to any costs or
expenses incurred by Landlord as a result of Tenant's Default under this Lease.
Notwithstanding the foregoing, Landlord agrees to use commercially reasonable
efforts to market and lease the property; provided, however, (i) Landlord may
offer the Demised Premises, or a portion of the Demised Premises, such upon
terms and conditions satisfactory to Landlord; (ii) Landlord shall have no
obligation to make or accept an offer for all or a portion of the Demised
Premises if Landlord has any unleased or vacant space at the Project and the
prospective tenant may be interested in such other space; and (iii) the decision
to make or accept an offer to any prospective tenant shall be Landlord's sole
decision and the failure of Landlord to make or accept an offer shall create no
liability of Landlord to Tenant.
Section 8.4 Reentry. If Tenant fails to allow Landlord to reenter and
-------
repossess the Premises, Landlord shall have full and free license to enter into
and upon the Premises with or without process of law for the purpose of
repossessing the Premises, expelling or removing Tenant and any others who may
be occupying or otherwise within the Premises, removing any and all property
therefrom and changing all door locks of the Premises. Landlord may take these
actions without being deemed in any manner guilty of trespass, eviction or
forcible entry or detainer, without accepting surrender of possession of the
Premises by Tenant.
Section 8.5 Rights of Landlord in Bankruptcy. Nothing contained in this
--------------------------------
Lease shall limit or prejudice the right of Landlord to prove for and obtain in
proceedings for bankruptcy or insolvency, by reason of the expiration or
termination of this Lease or the termination of Tenant's right of occupancy, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, the damages are to be
proved, whether or not the amount be greater, equal to, or less than the amount
of the loss or damages referred to in this Section 8.5. In the event that under
applicable law, the trustee in bankruptcy or Tenant has the right to affirm this
Lease and continue to perform the obligations of Tenant hereunder, such trustee
or Tenant shall, in such time period as may be permitted by the bankruptcy court
having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the
date of the affirmance of this Lease and provide to Landlord such adequate
assurances as are described below to ensure Landlord of the continued
performance of Tenant's obligations under this Lease. In such event, Tenant or
any trustee for Tenant may only assume this Lease if (A) it cures or provides
adequate assurance that the trustee will promptly cure any default hereunder,
(B) compensates or provides adequate assurance that Tenant will promptly
compensate Landlord for any actual pecuniary loss to Landlord resulting from
Tenant's default, and (C) provides adequate assurance of performance during the
fully stated Term hereof of all of the terms, covenants, and provisions of this
Lease to be performed by Tenant. In no event after the assumption of this Lease
shall any then existing default remain uncured for a period in excess
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of the earlier of ten (10) days or the time period set forth herein. Adequate
assurance of performance of this Lease as set forth hereinabove shall include,
without limitation, adequate assurance of (A) the source of Rental reserved
hereunder, and (B) that the assumption of this Lease will not breach any
provision hereunder.
Section 8.6 Waiver of Certain Rights. Tenant acknowledges that the
------------------------
Premises are to be used for commercial purposes, and Tenant hereby expressly
waives the protections and rights set forth in Official Code of Georgia
Annotated Section 44-7-52. Tenant hereby expressly waives any rights Tenant may
have to any rights of redemption whether currently existing or arising in the
future under any applicable laws. Tenant hereby expressly waives any and all
liens (whether statutory, contractual or constitutional) it may have or acquire
as a result of a breach by Landlord under this Lease. Tenant hereby expressly
waives and releases any statutory lien rights it may have against Landlord,
including, without limitation, the rights conferred upon applicable state law.
Section 8.7 NonWaiver. Failure on the part of Landlord to complain of any
---------
action or nonaction on the part of Tenant, no matter how long the same may
continue, shall not be deemed to be a waiver by Landlord of any of its rights
under this Lease. Further, it is covenanted and agreed that no waiver at any
time of any of the provisions hereof by Landlord shall be construed as a waiver
of any of the other provisions hereof and that a waiver at any time of any of
the provisions hereof shall not be construed as a waiver at any subsequent time
of the same provisions. The consent or approval by Landlord to or of any action
by Tenant requiring Landlord's consent shall not constitute Landlord's consent
or approval to or of any subsequent similar act by Tenant.
Section 8.8 Holding Over. In the event Tenant remains in possession of
------------
the Premises after the expiration or termination of this Lease without the
execution of a new lease, then Tenant, at Landlord's option, shall be deemed to
be occupying the Premises as a tenant at will at a base rental equal to one
hundred fifty percent (150%) of the then applicable Base Rent, and shall
otherwise remain subject to all the conditions, provisions and obligations of
this Lease insofar as the same are applicable to a tenant at will, including
without limitation the payment of all other Rent; provided, however, nothing
contained herein shall require Landlord to give Tenant more than thirty (30)
days' prior written notice to terminate Tenant's tenancy-at-will. No holding
over by Tenant after the expiration or termination of this Lease shall be
construed to extend or renew the Term or in any other manner be construed as
permission by Landlord to hold over. Tenant shall indemnify Landlord (y) against
all claims for damages by any other tenant to whom Landlord may have leased all
or any part of the Premises effective upon the termination or expiration of this
Lease, and (z) for all other losses, costs and expenses, including reasonable
attorneys' fees, incurred by reason of such holding over. Landlord shall notify
Tenant of the damages described in (y) above prior to the expiration of the Term
of this Lease and if Landlord fails to so notify Tenant, Tenant shall not be
liable for such damages.
Section 8.9 Abandonment of Personal Property. Any personal property left
--------------------------------
in the Premises or any personal property of Tenant left about the Project at the
expiration or termination of this Lease, the termination of Tenant's right to
occupy the Premises or the abandonment, desertion or vacating of the Premises by
Tenant, shall be deemed abandoned by Tenant and may, at the option of Landlord,
be immediately removed from the Premises or such
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other space by Landlord and stored by Landlord at the full risk and reasonable
and customary costs and expenses of Tenant. Landlord shall in no event be
responsible for the value, preservation or safekeeping thereof. In the event
Tenant does not reclaim any such personal property and pay all costs for any
storage and moving thereof within thirty (30) days after the expiration or
termination of this Lease, the termination of Tenant's right to occupy the
Premises or the abandonment, desertion or vacating of the Premises by Tenant,
Landlord may dispose of such personal property in any way that it deems proper.
If Landlord shall sell any such personal property, it shall be entitled to
retain from the proceeds the amount of any Rent or other expenses due Landlord,
together with the cost of storage and moving and the expense of the sale.
Notwithstanding anything contained herein to the contrary, in addition to the
rights provided herein with respect to any such property, Landlord shall have
the option of exercising any of its other rights or remedies provided in the
Lease or exercising any rights or remedies available to Landlord at law or in
equity.
ARTICLE IX
Section 9.1 Transfers.
---------
(a) Prohibited Transfers. Tenant shall not, by operation of law or
--------------------
otherwise, (a) assign, transfer, mortgage, pledge, hypothecate or otherwise
encumber this Lease, the Premises or any part of or interest in this Lease or
the Premises, (b) grant any concession or license within the Premises, (c)
sublet all or any part of the Premises or any right or privilege appurtenant to
the Premises, or (d) permit any other party to occupy or use all or any part of
the Premises (collectively, a "Transfer"), without the prior written consent of
--------
Landlord, such consent not to be unreasonably withheld or delayed. This
prohibition against a Transfer includes, without limitation, (i) any subletting
or assignment which would otherwise occur by operation of law, merger,
consolidation, reorganization, transfer or other change of Tenant's corporate or
proprietary structure; (ii) an assignment or subletting to or by a receiver or
trustee in any federal or state bankruptcy, insolvency, or other proceedings;
(iii) the sale, assignment or transfer of all or substantially all of the assets
of Tenant, with or without specific assignment of this Lease; (iv) the change in
control in a partnership; or (v) conversion of Tenant to a limited liability
entity. If Tenant converts to a limited liability entity without obtaining the
prior written consent of Landlord: (i) the conversion shall be null and void for
purposes of the Lease, including the determination, of all obligations and
liabilities of Tenant and its partners to Landlord; (ii) all partners of Tenant
immediately prior to its conversion to a limited liability entity shall be fully
liable, jointly and severally, for obligations of Tenant accruing under this
Lease pre-conversion and post-conversion, and all members and other equity
holders in Tenant post-conversion shall be fully liable for all obligations and
liabilities of Tenant accruing under the Lease after the date such members and
other equity holders are admitted to the limited liability entity as if such
person or entity had become a general partner in a partnership; and (iii)
Landlord shall have the option of declaring Tenant in default under this Lease.
If Tenant requests Landlord's consent to any Transfer, then Tenant shall provide
Landlord with a written description of all terms and conditions of the proposed
Transfer, copies of the proposed documentation, and the following information
about the proposed transferee: name and address; reasonably satisfactory
information about its business and business history; its proposed use of the
Premises; a copy of the proposed sublease or assignment agreement; banking,
financial and other credit information; and general references sufficient to
enable Landlord to determine the proposed transferee's
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creditworthiness and character. It shall be reasonable for Landlord to withhold
its consent to a Transfer if the net worth (net of goodwill) of the proposed
transferee is less than that of Tenant as calculated as the greater of Tenant's
net worth (net of goodwill) either at the time of the Transfer or at the
Commencement Date and if the proposed transferee cannot provide satisfactory
evidence to the Landlord of its financial ability to satisfy all of the
financial obligations of Tenant under this Lease. Landlord's consent to a
Transfer shall not release Tenant from performing its obligations under this
Lease, but rather Tenant's transferee shall assume all of Tenant's obligations
under this Lease in a writing satisfactory to Landlord, and Tenant and its
transferee shall be jointly and severally liable therefor. Landlord's consent to
any Transfer shall not waive Landlord's rights as to any subsequent Transfer.
While the Premises or any part thereof are subject to a Transfer, Landlord may
collect directly from such transferee all rents or other sums relating to the
Premises becoming due to Tenant or Landlord and apply such rents and other sums
against the Rent and any other sums payable hereunder. If the aggregate rental,
bonus or other consideration paid by a transferee for any such space exceeds the
sum of Tenant's Rent to be paid to Landlord for such space during such period,
then one-half (1/2) of such excess shall be paid to Landlord within fifteen (15)
days after such amount is earned by Tenant. Such overage amounts in the case of
a sublease shall be calculated and adjusted (if necessary) on a Lease Year (or
partial Lease Year) basis, and there shall be no cumulative adjustment for the
Term. Landlord shall have the right to audit Tenant's books and records relating
to the Transfer. Tenant authorizes its transferees to make payments of rent and
any other sums due and payable, directly to Landlord upon receipt of notice from
Landlord to do so. Any attempted Transfer by Tenant hereunder shall be void
unless Tenant causes the Letters of Credit to remain in full force and effect,
to the extent otherwise required by this Lease, or delivers to Landlord new
letters of credit containing the same terms and conditions as the Letters of
Credit and reasonably satisfactory to Landlord. Any attempted Transfer by Tenant
in violation of the terms and covenants of this Article IX shall be void and
shall constitute a default by Tenant under this Lease. In the event that Tenant
requests that Landlord consider a sublease or assignment hereunder, Tenant shall
pay (i) Landlord's reasonable fees, not to exceed One Thousand and 00/100
Dollars ($1,000.00) per transaction, incurred in connection with the
consideration of such request, and (ii) all attorneys' fees and costs incurred
by Landlord in connection with the consideration of such request or such
sublease or assignment.
(b) Permitted Transfers. Notwithstanding anything to contrary in this
-------------------
Section 9.1, Tenant shall have the right, upon thirty (30) days prior written
notice to Landlord, to assign this Lease to any firm, person, corporation,
partnership or other entity which (i) controls or is controlled by or is under
common control with Tenant or is deemed an "affiliate" of Tenant in accordance
with the promulgated definition of such term under the rules and regulations of
the Federal Securities and Exchange Commission, or its successor agency, or (ii)
into which or with which Tenant shall merge or consolidate, or which acquires
all or substantially all of the stock or assets of Tenant, provided in each of
the foregoing instances (x) Tenant furnishes to Landlord a fully executed
counterpart of the assignment agreement between Tenant and the assignee promptly
following execution thereof, and (y) the tangible net worth of Tenant, its
assignee and/or surviving entity following a merger or consolidation is equal to
or greater than that of Tenant six (6) months prior to such transaction (a
"Permitted Transfer"). If Tenant remains in existence as a separate legal entity
following consummation of any assignment, Tenant shall not be released from
liability under this Lease. The term "control," as used in this Section 9.1(b)
means, with respect to a corporation, the right to the exercise, directly or
indirectly, of more than
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50% of the voting rights attributable to the shares of the controlled
corporation, and, with respect to any person or entity that is not a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled person or
entity. In the event that Tenant enters a Permitted Transfer, the charges
enumerated in Section 9.1(a) shall not be due to Landlord.
Section 9.2 Assignment by Landlord. Landlord shall have the right at any
----------------------
time to sell, transfer or assign, in whole or in part, by operation of law or
otherwise, its rights, benefits, privileges, duties, obligations or interests in
this Lease or in the Premises, the Building, the Land, the Project and all other
property referred to herein, without the prior consent of Tenant, and such sale,
transfer or assignment shall be binding on Tenant. After such sale, transfer or
assignment, and provided such assignee or transferee agrees to honor the terms
and conditions of this Lease, Tenant shall attorn to such purchaser, transferee
or assignee, and Landlord shall be released from all liability and obligations
under this Lease accruing after the effective date of such sale, transfer or
assignment. In such event, Landlord shall release the Letters of Credit and
Tenant shall cause new Letters of Credit to be issued according to the terms of
Section 3.4.
Section 9.3 Limitation of Landlord's Liability. Any provisions of this
----------------------------------
Lease to the contrary notwithstanding, Tenant hereby agrees that no personal,
partnership or corporate liability of any kind or character (including, without
limitation, the payment of any judgment) whatsoever now attaches or at any time
hereafter under any condition shall attach to Landlord or any of Landlord's
Related Parties or any mortgagee for payment of any amounts payable under this
Lease or for the performance of any obligation under this Lease. The exclusive
remedies of Tenant for the failure of Landlord to perform any of its obligations
under this Lease shall be to proceed against the interest of Landlord in and to
the Project. The provision contained in the foregoing sentence is not intended
to, and shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in interest or any
suit or action in connection with enforcement or collection of amounts which may
become owing or payable under or on account of insurance maintained by Landlord.
In no event shall Landlord be liable to Tenant, or any interest of Landlord in
the Project be subject to execution by Tenant, for any indirect, special,
consequential or punitive damages (but not actual damages).
Section 9.4 Exculpation of Landlord. Except as may be caused primarily by
-----------------------
the gross negligence or willful misconduct of Landlord, its agents or employees,
neither Landlord nor the tenants in common, partners, members, owners or
shareholders in or comprising Landlord, nor any officers, directors, agents or
representatives of any thereof shall be liable for (i) injury or damage which
may be sustained by Tenant, its agents, officers, directors, employees, or
invitees, or to their goods, wares, merchandise or property, caused by or
resulting from the state of repair of the Premises or the Project; (ii) injury
or damage from fire, steam, electricity, gas, water or rain which may leak or
flow from or into any part of the Premises; or (iii) the breakage, leakage,
obstruction or other defects of the pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures of the Premises or the Project.
Landlord shall not be liable for damage arising from any act or neglect of any
other tenant of the Project. Landlord shall not be liable for any damages
sustained by Tenant by reason of construction, repair or reconstruction, or
widening of any private, public or quasi-public utility lines, streets, walkways
or thoroughfares; nor, except as may be otherwise provided herein, shall the
Rent or other
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charges under this Lease be abated during any period that ingress, egress or
traffic may be curtailed, blocked or hampered by reason of such activities.
ARTICLE X
Section 10.1 Subordination. This Lease shall be subject and subordinated
-------------
at all times to (a) all ground or underlying leases now existing or which may
hereinafter be executed affecting the Project, and (b) the lien or liens of all
mortgages, deeds to secure debt and deeds of trust in any amount or amounts
whatsoever now or hereafter placed on the Project or Landlord's interest or
estate therein or on or against such ground or underlying leases and to all
renewals, modifications, consolidations, replacements and extensions thereof and
to each advance made or hereafter to be made thereunder. Upon receipt by Tenant
of a non-disturbance agreement reasonably acceptable to Tenant, Tenant shall
execute and deliver to Landlord, within ten (10) days after receiving written
notice, any instruments, releases or other documents requested by any lessor,
grantee or mortgagee for the purpose of subjecting and subordinating this Lease
to such ground leases, mortgages or deeds of trust. Tenant shall attorn to any
party succeeding to Landlord's interest in the Premises, whether by purchase,
foreclosure, deed in lieu of foreclosure, power of sale, termination of lease or
otherwise, only upon such party's request and at such party's sole discretion,
but not otherwise. Notwithstanding such attornment, Tenant agrees that any such
successor in interest shall not be (a) liable for any act or omission of, or
subject to any rights of setoff, claims or defenses otherwise assertable by
Tenant against, any prior owner of the Project (including without limitation,
Landlord), (b) bound by any rents paid more than one (1) month in advance to any
prior owner, (c) liable for any Security Deposit not paid over to such successor
by Landlord, (d) if such successor is a mortgagee, grantee or ground lessor
whose address has been previously given to Tenant, bound by any modification,
amendment, extension or cancellation of the Lease not consented to in writing by
such mortgagee, grantee or ground lessor, and (e) obligated to cure any defaults
of any prior landlord (including Landlord) which occurred prior to the time such
successor succeeded to the interest of such prior landlord. Tenant shall execute
all such agreements confirming such attornment as such party may reasonably
request. Tenant shall not seek to enforce any remedy it may have for any default
on the part of Landlord without first giving written notice by certified mail,
return receipt requested, specifying the default in reasonable detail, to any
mortgagee, grantee or ground lessor under a lien instrument or lease covering
the Premises whose address has been given to Tenant, and affording such
mortgagee or lessor a reasonable opportunity to perform Landlord's obligations
hereunder. Notwithstanding the generality of the foregoing, any mortgagee,
grantee or ground lessor may at any time subordinate any such deeds of trust,
deeds to secure debt, mortgages, other security instruments or ground leases to
this Lease on such terms and conditions as such mortgagee, grantee, lienholder
or ground lessor may deem appropriate. Tenant hereby irrevocably appoints
Landlord its attorney-in-fact in its name, place and stead to execute any such
non-disturbance, subordination or attornment documents as described herein which
Tenant fails to execute within ten (10) business days after demand therefor.
Section 10.2 Estoppel Certificate or Three-Party Agreement. Tenant agrees
---------------------------------------------
within ten (10) business days following request by Landlord (a) to execute,
acknowledge and deliver to Landlord and any other persons specified by Landlord
in writing, a certificate or three-party agreement among Landlord, Tenant and/or
any third party dealing with Landlord, certifying (i) that this Lease is
unmodified and in full force and effect, or, if modified, stating the nature of
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such modification (ii) the date to which the Rent and other charges are paid in
advance, if any, (iii) that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, or so specifying such defaults, if
any, as are claimed and/or (iv) any other matters as such third party may
reasonably require in connection with the business dealings of Landlord and/or
such third party and (b) to deliver to Landlord current financial statements of
Tenant, including a balance sheet and a profit and loss statement for at least
two (2) years, all prepared in accordance with generally accepted accounting
principles consistently applied. Tenant's failure to deliver such certificate or
three-party agreement within such ten (10) business day period shall be
conclusive upon Tenant (x) that this Lease is in full force and effect without
modification except as may be represented by Landlord, (y) that to Tenant's
knowledge there are no uncured defaults in Landlord's performance, and (z) that
no Rent has been paid in advance except as set forth in this Lease. Tenant
hereby irrevocably appoints Landlord its attorney-in-fact in its name, place and
stead to execute any such certificate or three-party agreement which Tenant
fails to execute within such ten (10) business day period,
Section 10.3 Notices. Any notice, request, approval, consent or other
-------
communication required or contemplated by this Lease must be in writing, unless
otherwise in this Lease expressly provided, and may be given or be served by
depositing the same in the United States Postal Service post paid and certified
and addressed to the party to be notified, with return receipt requested, or by
delivering the same in person to such party (or, in case of a corporate party,
to an officer of such party), or by express overnight courier service, when
appropriate, addressed to the party to be notified. Notice shall be deemed given
and received on the date of delivery, the date that delivery of such notice
shall be rejected if rejected by the addressee, or the date of first attempted
delivery of such notice, as set forth on the return receipt card, whichever
shall be the first to occur. For purposes of notice the addresses of the parties
shall, until changed as herein provided, be as provided on the first page of
this Lease; provided, that any notices sent to Landlord will only be effective
if copies thereof are simultaneously sent to the following address: Winter
Properties, Inc., 1330 Spring Street, Fifth Floor, Atlanta, Georgia 30309,
Attention: President. The parties hereto shall have the right from time to time
to change their respective addresses by giving at least thirty (30) days'
written notice to the other party in the manner set forth in this Section 10.3.
ARTICLE XI
Section 11.1 Right to Relocate Tenant. Intentionally deleted.
------------------------
Section 11.2 Rights and Remedies Cumulative. The rights and remedies of
------------------------------
Landlord under this Lease shall be nonexclusive and each right or remedy shall
be in addition to and cumulative of all other rights and remedies available to
Landlord under this Lease or at law or in equity. Pursuit of any right or remedy
shall not preclude pursuit of any other rights or remedies provided in this
Lease or at law or in equity, nor shall pursuit of any right or remedy
constitute a forfeiture or waiver of any Rent due to Landlord or of any damages
accruing to Landlord by reason of the violation of any of the terms or this
Lease.
Section 11.3 Legal Interpretation. This Lease and the rights and
--------------------
obligations of the parties hereto shall be interpreted, construed and enforced
in accordance with the laws of the state in which the Project is located and the
United States. The determination that one or more
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provisions of this Lease is invalid, void, illegal or unenforceable shall not
affect or invalidate any other provision of this Lease, and this Lease shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained in this Lease, and, so far as is reasonable and possible, effect shall
be given to the intent manifested by the portion held invalid or inoperative,
All obligations of either party hereunder not fully performed as of the
expiration or termination of the Term of this Lease shall survive the expiration
or termination of the Term of this Lease and shall be fully enforceable in
accordance with those provisions pertaining thereto. Article and section titles
and captions appearing in this Lease are for convenient reference only and shall
not be used to interpret or limit the meaning of any provision of this Lease. No
custom or practice which may evolve between the parties in the administration of
the terms of this Lease shall waive or diminish the right of Landlord to insist
upon the performance by Tenant in strict accordance with the terms of this
Lease. This Lease is for the sole benefit of Landlord and Tenant, and, without
the express written consent thereto, no third party shall be deemed a third
party beneficiary hereof. Tenant agrees that this Lease supersedes and cancels
any and all previous statements, negotiations, arrangements, brochures,
agreements and understandings, if any, between Landlord and Tenant with respect
to the subject matter of this Lease or the Premises and that this Lease,
including written extrinsic documents referred to herein, is the entire
agreement of the parties, and that there are no representations, understandings,
stipulations, agreements, warranties or promises (express or implied, oral or
written) between Landlord and Tenant with respect to the subject matter of this
Lease or the Premises. It is likewise an instrument in writing signed by both
Landlord and Tenant. The terms and provisions of this Lease shall not be
construed against or in favor of a party hereto merely because such party is the
"Landlord" or the "Tenant" hereunder or because such party or its counsel is the
-------- ------
drafter of this Lease. All references to days in this Lease and any Exhibits or
Addenda hereto mean calendar days, not working or business days, unless
otherwise stated.
Section 11.4 Tenant's Authority. Both Tenant and the person executing this
------------------
Lease on behalf of Tenant warrant and represent unto Landlord that (a) Tenant is
a duly organized and validly existing legal entity, in good standing and
qualified to do business in the state in which the Project is located, with no
proceedings pending or contemplated for its dissolution or reorganization,
voluntary or involuntary, (b) Tenant has all right, power and authority to
execute, deliver and perform this Lease, (c) the person executing this Lease on
behalf of Tenant is authorized to do so, (d) upon execution of this Lease by
Tenant, this Lease shall constitute a valid and legally binding obligation of
Tenant, and (e) upon request of Landlord, such person will deliver to Landlord
satisfactory evidence of the matters set forth in this Section.
Section 11.5 No Brokers. Landlord and Tenant warrant and represent to the
----------
other that it has not dealt with any real estate broker and/or salesperson other
than Cushman & Wakefield of Georgia, Inc., and Equis Corporation in connection
with the negotiation or execution of this Lease and no such broker or
salesperson has been involved in connection with this Lease, and each party
agrees to defend, indemnify and hold harmless the other party from and against
any and all costs, expenses, attorneys' fees or liability for any compensation,
commission and charges claimed by any real estate broker and/or salesperson
(other than the aforesaid brokers) due to acts of such party or such party's
representatives.
Section 11.6 Consents by Landlord. In all circumstances under this Lease
--------------------
where the prior consent or permission of Landlord is required before Tenant is
authorized to take any
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particular type of action, such consent must be in writing and the matter of
whether to grant such consent or permission shall be within the sole and
exclusive judgment and discretion of Landlord, and it shall not constitute any
nature of breach by Landlord under this Lease or any defense to the performance
of any covenant, duty or obligation of Tenant under this Lease that Landlord
delayed or withheld the granting of such consent or permission, whether or not
the delay or withholding of such consent or permission was prudent or reasonable
or based on good cause.
With respect to any provision of this Lease which provides that Tenant
shall obtain Landlord's prior consent or approval, Landlord may withhold such
consent or approval for any reason at its sole discretion, unless the provision
specifically states that the consent or approval will not be unreasonably
withheld,
With respect to any provision of this Lease which provides that Landlord
shall not unreasonably withhold or unreasonably delay any consent or any
approval, Tenant, in no event, shall be entitled to make nor shall Tenant make
any claim for, and Tenant hereby waives any claim for money damages (other than
actual damages); nor shall Tenant claim any money damages by way of setoff,
counterclaim or defense, based upon any claim or assertion by Tenant that
Landlord has unreasonably withheld or unreasonably delayed any consent or
approval; but Tenant's sole remedy (other than a separate action for actual
monetary damages against Landlord) shall be an action or proceeding to enforce
any such provision, or for specific performance, injunction or declaratory
judgment.
Section 11.7 Joint and Several Liability. If there is more than one
---------------------------
Tenant, then the obligations hereunder imposed upon Tenant shall be joint and
several. If there is a Guarantor of Tenant's obligations hereunder, then the
obligations hereunder imposed upon Tenant shall be the joint and several
obligations of Tenant and such Guarantor, and Landlord need not first proceed
against Tenant before proceeding against such Guarantor nor shall any such
Guarantor be released from its Guaranty for any reason whatsoever.
Section 11.8 No Estate in Tenant. The words "Landlord" and "Tenant" as
-------------------
used herein shall include the plural as well as the singular. This Lease shall
not result in the creation of an estate for years in Tenant. Accordingly, Tenant
shall have only a usufruct not subject to levy or sale. Tenant shall have no
rights of assignment, subletting, sale, or transfer other than as set forth
herein and Tenant hereby waives any such rights existing pursuant to the laws of
the State of Georgia or otherwise. No estate shall pass out of Landlord to
Tenant hereunder, and Tenant shall not be entitled to any award of whatsoever
nature based on this Lease and/or Tenant's right to occupy the Premises
hereunder.
Section 11.9 Independent Covenants. The obligation of Tenant to pay Rent
---------------------
and other monetary obligations provided to be paid by Tenant under this Lease
and the obligation of Tenant to perform Tenant's other covenants and duties
under this Lease constitute independent, unconditional obligations of Tenant to
be performed at all times provided for under this Lease, save and except only
when an abatement thereof or reduction therein is expressly provided for in this
Lease and not otherwise, and Tenant acknowledges and agrees that in no event
shall such obligations, covenants and duties of Tenant under this Lease be
dependent upon the condition of the Premises or the Project, or the performance
by Landlord of its obligations hereunder.
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Section 11.10 Attorneys' Fees and Other Expenses. In the event either
----------------------------------
party hereto defaults in the faithful performance or observance of any of the
terms, covenants, provisions, agreements or conditions contained in this Lease,
the party in default shall be liable for and shall pay to the nondefaulting
party all actual and customary expenses incurred by such party in enforcing any
of its remedies for any such default, and if the nondefaulting party places the
enforcement of all or any part of this Lease in the hands of an attorney, the
party in default agrees to pay the nondefaulting party's reasonable attorneys'
fees in connection therewith.
Section 11.11 Recording. Neither Landlord nor Tenant shall record this
---------
Lease, but a short-form memorandum hereof may be recorded at the request of
Landlord.
Section 11.12 Disclaimer; Waiver of Jury Trial. LANDLORD AND TENANT
--------------------------------
EXPRESSLY ACKNOWLEDGE AND AGREE, AS A MATERIAL PART OF THE CONSIDERATION FOR
LANDLORDS ENTERING INTO THIS LEASE WITH TENANT, THAT, EXCEPT AS OTHERWISE SET
FORTH IN THIS LEASE, LANDLORD HAS MADE NO WARRANTIES TO TENANT AS TO THE USE OR
CONDITION OF THE PREMISES OR THE PROJECT, EITHER EXPRESS OR IMPLIED, AND
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES OR
THE PROJECT ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE OR ANY OTHER
WARRANTY (EXPRESS OR IMPLIED) REGARDING THE PREMISES OR THE PROJECT, EXCEPT AS
EXPRESSLY SET FORTH IN THIS, LEASE, LANDLORD AND TENANT EXPRESSLY AGREE THAT
THERE ARE NO, AND SHALL NOT BE ANY, IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER KIND ARISING OUT OF
THIS LEASE, ALL SUCH OTHER EXPRESS OR IMPLIED WARRANTIES IN CONNECTION HEREWITH
BEING EXPRESSLY DISCLAIMED AND WAIVED.
LANDLORD AND TENANT WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LEASE. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY TENANT AND TENANT
ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON ACTING ON BEHALF OF LANDLORD
HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR
IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT FURTHER ACKNOWLEDGES THAT IT
HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE
SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL. TENANT FURTHER ACKNOWLEDGES HAVING READ AND
UNDERSTOOD THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION AND AS
EVIDENCE OF SAME HAS EXECUTED THIS LEASE.
Section 11.13 No Access to Roof. Subject to Tenant's right to use the Roof
-----------------
Space, Tenant shall have no right of access to the roof of the Premises or the
Building. Notwithstanding the foregoing, Tenant shall have the right to access
the roof for the sole purposes of installing, maintaining, repairing or
replacing Tenant's supplemental generator or other equipment placed upon the
roof by Tenant and which equipment has been approved by Landlord pursuant to the
40
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Plans (as defined in Exhibit "E"); provided, however, Tenant shall repair any
roof penetrations caused by Tenant or those within Tenant's control and provide
access protection measures for the roof in accordance with the requirements or
recommendations of the roofing manufacture and good roofing practices. In the
event that an act or omission of Tenant, it agents, contractors or employees,
causes the Landlord's roof warranty to be voided or otherwise impaired, Tenant
shall cause the roof warranty to be reinstated or otherwise restored to the same
condition as it existed prior to the Tenant's acts or omissions.
Section 11.14 Parking. Tenant's occupancy of the Premises shall include
-------
the non-exclusive use of 71 parking spaces which shall be used in common with
other tenants, invitees and visitors of the Project. The location of the parking
spaces are shown on Exhibit "G" attached hereto as Parking Lots 1, 2, 3, and 4.
-----------
As of the date of this Lease, the parking spaces shall initially consist of
twenty-nine (29) spaces on the west side of Spring Street in Parking Lot 1,
twenty-three (23) spaces on the east side of Spring Street in Parking Lot 2, and
nineteen (19) spaces in Parking Lots 3 and/or 4 as designated by Landlord.
Tenant agrees not to overburden the parking facilities and agrees to cooperate
with Landlord in monitoring the parking areas to insure that Tenant and its
invitees and visitors are not using more than the number of spaces to which
Tenant is entitled pursuant to this Lease. Landlord reserves the right in its
reasonable discretion from time to time, but not more than five (5) times during
the initial five (5) year Term of this Lease to determine whether the parking
facilities are becoming overburdened and to allocate and assign parking spaces
among Tenant and other tenants, and to reconfigure the parking area (including
reallocation of spaces between the east and west sides of Spring Street) and
modify the existing ingress to and egress from the parking area as Landlord
shall deem appropriate, and to designate the location of the parking spaces in
any location within 1500 feet of the Project, including, at Landlord's sole
discretion, within a parking structure. Tenant shall pay to Landlord as
Additional Rent simultaneously with the payment of Base Rent a charge for each
parking space (the "Parking Charge"). During the first Lease Year, the Parking
Charge shall be $50.00 per month per parking space. Beginning with the second
Lease Year, and on the first day of each subsequent Lease Year, the Parking
Charge shall be adjusted by Landlord to the then current Market Rate. If the
spaces designated by Landlord for Tenant are located within a parking structure,
the Market Rate for parking structures shall apply. Notwithstanding the
foregoing, if an employee, agent or contractor of Tenant cannot find a parking
space in one of the parking lots or parking structure, as appropriate, (not
merely a convenient or desirable parking space), then Tenant shall notify
Landlord and permit Landlord to assist Tenant in locating an unoccupied parking
space. If there are no unoccupied parking spaces available for Tenant's use as
provided herein (a "Parking Space Incident"), then Landlord and Tenant shall
maintain a list specifying the time and date for each Parking Space Incident for
each calendar month. At the end of each calendar month, the number of Parking
Space Incidents shall be calculated and Tenant shall be refunded an amount of
money equal to the product of (i) the Parking Charge and (ii) the whole number
which is the difference of (a) the total number of Parking Space Incidents and
(b) three (3) [Example: Parking Charge is $50 and number of Parking Space
Incidents is 4--50 * 1 (which is the whole number difference of 4/3)= $50].
Tenant shall have the right, upon thirty (30) days prior written notice to
Landlord, to reduce the total number of parking spaces allocated to Tenant as
provided herein. If Tenant elects to reduce the total number of parking spaces
allocated to Tenant, then, upon such election, Landlord shall have no obligation
to restore the total number of parking spaces allocated to Tenant to the number
of spaces allocated to Tenant prior to Tenant's election.
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Section 11.15 No Accord and Satisfaction. No payment by Tenant or receipt
--------------------------
by Landlord of a lesser amount than the Rent and other sums due hereunder shall
be deemed to be other than on account of the earliest Rent or other sums due,
nor shall any endorsement or statement on any check or accompanying any check or
payment be deemed an accord and satisfaction; and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
Rent or other sum and to pursue any other remedy provided in this Lease.
Section 11.16 Acceptance. The submission of this Lease by Landlord does
----------
not constitute an offer by Landlord or other option for, or reservation of, the
Premises, and this Lease shall only become effective and binding upon Landlord,
upon full execution hereof by Landlord and delivery of a signed copy to Tenant.
Section 11.17 Waiver of Counterclaim. Tenant hereby waives the right to
----------------------
interpose any counterclaim of whatever description in any summary proceeding.
Section 11.18 Time Is of the Essence. Time is of the essence of this
----------------------
Lease. Unless specifically provided otherwise, all references to terms of days
or months shall be construed as references to calendar days or calendar months,
respectively.
Section 11.19 Counterparts. This Lease may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be an original,
but such counterparts shall together constitute one and the same instrument.
[Signatures contained on following page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed by
their respective duly authorized officers as of the day and year first above
written.
LANDLORD:
SPRING STREET, L.L.C.,
a Georgia limited liability company
Winter Properties, Inc.,
By: its Managing Member
By: /s/ Robert M. Lurie
----------------------------
Robert M. Lurie
Vice-President
[CORPORATE SEAL]
TENANT:
NAVIANT, INC.
By: /s/ William J. Tobia
--------------------------------
William J. Tobia
Senior Vice President
[CORPORATE SEAL]
43
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EXHIBIT "A"
-----------
LEGAL DESCRIPTION OF LAND
-------------------------
44
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EXHIBIT "A-1"
-------------
DEPICTION OF THE PROJECT
------------------------
45
<PAGE>
EXHIBIT "B"
-----------
FLOOR PLAN OF PREMISES
----------------------
[To be provided]
46
<PAGE>
EXHIBIT "C"
-----------
SPECIAL STIPULATIONS
--------------------
These Special Stipulations are hereby incorporated into this Lease and in
the event that they conflict with any provisions of this Lease, these Special
Stipulations shall control.
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EXHIBIT "D"
-----------
COMMENCEMENT DATE AGREEMENT
---------------------------
This Commencement Date Agreement (this "Agreement") is made and entered
---------
into this _____ day of __________, ______, by and between SPRING STREET, L.L.C.,
a Georgia limited liability company ("Landlord") and NAVIANT, INC., a
--------
_____________ company ("Tenant")
------
WHEREAS, Landlord and Tenant entered into that certain Lease (the "Lease")
dated _________ 19 ___, with respect to certain premises located at 1350 Spring
Street, Atlanta, Georgia 30309, as such demised premises are more particularly
described in the Lease.
WHEREAS, this Agreement is executed by Landlord and Tenant to confirm the
Commencement Date and the Expiration Date, as those terms are defined in the
Lease;
NOW, THEREFORE, for and in consideration of the demised premises and the
mutual covenants expressed in the Lease, it is hereby agreed by Landlord and
Tenant as follows:
1. The Premises were substantially complete and the Base Rent and
Additional Rent (as such terms are defined in the Lease) commenced on _________,
_____ (the "Commencement Date") and will expire on __________, ______ (the
"Expiration Date").
2. This Agreement shall not be deemed or construed to alter or amend
the Lease in any manner.
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be
executed as of the day and year first above written.
LANDLORD:
SPRING STREET, L.L.C.,
a Georgia limited liability company
Winter Properties, Inc.,
By: its Managing Member
By: _________________________
Robert M. Lurie
Vice-President
[CORPORATE SEAL]
TENANT:
NAVIANT, INC.
By: ______________________________
Name: ________________________
Its: ________________________
[CORPORATE SEAL]
49
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EXHIBIT "E"
-----------
WORK LETTER AGREEMENT
---------------------
The provisions of this Exhibit "E" shall apply to any and all alterations or
-----------
physical additions to the Premises when such alterations or physical additions
are undertaken prior to the Commencement Date. Capitalized terms used herein
that are not defined herein shall have the same meaning given to such terms in
the Lease.
1. Certain Definitions.
-------------------
1.1. "Building Standard" shall mean the quantity and quality of
-----------------
materials, finishing and workmanship specified by Landlord from time to time as
standard for the Building.
1.2. "Existing Improvement" shall mean all leasehold improvements
--------------------
existing in the Premises on the date of the Lease.
1.3. "Landlord Work" shall mean the items of construction which
-------------
Landlord shall have completed prior to the commencement of Tenant Work and shall
consist of the following items:
1.3.1 Exterior walls "sheet-rocked";
1.3.2 The floor will be stripped of old covering;
1.3.3 Toilet rooms will be renovated and a handicap-accessible
facility will be provided; and
1.3.4 Each floor will have: (i) an electrical distribution panel
with capacity to serve power and lighting branch circuits for new Leasehold
Improvements; (ii) a single air handling unit for heating and cooling and trunk
ducts for six (6) control zones, with any branch ducts and diffusers to be
installed constituting Tenant Work; (iii) fire protection sprinkler mains and
heads, any adjustment in the location of which shall be an element of Tenant
Work.
1.3.5 Completed elevator lobbies on street level and Tenant's
floors.
1.4. "Leasehold Improvements" shall mean the aggregate of the Existing
----------------------
Improvements and the Tenant Work.
1.5. "Substantial Completion" shall mean the earlier of (i) the day on
----------------------
which the Tenant Work has been completed substantially in accordance with the
Plans so that Tenant may receive the beneficial use of the Premises (i.e., when
Tenant may use the Premises for its intended purpose), subject to a punch-list
of non-material items that can be completed within thirty (30) days, all as
determined by Landlord in its reasonable judgment, or (ii) the day on which
Tenant first occupies the Premises.
2
<PAGE>
1.6. "Tenant's Work" all alterations and physical improvements, including,
-------------
without limitation, improvements, equipment or fixtures, within the Premises,
other than Landlord's Work.
2. Plans and Specifications.
------------------------
2.1. Landlord's Work. All of Landlord's Work has been completed. The
---------------
Premises are ready for the commencement of Tenant's Work. Any modifications to
Landlord's Work requested by Tenant shall be subject to Landlord's approval, not
to be unreasonably withheld, conditioned or delayed, and shall be at Tenant's
expense. Landlord warrants the structural integrity of the Building.
2.2. Tenant's Work. Tenant, at its expense, shall construct, furnish or
-------------
install all of Tenant's Work. Tenant's Work shall be in conformity with plans
submitted to and approved by Landlord and shall be performed in accordance with
the following provisions:
2.2.1 At or prior to the execution of this Lease by Landlord,
Landlord shall furnish to Tenant a lease outline drawing (the "Lease Outline
Drawing") showing the area of the Premises and the design criteria for the
Building.
2.2.2 Tenant shall cause all plans, drawings and specifications for
Tenant's Work, whether preliminary or final, to be prepared by a licensed
architect and/or engineer licensed in the State of Georgia and, as appropriate,
duly licensed mechanical, electrical and structural engineers. Tenant's drawings
shall include but not be limited to the following: (1) Architectural design of
the space: floor plans and elevations including sections and complete fixturing
information, material selections and finishes; (2) Color and material sample
board, which board is available for review at Tenant's current place of
business; (3) Mechanical system: load calculations, basic equipment to be used
and its position and capacity, duct distribution system and diffuser locations;
(4) Electrical system: load calculations, floor and reflected ceiling plans
showing outlets, type of lighting fixtures, other electrical equipment
contemplated and location, capacity and design of panels; and (5) HVAC control
system shall be designed to conform to Building Standard controls as determined
by Landlord. It is Tenant's obligation to determine and to report to Landlord,
no later than fourteen (14) days following the date Landlord tenders possession
of the Premises to Tenant, any inaccuracy in the Lease Outline Drawing.
2.2.3 Within thirty (30) days following the date of execution of
this Lease by Landlord, Tenant shall prepare and Submit to Landlord for its
approval, as to design, two (2) sets (at least one (1) of which shall be in
reproducible format) of fully dimensioned scale preliminary drawings of the
Premises and Tenant's proposed work therein.
2.2.4 Within seven (7) days after receipt of Tenant's preliminary
drawings, Landlord shall return one (1) set of prints thereof with Landlord's
approval and/or suggested modifications noted thereon. If Landlord has approved
Tenant's preliminary drawings subject to modifications, such modifications shall
be deemed to be acceptable to and approved by Tenant unless Tenant shall have
prepared and resubmitted revised drawings to Landlord within seven (7) days of
Tenant's receipt of such modifications from Landlord. If Landlord has suggested
modifications without approving Tenant's preliminary drawings, Tenant shall
prepare and
3
<PAGE>
resubmit revised drawings within fourteen (14) days for consideration by
Landlord. All revised drawings shall be submitted to Landlord within fourteen
(14) days following Landlord's return to Tenant of the drawings originally
submitted, and Landlord shall approve or disapprove such revised plans within
seven (7) days following receipt of the same.
2.2.5 Following approval of Tenant's preliminary drawings by
Landlord, Tenant shall proceed diligently to prepare final plans and
specifications for Tenant's Work in conformity with such approved preliminary
drawings, and shall furnish two (2) copies (at least one (1) of which shall be
in reproducible format) of such final plans and specifications to Landlord for
its determination as to conformity with approved preliminary drawings and for
its approval as to any matters not shown in the approved preliminary drawings.
Landlord shall approve or disapprove such final plans and specifications within
seven (7) days following receipt of the same, and in the event of disapproval
Tenant shall promptly revise and resubmit such final plans and specifications as
required by the Landlord.
2.2.6 After approval of final plans and specifications by Landlord
(the "Plans"), and tender of possession of the Premises by Landlord to Tenant,
Tenant shall proceed forthwith to commence the performance of Tenant's Work and
shall diligently pursue it to completion. Tenant's contractors and
subcontractors shall be acceptable to and approved by Landlord in writing, such
approval not to be unreasonably withheld, conditioned or delayed, and shall be
subject to administrative supervision by Landlord in their use of the Building
and their relationship with Landlord's contractors or contractors of other
tenants in the Building, as more particularly set forth in Section 9 herein.
Tenant and its contractors and subcontractors shall agree in writing to conform
to whatever reasonable guidelines are established by Landlord and provided from
time to time to Tenant. Tenant and its contractors and subcontractors shall
participate in a pre-construction onsite meeting prior to commencement of
Tenant's Work, and shall employ workers and means to insure so far as may be
possible the progress of Tenant's Work without interruption on account of
strikes, work stoppage or similar causes of delay. Tenant's entry into the
Premises prior to the Commencement Date for the performance of Tenant's Work
shall be subject to all of the terms and conditions of this Lease except the
payment of Rent. Any damage to the Building caused by Tenant or its contractors
or subcontractors in connection with the performance of Tenant's Work shall be
repaired at Tenant's expense.
2.2.7 Any changes in Tenant's Work from the Plans shall be subject
to Landlord's approval, such approval not to be unreasonably withheld,
conditioned or delayed, and Tenant shall pay all actual and reasonable costs
incurred by Landlord in reviewing any requested change.
2.2.8 Upon completion of Tenant's Work, Tenant shall furnish to
Landlord for its permanent files two (2) sets (at least one (1) of which shall
be in reproducible format) of "as built" drawings showing Tenant's Work as
constructed or installed in the Premises.
3. Construction of Tenant's Work. Tenant shall, at Tenant's expense, procure
-----------------------------
all permits and licenses and make all contracts necessary for the construction
of Tenant's Work. Tenant's Work shall be done only by a contractor approved in
writing by Landlord prior to the commencement of Tenant's Work. All Tenant's
Work shall conform to all applicable statutes,
4
<PAGE>
ordinances, regulations, and codes and shall be in accordance and compliance
with the Plans. Tenant contracts, if executed between Tenant and Tenant's
contractor, must make reference to the fact that Landlord's construction manager
has full authority to enforce the Construction Rules and Regulations attached
hereto and previously provided to Tenant.
4. Special Provisions Applicable to Tenant's Work. Tenant's Work shall be
----------------------------------------------
performed in a first-class and workerlike manner and all improvements
constructed pursuant thereto shall be in good and usable condition at the date
of completion. Tenant and Tenant's contractors are limited to performing their
work, including and storage for construction purposes, within the Premises only.
Tenant shall be responsible for daily removal from the Premises and the Building
of all trash, rubbish, and surplus materials resulting from any work being
performed in the Premises. Tenant shall exercise extreme care and diligence in
removing such trash, rubbish, or surplus materials from the Premises to avoid
littering, marring, or damaging the parking areas, the Common Areas or any of
the other tenants in the Building. If any such trash, rubbish, or surplus
materials are not promptly removed from the Building in accordance with the
provisions hereof, or if any of the parking areas or Common Areas are littered,
marred, or damaged, Landlord may cause same to be removed or repaired, as the
case may be, at Tenant's cost and expense. In the event Landlord incurs any
costs or expenses in performing the above, Tenant shall pay the Landlord the
actual and reasonable amount of any such cost and expenses within thirty (30)
days after receipt of an invoice. Tenant shall require its agents, employees,
contractors, or subcontractors to cause all materials or supplies to be
delivered to the Premises in a manner that causes the least disruption to the
other tenants in the Building and as stipulated in the Construction Rules and
Regulations.
5. Building Standard Material. Tenant agrees to use, as a part of the Tenant
--------------------------
Work, Building Standard materials including, but not limited to, Building
Standard corridor and interior doors, hardware, lights or other materials unless
other corridor or interior doors, hardware or lights are requested by Tenant and
approved by Landlord.
6. Structural Work. Notwithstanding anything to the contrary contained in
---------------
this Lease, if any work required or proposed to be performed by Tenant shall be
structural or shall affect the structural integrity of the Building or any
portion thereof, Landlord shall have the right, but not the obligation, to do
such work for Tenant and Tenant shall reimburse Landlord for all of Landlord's
costs and expenses in connection therewith plus an amount equal to ten (10%)
percent thereof for overhead plus an additional amount equal to six (6%) percent
of such total costs and overhead for profit.
7. Building System. Under no circumstances whatsoever will Tenant ever alter
---------------
or modify or in any manner disturb any system or installation of the Building,
including, but not limited to, plumbing, electrical, heating, ventilating, air
conditioning, fire protection, fire alert, elevator, building maintenance, and
structural systems, or anything located within the central core of the Building
without Landlord's prior written approval.
8. Completion of Tenant's Work. Tenant shall complete Tenant's Work and
---------------------------
Tenant shall open for business on or before the Commencement Date. If: (i)
Tenant fails to complete Tenant's Work on or before the Commencement Date; (ii)
notwithstanding Tenant's failure to complete Tenant's Work on or before the
Commencement Date, Landlord nevertheless permits
5
<PAGE>
Tenant to open, based on Tenant's promise to complete, within a specific period
of time directed by Landlord, of punchlist items relating to Tenant's Work
submitted by Landlord and Tenant fails timely to complete such items; and/or
(iii) Tenant fails to open for business as required by the preceding sentence
and by this Lease, then, Landlord shall have the right to seek all rights and
remedies available to Landlord under the Lease, in law or at equity.
9. Construction Management Fee. If the Winter Construction Company ("Winter")
---------------------------
constructs Tenant's Work, then Landlord shall not charge the Construction
Management Fee. If a general contractor other than Winter is chosen, then
Landlord shall charge Tenant a Construction Management Fee of two percent (2%)
of the cost of Tenant's Work.
10. Insurance. All Tenant's contractors shall maintain Worker's Compensation
---------
and Public Liability Insurance, Property Damage Insurance and such other
insurance in force and effect as may be reasonably requested by Landlord or as
required by applicable law.
11. Indemnity. Tenant also agrees to indemnify and hold Landlord harmless from
---------
and against any claims, actions, losses, costs, fees (including attorneys' fees)
or damages resulting from the intentional or negligent acts or omissions of
Tenant, its agents, employees, contractors, or subcontractors in the performance
of Tenant's Work.
12. Lien Waivers. Upon completion of Tenant's Work in accordance with the
------------
Plans, Tenant shall give Landlord written notice thereof and shall
simultaneously with such written notice furnish Landlord with the following
documents all in a form and substance acceptable to Landlord:
12.1. A detailed breakdown of the cost of Tenant's Work;
12.2. A certificate of occupancy issued by the appropriate governmental
authority, if applicable;
12.3. A valid and effective "final contractor's affidavit" from the general
contractor, and final lien waivers from all contractors, subcontractors,
materialmen, suppliers, architects, engineers, and all other persons performing
work or supplying materials and/or services on or about the Premises in
connection with Tenant's Work stating that the cost of all such labor, material,
supplies, and services incorporated in Tenant's Work has been paid in full and
waiving all liens and claims-arising as a result of such work; and
12.4. An estoppel certificate from Tenant.
13. Monetary Matters.
----------------
13.1. Landlord's Design Contribution. Landlord will contribute One Dollar
------------------------------
and 50/100 ($1.50) per square foot of rentable area of the Premises ("Landlord's
----------
Design Contribution") toward the cost of preparation of the space plan and the
- -------------------
Plans (but Landlord's Design Contribution shall never exceed the total cost of
such preparation). Any and all costs of such preparation in excess of Landlord's
Design Contribution shall be borne by Tenant. The foregoing notwithstanding,
Landlord shall not be required to contribute any sums toward such costs unless
simultaneously therewith Tenant pays its portion of such costs (based on
Landlord's
6
<PAGE>
estimate thereof), if any. If the actual costs are more than Landlord's
estimate, the difference shall be paid by Tenant. If the actual costs are less
than Landlord's estimate, then Tenant's portion of such difference shall be
refunded to Tenant.
13.2. Tenant Improvement Allowance.
----------------------------
13.2.1 Landlord shall pay to Tenant a Tenant Improvement Allowance
(the "Allowance") of Twenty-one and No/100 Dollars ($21.00) per square foot, or
Four Hundred Ninety-Eight Thousand Nine Hundred Sixty and No/100 Dollars
($498,960.00), based on 23,760 square feet in the Premises toward the
construction of Tenant's Work. As an additional incentive to Tenant for entering
into this Lease, Landlord shall pay to Tenant an additional sum of Ten Thousand
and No/100 Dollars ($10,000.00), which amount shall be included in the
Allowance.
13.2.2 Landlord agrees to make monthly partial disbursements of the
Allowance based upon the percentage of Tenant Work completed, less a retainage
amount of ten (10) percent. At Substantial Completion, Landlord shall disburse
all of the Allowance, less reasonable amounts for the completion of punchlist
items and a retainage amount of five (5) percent. Landlord agrees to disburse
the remaining Allowance to Tenant on or before the latest of (a) Tenant's having
paid Base Rent for the first month of the Lease; (b) Tenant's having opened for
business in the Premises after having received a certificate of occupancy; (c)
Tenant's completion of any punch list items relating to Tenant's Work submitted
by Landlord; and (d) Tenant's submission to Landlord of all lien waivers and
paid receipts from all of Tenant's contractors, subcontractors, materialmen and
other suppliers in connection with Tenant's Work.
14. Default. The failure by Tenant to comply with the provisions of this
-------
Exhibit "E" shall constitute a default by Tenant Landlord the Lease and Landlord
- -----------
shall have the benefit of all remedies provided for in the Lease. Tenant hereby
agrees that in case of a default or event of default under Paragraph 8 of the
Lease, Landlord shall be entitled to recover from Tenant, as additional damages
incurred as the result of such default, an amount equal to the unamortized
(straight line basis over 60 months) amount of the Allowance.
15. Non-Interference with Other Tenants. The performance of the Tenant's Work
-----------------------------------
shall not affect the quiet enjoyment of other tenants in the Building and shall
not disrupt or interfere with the business activities being conducted therein.
16. Roof. Tenant shall not penetrate, puncture, or otherwise go upon or work
----
upon any portion of the roof, including, but not limited to that portion of the
roof over the Premises without obtaining the prior written consent of Landlord.
The approval by Landlord of the Plans does not constitute such prior written
consent unless otherwise expressly provided in the Plans. In the event Landlord
shall grant its consent to Tenant as provided above, Tenant shall, at Tenant's
sole cost and expense, be responsible for assuring that upon completion of the
installation of any items upon the roof or other work thereon that all necessary
flashing, patching, and other repair that may, in the sole discretion of
Landlord, be necessary to return the roof to a waterproof condition is performed
in a first-class and workerlike manner.
17. Parking. Tenant and those performing Tenant's Work shall park in areas
-------
designated by Landlord.
7
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18. Construction Regulations. Tenant and those performing Tenant's Work shall
------------------------
comply with all construction rules and regulations promulgated by Landlord from
time to time.
19. Construction Work Hours. Tenant's contractor may perform work on the
-----------------------
Demised Premises at any time of the day. Tenant's contractor shall be mindful
of disrupting other Tenant's in the building and shall schedule work that causes
structurally borne noises at such times when such work is permitted by the
Construction Rules and Regulations.
20. Landlord Cooperation. Landlord agrees to cooperate fully with Tenant
--------------------
and/or Tenant's project manager, general contractor and designers in the
completion of Tenant's Work. Landlord acknowledges that Tenant has committed to
an aggressive project schedule and agrees to assist (at no additional cost to
Landlord) in the achievement of the schedule.
8
<PAGE>
EXHIBIT "F"
-----------
PROJECT RULES AND REGULATIONS
-----------------------------
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar areas
shall not be used for the disposal of trash, be obstructed by Tenant or be used
by Tenant for any purpose other than ingress and egress to and from the Premises
and for going from one part of the Building to another part of the Building.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags, or other unsuitable material
shall be thrown or placed therein. Damage resulting to all such fixtures or
appliances from misuse by Tenant shall be paid by Tenant and Landlord shall not
in any case be responsible therefor.
3. Signs, advertisements, or notices visible in or from public corridors or
from outside the Building shall be subject to Landlord's prior written approval,
such approval not to be unreasonably withheld, delayed or conditioned. No
curtains or other window treatments shall be placed between the glass and the
Building standard window treatments.
4. With respect to work being performed by Tenant in the Premises, Tenant
shall refer all contractors, contractors' representatives, and installation
technicians rendering any service to Tenant to Landlord for Landlord's
supervision and approval before the performance of any contractual services.
This provision shall apply to all work performed in the Building, including, but
not limited to, installations of telephones, telegraph equipment, electrical
devices and attachments, and any and all installations of every nature affecting
floors, walls, woodwork, trim, windows, ceilings, equipment, and other physical
portions of the Building.
5. Movement in or out of the Building of furniture, office equipment, safes
and other heavy equipment, or the dispatch or receipt by Tenant of any bulky
material or merchandise, or materials which require use of elevators or
stairways or movement through the Building entrances or lobby, shall be
restricted to such hours as Landlord reasonably designates. All such movement
shall be under the supervision of Landlord and in the manner agreed between
Tenant and Landlord by prearrangement before performance. Such prearrangement,
to be initiated by Tenant, will include determination by Landlord as to the
time, method, and routing of such movement and as to limitations for safety or
other concerns. Tenant assumes all risks of damage to articles moved and injury
to persons engaged or not engaged in such movement. Tenant shall be liable to
personnel of Landlord damaged or injured as a result of acts in connection with
carrying out this service for Tenant, and, except for the grossly negligent acts
or omissions of Landlord, its agents, contractors or employees, Landlord shall
not be liable for the acts of any person engaged in, or any damage or loss to
any property or persons resulting from any act in connection with, such service
performed for Tenant.
6. Building management shall have the right and authority to prescribe the
maximum weight and position of safes and other heavy equipment which may
overstress any portion of a floor. All damages done to the Building or the
Project by taking in or putting out any property of Tenant, or done by Tenant's
property while in the Building, shall be repaired at the expense of Tenant.
9
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7. Corridor doors, when not in use, shall be kept closed.
8. Tenant space visible from a public area must be kept neat and clean.
9. Should Tenant require telegraphic, telephonic, annunciator, or other
communication services, Landlord will direct the electricians as to where and
how wires are to be introduced and placed, and none shall be introduced or
placed except as Landlord shall direct. Electric current shall not be used for
power or heating without Landlord's prior written permission, which consent
shall not be unreasonably withheld, delayed or conditioned.
10. No animals shall be brought into or kept in, on, or about the Building or
the Project.
11. All routine deliveries to the Premises shall be made between the hours of
8:00 a.m. and 5:00 p.m. weekdays. Passenger elevators are to be used only for
the movement of persons, unless an exception is approved by the Building
management office.
12. Tenant shall not tamper with or attempt to adjust temperature control
thermostats in the Premises. Landlord shall adjust thermostats as required to
maintain the Building standard temperature. Landlord requests that all window
blinds remain down and tilted at a 45 degree angle toward the street to help
maintain comfortable room temperatures and conserve energy.
13. Tenant will comply with all security procedures during business hours and
after hours and on weekends.
14. Tenants are requested to lock all office doors leading to corridors and to
turn out all lights at the close of their working day.
15. All requests for overtime air conditioning or heating must be submitted in
writing to the Building management office by 4:00 p.m. on the preceding business
day.
16. No flammable or explosive fluids or materials shall be kept or used within
the Building or the Project except in areas approved by Landlord, and Tenant
shall comply with all applicable building and fire codes relating thereto.
17. Landlord reserves the right to rescind any of these rules and regulations
and to make such other and further rules and regulations as in its good faith
judgment shall from time to time be reasonably needed for the safety,
protection, care and cleanliness of the Property, the operation thereof, the
preservation of good order therein, and the protection and comfort of the
tenants and their agents, employees, and invitees, which rules and regulations,
when made and written notice thereof is given to Tenant, shall be binding upon
Tenant in like manner as if originally herein prescribed.
18. Landlord reserves the right, in its sole discretion, to designate reserved
parking spaces for certain tenants and to charge therefor. All contractors,
invitees, guests or visitors of Tenant shall park only in spaces designated as
visitor parking by Landlord, the number and location of which Landlord may
modify, reduce or entirely eliminate from time to time, at Landlord's reasonable
discretion.
10
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19. The Project is a smoke-free facility. Landlord may designate from time to
time, in Landlord's reasonable discretion, an area or areas outside of the
Building where smoking may take place.
20. The design temperature range for the HVAC system is between 74 degrees
Fahrenheit and 78 degrees Fahrenheit. During the cooling season, the HVAC system
can maintain a maximum delta of 15 degrees Fahrenheit between the temperature
inside the Building and outside the Building.
11
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EXHIBIT "G"
-----------
PARKING
-------
[To be provided]
12
<PAGE>
EXHIBIT "H"
-----------
INSURANCE REQUIREMENTS
----------------------
[To be provided]
13
<PAGE>
EXHIBIT 10.4
THIS LEASE IS NOT TO BE CONSTRUED AS AN OFFER AND IS NOT BINDING ON BARRISTER
EXECUTIVE SUITES, INC. UNTIL IT IS SIGNED BY AN OFFICER OF BARRISTER EXECUTIVE
SUITES, INC.
LEASE AGREEMENT
---------------
THIS LEASE is made on December 15, 1999 between Barrister Executive Suites,
Inc., a California Corporation (hereinafter referred to as "Lessor"), and
Naviant Inc. 14 Campus Boulevard, Suite 200, Newtown Square PA 19073
(hereinafter referred to as "Lessee")
Lessor has entered into a master lease for the floor (the "Suite")
described below.
Floor or Suite Number: 7th Floor OR Suite 700
Name of Building: Encino Gateway
Address: 15760 Ventura Boulevard
City and State: Encino, California, 91436
Lessee desires to lease from Lessor a certain portion of the Suite for the
purposes of conducting Lessee's business together with rights in common to the
"common areas" of the Suite.
In consideration of the covenants and promises each to the other made
herein, the parties hereto agree as follows:
1. LEASED PREMISES. Lessor agrees to lease to Lessee and Lessee agrees to
lease from Lessor portions of the Suite described below (the "Premises") and on
the floor plan attached hereto as Exhibit A. In addition to the exclusive use of
the Premises, Lessee shall have the non-exclusive right in common with Lessor's
other lessees to use all common areas and facilities available in the Suite.
Except as otherwise agreed to in writing, Lessee takes the Premises in an "as
is" condition.
(a) Office No(s). 33
-----
(b) Desk Space No(s). N/A
-----
Lessee shall be prohibited from using or occupying any premises other than
those premises designated in this Lease as the Premises. In the event that
Lessee uses or occupies any space other than the Premises without Lessor's
written consent, Lessee shall pay Lessor a sum designated by Lessor for the
unauthorized use of said space.
2. TERM. Except as it may be modified by the applicable provisions of
this Agreement, the term of this Lease shall be for a period of ** months,
--
commencing on December 15, 1999 and expiring on June 30, 2000. If the term
commences on a day other than the first of the month, the term shall expire on
the last day of the month identified herein, provided at least two (2) full
calendar months advance written notice of termination has been provided to
Lessor in the manner described in section 3 of this Lease.
In the event the Premises are not ready for occupancy on the commencement
date, this Lease shall remain in full force and effect provided Lessor makes the
Premises available for occupancy within forty-five (45) days of the scheduled
commencement date. In such case, all rent shall be abated until Lessor makes the
Premises available for occupancy. Lessor shall not be liable to Lessee for any
loss or damage arising from any delays; Lessee's sole
* See Page 1A
** six months plus (17) seventeen days.
1
<PAGE>
remedy shall be the right to cancel this Lease in the event Lessor fails to
deliver possession of the Premises as set forth herein. Lessee is advised that
any floor plans provided by Lessor are not to scale, the measurements are not
always accurate, and the Premises are not always built exactly as shown on the
floor plans.
3. LEASE TERMINATION. Either party may terminate this Lease at the
expiration date set forth herein by giving two (2) calendar months advance
written notice effective on the expiration date set forth on page one (1) of
this Lease. If neither party sends written notice of termination to the other
party two (2) calendar months in advance of the expiration date, this Lease
shall automatically become a month-to-month agreement REQUIRING AT LEAST TWO (2)
FULL CALENDAR MONTHS ADVANCE WRITTEN NOTICE TO TERMINATE THE LEASE, EFFECTIVE
THE END OF THE SECOND FULL CALENDAR MONTH. IF THE LEASE HAS EXPIRED AND BECOME A
MONTH-TO-MONTH AGREEMENT, OR IF THE ORIGINAL TERM OF THE LEASE WAS MONTH-TO-
MONTH, TWO (2) FULL CALENDAR MONTHS ADVANCE WRITTEN NOTICE OF TERMINATION IS
REQUIRED, AND ANY SUCH TERMINATION SHALL ONLY BE EFFECTIVE THE END OF THE SECOND
FULL CALENDAR MONTH. FOR EXAMPLE: IF WRITTEN NOTICE OF TERMINATION IS RECEIVED
BY EITHER PARTY BY APRIL 30/TH/, ANY SUCH NOTICE SHALL BE EFFECTIVE JUNE 30/TH/.
IF WRITTEN NOTICE OF TERMINATION IS RECEIVED BY EITHER PARTY ON MAY 1/ST/ OR ANY
- --------------------------------------------------------------------------------
LATER DATE IN MAY, ANY SUCH NOTICE SHALL NOT BE EFFECTIVE UNTIL JULY 31/ST/.
- ---------------------------------------------------------------------------
Lessor's rent increase notice is not to be construed as a termination notice.
All notices must be given pursuant to section 13.
If Lessee fails to vacate the Premises for any reason after the
termination date or purports to rescind the termination notice after Lessor has
already leased Lessee's terminated space, Lessee will pay the rent the new
tenant had agreed to pay, plus any and all resulting damages and losses incurred
by Lessor because the new tenant cannot move into the space previously
terminated by Lessee.
4. RENT. Lessee agrees to pay Lessor as rental for the Premises the
following monthly sums:
$ 2,025.00 Office(s)
----------
$ N/A Desk space(s)
----------
$ N/A Telephone Equipment and Service
----------
$ N/A Voicemail Box(es)
----------
$ 350.00 Furniture Rental (See Page 2A)
----------
$ 2,375.00 Total monthly rent
----------
In addition to the above rent, Lessee shall be obligated to pay rent
for any space within the Suite which Lessee occupies but which is not included
in the Premises (the "unrented space"). Lessee's obligation for said unrented
space shall be at the rate set forth in Lessor's written notice to Lessee
concerning Lessee's occupancy of the unrented space. Lessee's obligation to pay
rent for the unrented space shall be effective as of the date in which Lessor
gives Lessee written notice of the rent to be paid for said space, and occupancy
of the unrented space shall be subject to all terms and conditions of this
Lease.
The terms and conditions of this Lease are confidential, and Lessee agrees not
to reveal said terms and conditions to any third parties. Lessee's disclosure
---
of the terms and conditions of this Lease shall be cause for Lessor at Lessor's
sole discretion to immediately terminate this Lease, or increase Lessee's rental
rates to Lessor's current asking price.
Rent shall be payable on or before the first day of each and every calendar
month during the term hereof. If the term commences on a day other than the
first day of the calendar month, rent shall be prorated based on the portion of
the calendar month remaining. Lessee's first payment shall include one month's
full rent, plus any partial calendar month's rent for the first month of the
Lease, plus the last month's rent, plus the security deposit and a set-up fee of
$150.00. At all times Lessee shall maintain the last month's rent with Lessor in
an amount equal to one (1) times the monthly rent paid by Lessee for the
Premises.
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LESSEE'S MONTHLY RENT INCLUDES THE FOLLOWING RENTAL FURNITURE:
(3) Three Summit Standard desks with returns
(3) Three Herringbone Ergo Chairs
(1) One two drawer lateral file cabinet
(1) One 30" Bookcase
The cost of the above furniture is $350.00 per month and Lessee shall be charged
a one-time $40.00 charge to cover delivery and pickup of the rental furniture.
Lessee agrees not to remove any of said furniture from the Leased Premises. If
Lessee damages or removes any of the furniture, Lessor shall charge Lessee for
the cost of repair and/or replacement, and reserves the right to retain an
appropriate amount of Lessee's security deposit to cover any such charges when
Lessee moves out.
In addition to all other rights and remedies provided for in this Lease, Lessor
or its designated agent, may enter the Leased Premises (upon 24 hours notice)
for the purpose of removing, the rental furniture if Lessee's rent (which
includes the monthly furniture rental charge) remains unpaid for more than
thirty (30) days. Lessee shall indemnify and hold harmless Lessor, Lessor's
agents and Lessor's employees from and against any and all claims and/or damage
to personal property that may arise as a result of Lessor's removal of the
rental furniture.
In the event that Lessee wishes to cancel the above-referenced furniture rental
after ninety (90) days of use, Lessee has the option to give a thirty day
written notice to Lessor, effective the end of the month. Lessor will then make
all the necessary arrangements to have the furniture picked up.
In the event Lessee does exercise its option to cancel the rental furniture,
Lessor will deduct the cost of renting the furniture from Lessor's monthly rent
obligation, commencing the first month after the thirty day notice of
cancellation has been given.
Lessee agrees that the above furniture shall be rented for a minimum of 90 days.
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In addition to payment of the rent set forth herein, Lessee agrees to the
following: from any payment made by Lessee, Lessor shall first apply such sums
as are necessary to meet any of Lessee's outstanding obligations to Lessor. Said
obligations may arise from matters such as services Lessor provides Lessee. Any
remaining balance shall then be applied to Lessee's rent obligation in the
amount set forth above. In the event such remaining balance is not sufficient to
meet Lessee's rental obligation, Lessee shall pay upon written demand by Lessor
any remaining sums due. Failure to pay said sums when so demanded shall
constitute an event of default under this Lease.
Any and all sums Lessee is obligated to pay under the terms of this Lease
shall be construed as rent obligations in addition to the monthly rent set forth
herein. Such additional rent shall include a service charge of Fifty Dollars
($50.00) for each of Lessee's dishonored checks returned by the institution on
which said checks are drawn. If at any time during the term of this Lease Lessee
has tendered payment by check and Lessee's bank returns more than one such
payment for any reason including insufficient funds, Lessor may, at its option,
require all future payments be made by cashier's check. A Two Hundred Dollar
($200.00) handling charge for each Three Day Notice or Notice of Termination of
Services which Lessor is required to serve upon Lessee due to Lessee's failure
to make timely rent payments or breach of any other term or condition of this
Lease shall be assessed against Lessee to be paid with the monthly rent in the
event more than one of either notice is served during the term of the Lease. A
Seven Hundred Fifty Dollar ($750.00) handling charge will be further assessed
against Lessee in the event that Lessee does not render payment after service of
a Three Day Notice and Lessor then serves Lessee with an Unlawful Detainer
Action. Should Lessee not tender payment of the rent by the first (1st) business
day of each month, a late charge shall be assessed in an amount of five cents
(0.05) for each dollar ($1.00) so overdue for the purpose of defraying the
expense incident to handling such delinquent payment. In addition, Lessor may
discontinue any and all services provided Lessee, including, but not limited to,
use of all common areas, e.g., library and conference room, telephone answering
service, photocopying, word processing, fax and legal research. Should Lessor
discontinue any services above for non-payment, an administrative fee of One
Hundred Dollars ($100.00) will be assessed to reinstate said services. Lessee
hereby releases Lessor, its employees, agents, principals and contractors from
any liability for damages which Lessee may suffer as a result of Lessor's
suspension of services for the reasons stated herein.
5. SECURITY DEPOSIT. Upon execution of this Lease by Lessee, Lessee will
pay a security deposit in an amount of $2,625.00 which is equal to one (1) times
the monthly rent plus a services deposit of Two Hundred Fifty Dollars ($250.00)
as security for the performance by Lessee of its obligations under this Lease.
The security deposit will not be interest-bearing to Lessee. Lessor will retain
the security deposit during Lessee's tenancy. Lessee shall not apply the
security deposit as rent. If Lessee remains in the Premises after the expiration
date of this Lease, the security deposit will be retained by Lessor until Lessee
moves out of the Premises. Lessor may claim and retain such amount of Lessee's
security deposit as is reasonable necessary to remedy any defaults of the Lessee
in the payment of rent or services, to repair damages to the Premises caused by
the Lessee, replacement of keys and any other outstanding obligations to Lessor,
and Lessor may, at its option and at any time during the term of this Lease,
treat the security deposit as a partial payment applied toward Lessee's
obligation for the Premises during Lessee's last month of occupancy of the same.
The parties expressly agree that the security deposit is made for all of the
aforesaid specific purposes. At all times Lessee shall maintain a security
deposit with Lessor in an amount equal to one (1) times the monthly rent paid by
Lessee for the Premises rent plus a services deposit of Two Hundred Fifty
Dollars ($250.00). Lessor shall bill Lessee for any such additional security
deposit as required. Lessor will refund Lessee's security deposit less any
offsets as set forth in this paragraph, approximately thirty (30) days after
Lessee's tenancy has terminated and Lessee's has vacated, returned keys and
removed any and all items of personal property from the Premises.
6. USE Lessee shall use the Premises solely for marketing & management,
and for no other purpose. Lessee shall not do or permit anything to be done in
or about the Suite and Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Suite, or injure or annoy them,
or use or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Lessee cause, maintain or permit any nuisance
in, on or about the Premises. Lessee shall not commit or suffer to be committed
any waste in or upon the Premises. Lessee agrees that Lessee will not offer or
use the Premises to provide to others, services provided by Lessor to Lessor's
other lessees. (I.E. Fax Machines, Copiers, etc.). If Lessee leases one or more
desk spaces, no desk space may be occupied by more than one person. Lessee
agrees that no office shall be occupied by more than two (2) persons without the
prior written consent of Lessor. Only two (2) computers or similar electronic
devices are allowed to be located in each office and not more than one in each
desk space. Lessor will provide all
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photocopy and fax services for the Premises and Lessee shall not be permitted to
install any fax or photocopy machines in the Leased Premises.
7. DEFAULTS AND REMEDIES.
Lessee's Defaults. Any of the following defaults shall constitute a
-----------------
material default by Lessee:
(a) If Lessee fails to make any payment of rent, additional security
deposit or any other payment required to be made by Lessee hereunder, as and
when due.
(b) If Lessee withholds rent deducts or offsets from rent or services
due hereunder any amount for any reason.
(c) If Lessee occupies, uses or stores any personal property in any
unrented office in the Suite, or stores any personal property in any unrented
desk space or unrented office in the Suite, or stores any personal property in
any common area.
(d) If Lessee fails to observe or perform any of the provisions of
this Lease, where such failure shall continue for a period of ten (10) days
after written notice thereof from Lessor to Lessee.
If Lessee defaults under this Lease, (i) Lessor may terminate this
Lease, (ii) Lessor may recover, in addition to any rent and other charges
already due and payable, all rent for the entire unexpired balance of the stated
term of this Lease and all costs incurred by Lessor to recover such sum from
Lessee, including reasonable attorneys fees and/or Lessor may recover damages
from Lessee. All rights and remedies of Lessor under this Lease shall be
cumulative and in addition to any other rights or remedies available at law or
in equity. No failure by Lessor to exercise any right or waiver of such default
by Lessor. (iii) Lessor may terminate all services provided Lessee, including,
but not limited to, use of all common areas, e.g., library and conference room,
telephone answering service, photocopying, word processing, fax and legal
research.
8. HIRING LESSOR'S EMPLOYEES. Lessor spends a great deal of time to hire
and train employees for the operation of the Suite and other suites. Lessee
derives the benefit of Lessor's experience in operating the Suite and of such
hiring and training procedures. Lessee realizes the time and expense Lessor
incurs to obtain personnel, and Lessee therefore agrees not to offer or accept
for hire any of Lessor's employees at any time during the term or any extension
or renewal of this Lease. "Lessor's employees" include Lessor's employees during
the period of their employment with Lessor and for a period of one hundred
eighty (180) days thereafter. Lessor and Lessee have considered the matter and
have reasonably endeavored to estimate the actual damages to Lessor in the event
Lessee breaches this provision and offers or accepts for hire any of Lessor's
employees, and both realizing that it would be impractical or extremely
difficult to fix the actual damage to Lessor resulting from such offer or hiring
of Lessor's employees, Lessor and Lessee therefore agree that if Lessee offers
or accepts for hire any of Lessor's employees at any time during the term or any
extension of renewal of this Lease, or within one hundred eighty (180) days
after Lessee moves out of Lessor's offices, Lessee agrees to pay Lessor the sum
of Five Thousand dollars ($5,000.00) for the employee so hired to compensate
Lessor for Lessor's loss in hiring and training said employee. Said sum
represents the amount agreed upon by the parties as Lessor's liquidated damages.
9. INSURANCE. Lessor has blanket liability insurance coverage for the
common areas in the Suite. Lessor's insurance does not cover the Lessee's
Premises or Lessee's property in the Suite and Premises. Lessor shall not be
liable to Lessee, or to any other person, for any damages or business
interruption on account of loss, damage, fire or theft of any personal or
business property, including, but not limited to, property left with the floor
receptionist or telephone operators, door lettering or other property purchased
by, or belonging to, Lessee.
Lessee shall indemnify and hold harmless Lessor from and against any
and all claims arising from Lessee's use of the Premises, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in the Premises and shall further indemnify and hold harmless
Lessor from and against any and all claims arising from any breach or default in
the performance under the terms of this Lease, or arising from any negligence of
the Lessee or any of Lessee's agents, contractors, visitors, or employees, and
from
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and against all costs, attorney's fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon, and in
case any action or proceeding be brought against Lessor by reason of any such
claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense
by counsel satisfactory to Lessor and Lessor's landlord. Lessee, as a material
part of the consideration to Lessor and Lessor's landlord, hereby assumes all
risk of damage to property or injury to persons in the Premises and Lessee
hereby waives all claims in respect thereof against Lessor.
Lessee shall maintain a policy (issued by a company reasonably
acceptable to Lessor) of comprehensive general liability insurance with a
combined single limit of not less than $1,000,000 insuring against all liability
of Lessee and its agents arising out of Lessee's use or occupancy of the
Premises and including contractual liability coverage for the indemnification
obligations of Lessee under this lease. This policy of insurance shall name the
Lessor as an additional insured and shall include cross liability endorsements
in favor of the Lessor. Lessee's insurance shall be primary and non contributing
with any insurance carried by Lessor, and shall contain an endorsement requiring
at least sixty (60) days prior written notice of cancellation to Lessor. Lessee
shall deliver a certificate of insurance to Lessor prior to taking occupancy of
the Premises and shall provide evidence of renewed insurance coverage prior to
the expiration of any policies. No insurance required or obtained by Lessee
hereunder shall limit any liabilities or obligations of Lessee to Lessor under
this Lease.
10. COMMON AREA. All areas not designated for exclusive use of tenants or
available for lease to prospective tenants constitute the Suite's common areas.
Lessee shall have the non-exclusive right of access and use of the common areas
and facilities contained therein. Conference room(s) may be used on a
reservation basis only subject to Lessor's rules and regulations governing use
of the same (see section 9 of exhibit D).
11. MASTER LEASE. Lessee shall have no greater rights to the use and
occupancy of the Suite and Premises than Lessor has with the Building under
Lessor's Master Lease; in particular, Lessee's term under this agreement shall
not be greater than Lessor's term under the Master Lease. Lessee is bound to
Lessor in the same manner as Lessor is bound to the Building with respect to all
standard lease provisions (e.g., eminent domain, destruction of building, etc.),
as well as the rules and regulations of the Building attached hereto as Exhibit
C.
Termination of the Master Lease shall terminate this Lease and all of Lessor's
obligations hereunder. If Lessor's interest is so terminated, Lessee shall, at
the option of Lessor's landlord, attorn to Lessor's landlord and recognize
Lessor's landlord as Lessor under this Lease. Lessee shall execute and deliver
at any time when requested by Lessor's landlord an instrument to evidence such
attornment. Lessee waives the provision of any law which may give Lessee any
right of election to terminate this Lease or to surrender possession of the
Premises by reason of the termination of the Master Lease. This paragraph does
not obligate Lessee in any way to the Master Lessor of the Building or to anyone
else, for anyone else's rent, or any payment whatever, except as expressly set
forth in this Lease.
At any time, Lessor may terminate this Lease upon sixty (60) days written notice
to Lessee in the event that Lessor's interest in the Master Lease is terminated.
In the event Lessor's interest in the Master Lease is terminated, Lessee shall,
at the option of Lessor's landlord, attorn to Lessor's landlord or Lessor's
landlord's designee, and recognize Lessor's landlord or Lessor's landlord's
designee as Lessor under this Sublease. Lessee shall execute and deliver at any
time when requested by Lessor's landlord an instrument to evidence such
attornment. In no event however, shall Lessor's landlord or Lessor's landlord's
designee be liable for any previous act or omission by Lessor under this
Sublease, or for the return of any advance rental payments or deposits under
such agreements that have not been actually delivered to Lessor's landlord or
Lessor's landlord's designee, nor shall Lessor's landlord or Lessor's landlord's
designee be bound by any modification to any such agreements executed without
Landlord's consent or for any advance rental payments in excess of one month's
rent. Lessee waives the provision of any law which may give Lessee any right of
election to terminate this Lease or to surrender possession of the Premises by
reason of the termination of the Master Lease.
12. SUBLETTING. Lessee shall not sublet or assign the Premises or any part
thereof for any period of time. Any subletting or assignment of this Lease which
is not in compliance with the provisions of this paragraph shall be void and
shall, at the option of Lessor, terminate this Lease. In such event, Lessee
shall be liable for any expenses Lessor may incur in regaining possession of the
Premises or so much of the Premises as Lessee may have subleased or assigned
without Lessor's consent
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13. NOTICE TO LESSOR. Any notice regarding a breach of this lease or
termination thereof shall be in writing and sent by certified mail or personal
delivery to Barrister Executive Suites, Inc., Attention: Lease Termination
Department, 9841 Airport Blvd., Suite 1200, LA, CA 90045 (in the case of
Lessor), or to Lessee c/o the address of the Premises (in the case of Lessee).
Certified mail notice shall be deemed given forty-eight (48) hours after the
date it is placed, postage prepaid, in a depository for United States mail.
PERSONAL DELIVERY TO THE FLOOR MANAGER, RECEPTIONIST OR TELEPHONE OPERATOR DOES
NOT CONSTITUTE NOTICE TO LESSOR. Either party may provide for a different
address by notifying the other party of said change as provided for herein.
14. SUBSTITUTION. At any time after the execution of this Lease, Lessor
may substitute for the Leased Premises other premises elsewhere in the suite or
in another Barrister Suite (the "New Premises") in which event the New Premises
shall be deemed to be the Leased Premises for all purposes hereunder, provided:
(a) The New Premises shall be similar in area and appropriateness for
Lessee's purposes in Lessor's reasonable determination; and
(b) If Lessee is occupying the Leased Premises at the time of any
such substitution, Lessor shall pay the reasonable out of pocket, third party
expense of moving Lessee, its property and equipment to the New Premises.
15. RULES AND REGULATIONS. Lessee shall observe at all times Lessor's
Rules and Regulations, a copy of which is attached hereto as Exhibit D.
16. REPAIRS. The landlord which leases the Suite to Lessor is responsible
for construction of the building, parking garage or lot, and repairs to
elevators, air conditioning, electrical, plumbing and structural supports under
the Master Lease. Lessor is not liable to Lessee by reason of any defect,
inadequacy or insufficiency in same. Lessee may not deduct or offset any amount
from rent due herein because of any problem regarding construction, access to
services, repairs or lack thereof. Lessor will coordinate any repair or
complaint of Lessee. However, any claim by Lessee with respect thereto shall be
made solely against the Building and Lessor hereby assigns to Lessee, solely for
the purpose of making and prosecuting any such claim, all rights which Lessor
has under the Master Lease. Lessor will coordinate all repairs for dangerous
conditions existing in the common areas within the Suite. Lessee is responsible
for, and shall indemnify and hold Lessor harmless from and against, any damage
to persons or property caused by Lessee, or Lessee's employees, agents, clients,
guests or invitees, as well as any business interruption, lost business or
income caused by phone system problems, long distance and local phone service
problems, photocopier problems, and/or fax machine problems.
17. RIGHT OF ENTRY. If Lessee has given notice to terminate or Lessee is
in default of rental payments, or if Lessee is on a Month-to-Month Lease,
Lessor's employees may show the Premises to prospective tenants between 9:00
a.m. and 6:00 p.m., Monday through Friday. If during the last month of the term
Lessee shall have removed all or substantially all of Lessee's property, Lessor
may immediately allow anyone else to occupy the Premises without relieving
Lessee of liability for rent for that period of time unless Lessor receives
rental income from Lessee's space, in which event such payment shall be credited
against Lessee's rent obligation for the period of time the space is occupied by
someone else.
18. UTILITIES, SERVICES, MAINTENANCE AND CONSTRUCTION. Under Lessor's
Master lease, the Building provides utilities, services (janitorial, heat and
air conditioning) and maintenance. Janitorial services include carpet vacuuming,
but not shampooing. Heat and air conditioning is provided during generally
recognized business days and hours. Lessee is allowed access to the Premises
twenty-four (24) hours a day, seven (7) days a week, subject to the Building's
rules requiring proper identification after normal business hours. Lessor is not
liable to Lessee by reason of any failure to provide or the inadequacy of
utilities, janitorial, heat or air conditioning services, parking, elevators, or
maintenance. Lessor is not responsible for any negligence of the Building's
agents or employees. Lessee may not deduct or offset any amount from rent due
herein because of any problem regarding utilities, heat, air conditioning,
parking, elevators, janitorial services, maintenance services or defective
construction of Premises. Upon request by Lessee, Lessor will write the Building
regarding any complaint by Lessee regarding utilities, heat, air conditioning,
janitorial services, maintenance or construction; however, any claim by Lessee
with respect thereto shall be made by Lessee directly to the Building, and
Lessor hereby assigns to
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Lessee, solely for the purpose of making and prosecuting any such claim, all
rights which Lessor has against the Building under the Master Lease. Lessor is
responsible for maintaining the common areas within the Suite, however, Lessor
is not responsible for maintaining, repairing or cleaning the floor covering
wall covering or drapes/window blinds within Lessee's Premises, other than the
normal janitorial service provided by the Building. Non-recurring operating and
capital improvements may be passed on to the Lessee.
19. ATTORNEY'S FEES. In the event legal proceedings to regain possession
of the Premises or to collect moneys owed are instituted because of Lessee's
failure to pay rent, security deposit, cost of repair of the Premises or to cure
any breach of this Lease by Lessee, the prevailing party shall be entitled to
recover as an element of his cost of suit, and not as damages, reasonable
attorney's fees to be fixed by the court. The "prevailing party" shall be the
party who is entitled to recover his costs of suit, whether or not the suit
proceeds to final judgment. The party not entitled to recover his costs shall
not recover attorney's fees. No sum for attorney's fees shall be counted in
calculating the amount of a judgment for purposes of determining whether a party
is entitled to recover his costs of attorney's fees.
20. ENTIRE AGREEMENT, MERGER AND WAIVER. This Lease Agreement supersedes
and cancels any and all previous negotiations, arrangements, offers, brochures,
agreements or understandings, if any, between the parties hereto. This Lease
Agreement expresses and contains the entire agreement of the parties hereto and
there are no expressed or implied representations, warranties or agreements
between them, except as herein contained. This Lease Agreement may not be
modified, amended or supplemented except by a writing signed by both Lessor and
Lessee. No consent given or waiver made by Lessor of any breach by Lessee of any
provision of this Lease Agreement shall operate or be construed in any manner as
a waiver of any subsequent breach of the same or of any other provision.
21. CONFLICT OF INTEREST. Lessee agrees that a conflict of interest would
be created if Lessee were to represent or act as Legal counsel for the
employees, officers, vendors, contractors, landlords and/or tenants of Lessor.
Therefore, so long as Lessee is a tenant of Lessor, Lessee shall be prohibited
from representing Lessor's employees, officers, vendors, contractors, landlords
and/or tenants in any legal action or lawsuit which involves Lessor, or Lessor's
Managing Agent (if applicable). Failure to comply with this provision shall
constitute an event of default under the Lease and shall be cause for Lessor to
terminate this Lease.
NAVIANT, INC. BARRISTER EXECUTIVE SUITES, INC.
LESSEE LESSOR
/s/ William Tobia /s/ Margaret G
- -------------------------------- --------------------------------
William Tobia, CFO
Date: 12/13/99 Date: 12-17-99
*YOUR SIGNATURE IS ALSO REQUIRED ON PAGE 6 OF EXHIBIT D*
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EXHIBIT A
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[DIAGRAM]
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<PAGE>
EXHIBIT B
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Not applicable to this Lease Agreement.
<PAGE>
EXHIBIT D
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BARRISTER EXECUTIVE SUITES, INC.
RULES AND REGULATIONS
ATTACHED AND MADE A PART OF LEASE
Lessor has adopted these Rules and Regulations for the purpose of assuring
Lessee of the quiet enjoyment of the Suite. Lessee agrees to abide by the Rules
and Regulations so long as Lessee remains in occupancy of the Premises.
1. COMMON AREAS. The sidewalks, hallways, passages, exits,
entrances, elevators, escalators and stairways shall not be obstructed by Lessee
or used by him for any purpose other than for ingress to and egress from the
Premises. The halls, passages, exits, entrances, escalators and stairways are
not for the use of the general public and Lessor shall in all cases retain the
right to control and prevent access thereto by all persons whose presence in the
judgment of Lessor shall be prejudicial to the safety, character, reputation and
interests of the suite and its lessees, provided that nothing herein contained
shall be construed to prevent such access to persons with whom Lessee normally
deals in the ordinary course of such Lessee's business unless such persons are
engaged in illegal activities.
2. DISPLAY OF SIGNS. No sign, placard, picture, name, advertisement
or notice, visible from the exterior of the Premises shall be inscribed,
painted, affixed or otherwise displayed by Lessee on the Premises or any part of
the building without the prior written consent of Lessor, and Lessor shall have
the right to remove any such sign, placard, picture, name, advertisement or
notice without notice to and at the expense of Lessee. Lessor's consent, whether
before or after the execution of the Lease, shall in no way operate as waiver or
release of any of the provisions hereof or of the Lease, and shall be deemed to
relate only to the particular sign, placard, picture, name, advertisement or
notice so consented to by Lessor and shall not be construed as dispensing with
the necessity of obtaining the specific written consent of Lessor with respect
to any other such sign, placard, picture, name, advertisement or notice.
3. DIRECTORY. Subject to the Building's rules and regulations,
Lessee may have Lessee's business name on the Building's lobby and parking-level
directories. Lessor will order the installation of directory listings for the
name(s) designated as "Lessee" on this Lease. Lessee shall pay the Lessor's
prevailing charge for any Directory Listings. If Lessee desires a different
listing, additional listings, or does not want a name on the directories, Lessee
will note that fact at the bottom of this page and at the discretion of Lessor
and the Building, such additional listings may be provided.
4. DOOR LETTERING. Lessee may, at Lessee's expense, have the
occupant's name placed on Lessee's office door in the uniform size, style, place
and manner selected by Lessor. If Lessee requires door signs, Lessee shall pay
Lessor for same at Lessor's prevailing rate. Lessee shall not install a title,
company name or anything else on the outside of Lessee's door or any other
location visible from the common area. For attorneys, a law firm name on the
door is permissible, so long as it does not exceed one line. Lessor recommends
the use of a single occupant's name, or no name at all. If Lessee's office is
within a private suite, Lessee shall not place any name on the entrance door to
the private suite unless Lessee has leased the entire mini-suite, or each office
and desk space within that private suite is occupied and Lessee obtains written
consent of all other tenants within that private suite. If at any time Lessee
does not lease an entire mini-suite or private suite and Lessee does not have
the consent of all other occupants of the mini-suite or private suite, including
Lessor's in the event a vacancy exists, Lessee shall remove , at its own
expense, all lettering from the entrance door to the mini-suite or private
suite. If Lessee's door lettering is not installed by the office of the building
or the company recommended by Lessor, or if the next Lessee does not immediately
install door lettering, Lessee is responsible for the cost of professional
removal of Lessee's door lettering as well as any damage to the door caused by
the removal of Lessee's door lettering. If any co-Lessee complains that Lessee's
door lettering is not in keeping with the provisions herein, Lessee will alter
at Lessee's expense the door lettering to comply with these provisions.
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5. KEYS. Lessor will supply one key to the door of each office or
desk area (including one key for each existing desk lock if the former tenant
returned the key) rented by Lessee. If Lessee does not receive a door key for
space rented within 5 days after the commencement date of this Lease, Lessee
shall send Lessor a certified letter with return receipt asking for the key(s)
and if such letter is not received by Lessor, Lessee will be deemed to have
received the key(s) and Lessee will be responsible for replacing the key(s) when
Lessee moves out. Lessee will pay the Lessor's prevailing charge for elevator
keys, security cards or keys to enter the Building after normal business hours,
or additional office or desk area keys. Lessor is not responsible for changing
any lock for any reason including, but not limited to, the master key kept by
Lessor's employees, or any other key which opens Lessee's space, being stolen,
lost or misplaced. Lessee understands that Lessor is not liable for thefts.
Subject to the approval of the Building manager, Lessee may install a deadbolt
lock on or change the tumbler on any door(s) leading to an area within which
Lessee has leased all the space. Deadbolts must be installed above the doorknob,
with precisely 7 1/2" between the center of the knob and the center of the dead
bolt. If Lessee chooses to change the tumbler or to install a dead bolt, Lessee
realizes that maintenance personnel will not be able to enter and clean Lessee's
office(s). Lessee shall be responsible for the return of all keys to the
Premises. In the event Lessee fails to do so, Lessee shall pay Lessor for the
cost of re-keying all doors to the Premises. If Lessee requires Lessor to admit
Lessee into the Premises, Lessee will be assessed Lessor's standard charge for
admitting Lessee for each occurance after the first.
6. CARPETING AND WALL COVERING. Lessee accepts the carpeting,
flooring, and walls on an "as is" basis. Lessee shall return the carpeting,
flooring, walls, and wall covering to Lessor in their installed condition less
normal wear and tear. Lessee may not make changes in floor covering or wall
covering without the prior written consent of Lessor. Upon termination of the
Lease, whether upon expiration of the term or sooner, Lessee agrees to pay
Lessor One Hundred Dollars ($100.00) per leased office and Fifty Dollars
($50.00) per leased desk space to cover the painting and cleaning costs for each
such space. The applicable amounts for such painting and cleaning costs shall be
deducted from Lessee's security deposit should Lessee fail to pay Lessor for
same upon lease termination.
7. DRAPES (OR VENETIAN BLINDS). Lessor shall provide drapes or
blinds (whichever is standard for the Building) in exterior window offices
(excluding offices with atrium exposures) at no expense to Lessee. Lessor is not
obligated to clean or repair the drapes (or blinds). Lessee shall return same to
Lessor in their present condition less normal wear and tear. As required by the
Building, Lessee must use the building standard drapes or blinds. Lessee may
install overdrapes (visible only from within the office) in the text and color
of Lessee's choice, which must be removed at lease termination. If the Building
has special sun-resistant glass treatment and does not provide drapes or blinds
for other floors in the building, Lessor shall not be required to provide drapes
or blinds to Lessee.
8. IMPROVEMENTS. Lessee may make cosmetic improvements within the
office(s) and/or desk space(s) leased herein subject to Lessor's prior written
approval and provided that Lessee pays for any such improvements, and further
provided said improvements do not affect the structural integrity of the
Building or violate Lessor's Master Lease. All improvements (other than floor
covering or wall covering changes) must be done by the Building's general
contractor or a contractor of Lessee's choice with the prior written permission
of the Office of the Building and Lessor. Lessee may remove any improvements
paid for by Lessee provided that Lessee repairs any holes, gaps or other damage
to walls, ceiling, flooring or their coverings. Lessee will remove any
improvements (other than additional, normal-height electrical outlets or shelves
within a cabinet or closet occupied by Lessee) installed by Lessee and restore
the Premises to the condition prior to Lessee's occupancy if requested to do so
by Lessor. Lessee shall not remove any improvement for which Lessor contributed
payment without Lessor's prior written consent. During the restoration period,
Lessee shall pay rent to Lessor as provided herein as if said space were
otherwise occupied by Lessee.
9. CONFERENCE ROOM. Lessee may use the conference room(s) on a
reservation basis only. Lessee may not have a standing or permanent reservation
of the conference room. Lessee will not reserve the conference room on more than
3 occasions in any 30-day period nor may Lessee reserve use of the conference
room for an entire day more than one day at a time, unless Lessor's floor
manager confirms that such excess use does not conflict or interfere with any
other co-tenant's reasonable pro rata use of the conference room. Excess usage
will be charged to Lessee at Lessor's prevailing rate. Lessee understands the
conference room is for meetings, depositions or other conferences and is not to
be used for lunches or any other purpose which causes loud noise, offensive
odors
2
<PAGE>
or any other environmental situation which disturbs other tenants. Use of the
conference room at any other suite operated by Lessor is permitted one time in
any 30-day period on a reservation basis. Such usage is limited to normal
business hours when the floor manager is present.
10. LIBRARY. Lessor will provide access to a Law Library, consisting
of one set of each major multi-volume publication (other than desk or
specialized sets) used most frequently by most lawyers as determined by Lessor's
experience (said law library may be comprised of CD-ROM disks or books). Lessee
shall not mark, mar, tear or otherwise deface any book.
Lessee shall refrain from smoking, eating and drinking in the library and
shall be bound by the rules made by Lessor with respect to the use of the
library, including but not limited to the following:
(a) Lessee will return to the shelf each book that Lessee
removes from the shelf.
(b) Lessee will complete an "out card" for each book
removed from the library.
(c) Lessee will not keep any book out of the library
overnight.
Lessor is not responsible for repurchasing lost stolen or missing books or
supplements.
If the number of lost, stolen or missing books is unusually large, as
determined by Lessor's experience in running numerous law suites, Lessor may
lock the library after normal business hours or institute other security
measures Lessor deems appropriate, including inspection of all offices in the
Suite to locate missing books.
Lessee realizes that every book or supplement needed by Lessee will not
always be in the library as some books or supplements may be missing, stolen or
have been removed by tenants. Lessee acknowledges that Lessor is not
responsible to Lessee or any other persons in the event that research by, or on
behalf of, Lessee is inadequate or incomplete because some books or supplements
have not been updated, have been removed, or are missing or stolen. Lessor may
at any time and without prior notice to Lessee, remove the on-site library;
however, Lessee shall have the right to use the library of any other law suite
operated by Lessor but may not remove any book from said library. The Law
Library is provided for the convenience of the tenants and Lessor can not be
held responsible for any inadequacy therein.
11. TELEPHONE, MAIL SORTING AND RECEPTION. Lessor agrees to provide
standard telephone answering, mail sorting and reception services as reasonably
required by Lessee from 9:00 a.m. to 5:30 p.m., Monday through Friday, national
and/or state holidays excepted. Lessee shall be responsible for its own
telephone expense, and the installation and monthly service charges, if any,
from the telephone company by reason of Lessee's lines being connected to the
reception desk and telephone room consoles. Any telephone expense billed to
Lessor (including any telephone company double charge) shall be paid or
reimbursed by Lessee to Lessor. Lessee agrees to use only the telephone
equipment and services of the vendor authorized by Lessor if Lessee wishes to
connect its telephones lines to Lessor's switchboard and have Lessor answer
Lessee's telephone lines. Lessee may not install more than two incoming lines on
Lessor's switchboard for each office and one incoming line for each desk space,
and all such lines are to be answered with the same greeting. Telephone
equipment shall only be moved by Lessor or its authorized vendor and Lessee
shall be responsible to pay all costs of such moves at the current rates charged
by Lessor's authorized vendor.
In the event that Lessee receives excessive incoming telephone calls
through Lessor's switchboard (Greater than 1,000 calls per month per office
rented will be considered excessive), Lessor my impose a reasonable charge for
such excessive usage or require Lessee to disconnect its telephone lines from
Lessor's switchboard and have Lessee answer its own telephone lines. Lessee is
encouraged to have a private line that bypasses Lessors switchboard for
important clients & personal callers so as to help ensure that Lessee does not
receive excessive calls through Lessor's switchboard.
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<PAGE>
Lessee is required to maintain voice-mail access so that Lessor's telephone
operators may route Lessee's callers that need to leave a message into said
voice-mail. Should Lessor's operators be required to take a paper message for
any reason, Lessee agrees to pay Lessor's standard charge for each such message
written.
Should Lessee choose not to be connected to Lessor's switchboard and not
have Lessor answer its telephones, Lessee may use its own telephone equipment
provided Lessee obtains said equipment from a telephone vendor approved by
Lessor. Lessee acknowledges that the telephone cabling which currently exists
in the suite is the property of Lessor and Lessor may have provided the rights
to use of the existing cabling to its authorized telephone vendor. Therefore,
if Lessee chooses to use its own telephone equipment, Lessee may be charged a
monthly fee by Lessor or its authorized telephone vendor for use of the existing
telephone cabling. In the event Lessee replaces Lessor's cabling with Lessee's
own vendor's cabling, Lessee shall reimburse Lessor for any expense Lessor's
phone vendor assesses to switch out its cabling and to restore it after Lessee
vacates the Premises.
Lessee agrees that Lessor is not responsible for the acts or omissions of
Lessor's telephone vendor. Lessor is not responsible for telephone equipment
breakdowns, and Lessee understands that telephone service may not always be
continuous. Further, Lessee agrees to indemnify, release, and hold Lessor
harmless from any loss damage, claim or liability arising out of or in
connection with any telephone equipment failure, including lost business or
income. Services offered by Lessor are subject to human electrical and
mechanical error, failure, or illness which may result in the delay or
discontinuation of these services. Lessee acknowledges that Lessor is not
responsible for telephone equipment breakdowns and that telephone service may
not always be continuous.
If the telephone company does not install Lessee's phone on or before the
commencement date of this Lease, the commencement date shall not be extended,
nor shall rent be abated, since Lessee is responsible for insuring that Lessee's
telephone lines are installed in Lessee's office and connected to Lessor's
central call director. If Lessee desires a floor telephone outlet or any other
telephone outlet not already provided, Lessee will pay the Building's relocation
charge and any additional conduit and electrical work charges.
Lessee recognizes that telephone answering, mail sorting and reception
services are never perfect and that all receptionists and telephone operators
make mistakes. Lessor strives to provide excellent telephone answering, mail
sorting and reception services, however it will not be error-free. Lessee may
perform telephone answering and mail service directly or through Lessee's
employees. Lessee agrees that Lessor shall not be liable for any loss of
business or damages of any sort occurring through or in connection with, or
incidental to the furnishing of, or the failure to furnish, telephone answering,
mail sorting or reception service. Further, Lessee agrees to indemnify,
release, and hold Lessor harmless from any loss, damage, claim or liability
arising out of or in connection with any telephone answering, mail sorting
and/or reception service provided or not provided by Lessor's employees to
Lessee or to any caller, visitor or associate of Lessee, or mail or deliveries
of any goods or merchandise intended for Lessee. IN THE EVENT THIS LEASE
TERMINATES, OR LESSEE IS IN DEFAULT HEREUNDER, LESSOR MAY, AT ITS ELECTION,
REFUSE TO PROVIDE TELEPHONE ANSWERING SERVICE, LIBRARY AND CONFERENCE ROOM
USAGE, PHOTOCOPYING, WORD PROCESSING, FAX AND LEGAL RESEARCH AND LESSOR SHALL
NOT BE IN BREACH OF ANY OF ITS OBLIGATIONS HEREUNDER, NOR SHALL SUCH REFUSAL BE
DEEMED AN EVICTION OF LESSEE UNDER THIS LEASE.
Lessor provides open message and mail slots to all tenants. Lessee
acknowledges that Lessor is not responsible for loss or theft of messages or
mail. Lessee may install at Lessee's expense a locking cover over the mail slot
or one or both sides of the message slot provided that Lessee will be
responsible for any damage to said mail or message slot as well as for restoring
the slot to its original condition when Lessee moves out. Lessee understands
that any covered slot will not be in alphabetical order and will be at the
beginning or end of the row of slots at the telephone operators discretion.
Lessee further understands that a key must be given to the telephone operators
in order for them to insert mail and/or messages into the respective slots, or
the covers must be designed with a small opening for that purpose. Lessor's
sole obligation to answer telephones or sort mail shall be limited to Lessee's
name or associates of Lessee occupying individual offices. Services in addition
to the foregoing shall be subject to a charge to be determined by Lessor.
Upon termination of this Lease, Lessor will write on all mail "Return to
Sender" and return to the post office. Lessor will not store mail nor place a
forwarding address on it unless Lessee pays the then-prevailing charge for said
service.
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<PAGE>
12. PHOTOCOPYING AND FAX. Lessor will provide all photocopy and fax
services for the Premises and Lessee shall not be permitted to install any fax
or photocopy machines in the Leased Premises. If Lessee desires to use these
services, Lessee shall execute separate services agreements for same, and
charges arising from these services shall appear on Lessee's monthly statements
and shall be paid for together with the monthly rent for the Premises. Lessee
recognizes that photocopy and fax machines do break down and that repair persons
do not come over promptly. Lessee acknowledges that Lessor is not responsible
for machine breakdowns.
13. PARKING. Lessee and Lessee's visitors may have validated and
monthly automobile parking (if available) in the Building's parking facilities,
if any, according to the Building's rules and regulations. Lessor is under no
obligation to provide parking. Lessee's failure to obtain parking shall in no
way affect Lessee's obligation to pay rent.
14. PROFESSIONAL CONDUCT. If Lessee conducts himself or his business
in such a manner that reflects unfavorably on them or the Suite, Lessor may
terminate this Lease on 15 days notice to Lessee and any rent paid in advance
will be returned to Lessee on a pro rata basis. Lessor further reserves the
right to exclude, expel from the Suite or terminate the Lease of (on 5 days
notice to Lessee) any person who, in the sole judgment of Lessor, is abusive to
Lessor's employees, tenants or visitors to the Premises, is intoxicated or under
the influence of liquor or drugs, or who shall in any manner do any act in
violation of any of these rules and regulations or applicable laws.
15. SMOKING. Smoking is expressly prohibited in all areas of the
Suite.
16. AMENDMENTS. Lessor may, without further notice, make changes or
adopt any such other and further rules and regulations which in its sole
judgment may be necessary for the proper operation of the Suite. Lessee agrees
to abide by all such rules and regulations herein above stated and any
additional rules and regulations which are adopted. So long as Lessee is not in
violation of its obligations under the Lease or these rules and regulations,
Lessor shall observe the rules and regulations.
17. ASBESTOS-CONTAINING MATERIALS (ACM). See attached Exhibit E.
NAVIANT, INC. EXECUTIVE SUITES, INC.
LESSEE LESSOR
/s/ William Tobia /s/ Margaret G
- ---------------------------- --------------------------------
William Tobia, CFO
Date: 12/13/99 Date: 12-17-99
*YOUR SIGNATURE IS ALSO REQUIRED ON PAGE 8 OF THE LEASE*
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<PAGE>
Lessee shall have the Right of First Refusal to lease unit#(s) 35.A & 35.B.
Upon the Suite Manager's written notification of another parties' interest in
the above space, Lessee shall have 48 hours to sign a lease on said space. In
the event Lessee fails to sign the lease within 48 hours, Lessor shall have the
right to lease the unit(s) to the interested party.
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT E
---------
NOTIFICATION OF ASBESTOS CONTAINING MATERIALS ("ACM")
15760 VENTURA BOULEVARD, ENCINO, CALIFORNIA
This will serve to notify Tenant, its subtenants, employees and
contractors working in the Building that an Asbestos Building Materials Survey
Report has been received by Landlord that confirms the extremely limited
presence of ACM In the Building.
Airborne asbestos levels in buildings are much lower than those in
industrial workplaces where serious health effects such as lung cancer and
asbestosis have been observed. However, it is important for employees to follow
proper work practices to minimize the potential for disturbing ACM.
At the time that the Encino Gateway Building was constructed, most
uses of asbestos containing building materials had been banned. One exception
to this ban was sprayed an acoustical texture, sometimes referred to as "cottage
cheese" used extensively in homes and commercial buildings throughout
California. In the Encino Gateway Building, this product is applied to the
lobby ceiling that can be observed from the Main Lobby, as well as the Parking
Level 2 and Arcade Level elevator lobbies. In 1985 the entire ceiling was
covered with Latex paint effectively encapsulating the ACM. Additionally, the
ACM Is generally out of reach, and thus unlikely to be damaged or disturbed. If
you find ACM that has been damaged, report it to your supervisor or Landlord's
Building Management. Do not disturb damaged asbestos material or debris.
Landlord has developed procedures and trained and equipped our maintenance
employees to safely remedy such a condition.
Asbestos containing materials pose no threat to your health unless
fibers become airborne due to material aging, deterioration or as the result of
some damage. Asbestos conditions may vary, and where ACM were Identified in the
building surveys they were generally in good condition, enclosed, encapsulated
or of a type not likely to release fibers unless disturbed. Specific locations
where ACM have been found are listed an the attached summary.
Any employee may review the Asbestos Material Survey Report, results
of bulk sampling or air monitoring conducted in this building. All asbestos
related data is available during normal business hours at Landlord's Building
Management Office.
FLOOR/ROOM TYPE of ACM
- --------------------------------------------------------------------------------
Arcade Level / Elevator Lobby Acoustic ceiling
Floor 1 Acoustic ceiling
Parking Level 2 Acoustic ceiling
- --------------------------------------------------------------------------------
Asbestos Type Chrysotile
Acoustic Ceiling Content 8% to 11%
- --------------------------------------------------------------------------------
Initial Here
Tenant ____(Initialed)_______
Landlord__________________
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.7
- --------------------------------------------------------------------------------
475 PARK AVENUE SO. CO.
Landlord,
INTELLIQUEST INFORMATION GROUPS, INC.,
Tenant.
--------------------
LEASE
--------------------
Premises: 475 Park Avenue South
Part of the 17th Floor
New York, New York 10022
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 Premises..................................................... 1
ARTICLE 2 Commencement of Term......................................... 1
ARTICLE 3 Rent......................................................... 2
ARTICLE 4 Use.......................................................... 3
ARTICLE 5 Alterations, Fixtures........................................ 4
ARTICLE 6 Repairs...................................................... 6
ARTICLE 7 Floor Load; Noise............................................ 6
ARTICLE 8 Laws, Ordinances, Requirements of Public Authorities......... 7
ARTICLE 9 Insurance.................................................... 7
ARTICLE 10 Damage by Fire or Other Cause................................ 9
ARTICLE 11 Assignment, Subletting, Mortgaging........................... 9
ARTICLE 12 Liability and Indemnity of Landlord and Tenant............... 14
ARTICLE 13 Moving of Heavy Equipment.................................... 16
ARTICLE 14 Condemnation................................................. 16
ARTICLE 15 Entry, Right to Change Public Portions of the Building....... 17
ARTICLE 16 Conditional Limitations, Etc................................. 17
ARTICLE 17 Mechanic's Liens............................................. 22
ARTICLE 18 Landlord's and Tenant's Right to Perform Obligations......... 22
ARTICLE 19 Covenant of Quiet Enjoyment.................................. 23
ARTICLE 20 Excavation................................................... 23
ARTICLE 21 Services and Equipment....................................... 23
ARTICLE 22 Escalation................................................... 25
ARTICLE 23 Electric Inclusion........................................... 29
ARTICLE 24 Broker....................................................... 32
ARTICLE 25 Subordination and Ground Lease............................... 32
ARTICLE 26 Estoppel Certificate......................................... 34
ARTICLE 27 Waiver of Jury Trial......................................... 35
ARTICLE 28 Surrender of Premises........................................ 35
ARTICLE 29 Rules and Regulations........................................ 35
ARTICLE 30 Successors and Assigns and Definitions....................... 36
ARTICLE 31 Notices...................................................... 37
ARTICLE 32 No Waiver; Entire Agreement.................................. 37
ARTICLE 33 Captions..................................................... 38
ARTICLE 34 Inability to Perform......................................... 38
ARTICLE 35 No Representations by Landlord............................... 39
ARTICLE 36 Rent Control................................................. 39
ARTICLE 37 Late Payment Charges......................................... 39
ARTICLE 38 Security Deposit............................................. 39
SCHEDULE A Floor Plan....................................... 46
SCHEDULE B Landlord's Work.................................. 47
SCHEDULE C Description of Land.............................. 50
SCHEDULE D Rules and Regulations............................ 51
SCHEDULE E Cleaning Specifications.......................... 54
SCHEDULE F Definitions...................................... 56
</TABLE>
<PAGE>
INDENTURE OF LEASE ("Lease") made this 1st day of April, 1998, between
475 PARK AVENUE SO. CO., a New York partnership, having an office at 750
Lexington Avenue, New York, New York 10022 ("Landlord") and INTELLIQUEST
INFORMATION GROUP, INC., a Delaware corporation, having an office at ___________
_______________________________________________ ("Tenant").
WITNESSETH:
ARTICLE 1
Premises
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
the following space ("Demised Premises"): part of the 17th Floor, as shown on
the floor plan (Schedule A) attached hereto, in the office building known as and
by the street number 475 Park Avenue South., in the Borough of Manhattan, City
and State of New York ("Building"), upon and subject to the terms, covenants and
conditions hereafter set forth.
TO HAVE AND TO HOLD the Demised Premises unto Tenant for a term
commencing on the "Commencement Date" (as defined in Article 2 hereof) and
ending on a date (the "Expiration Date") which shall be five (5) years and five
(5) months after the Commencement Date, plus the number of days required, if
any, to have such term expire on the last day of the calendar month, or on such
earlier date upon which said term may expire or terminate pursuant to any of the
conditions or covenants of this lease or pursuant to law.
IT IS MUTUALLY COVENANTED AND AGREED between Landlord and Tenant as
follows:
ARTICLE 2
Commencement of Term
Section 2.01. The term of this Lease and the payment of minimum rent
hereunder shall commence on the date that Landlord's work set forth on Schedule
B shall be substantially completed (the "Commencement Date") and Landlord shall
deliver possession of the Demised Premises on the Commencement Date. Except as
set forth on Schedule B, Landlord shall have no obligation to perform any other
work in connection with preparing the Demised Premises for Tenant's occupancy.
Landlord's work shall be deemed to be substantially completed where all of
Landlord's work, except for minor details or adjustments, none of which
materially interfere with Tenant's use of the Demised Premises, have been
completed. However, if Tenant shall enter into possession of the Demised
Premises and commence the conduct of its business, (exclusive of installation of
its furniture, fixtures and equipment therein), the Commencement Date shall be
the date of such entry regardless of whether the foregoing events shall have
occurred.
Section 2.02. Tenant has fully inspected the Demised Premises, is
familiar with the condition thereof and agrees to accept possession of the same
on the Commencement Date in
<PAGE>
their present "As Is" condition, except for Landlord's work as set forth in
Schedule B, and except for latent defects.
Section 2.03. If, prior to the Commencement Date, Tenant shall enter
the Demised Premises to make any installations, Landlord shall have no liability
or obligation for the care or preservation of Tenant's property, except if due
to the negligence of Landlord, its agents, contractors and employees.
Section 2.04. Promptly after the Commencement Date, Landlord and
Tenant will execute a statement in recordable form confirming the Commencement
and Expiration Dates of this Lease, in accordance with the foregoing provisions
ARTICLE 3
Rent
Section 3.01. Tenant shall pay, as rent for the Demised Premises, the
following:
(a) a fixed minimum rent (the "minimum rent") at the following
annual rates:
(i) $128,425.00 per annum (or $10,702.08 per month) for the
first three (3) years following the Commencement Date, provided that
if the Commencement Date is other than the first day of the month,
then the minimum rent for the month in which the Commencement Date
occurs shall be prorated; and
(ii) $133,095.00 per annum (or $11,091.25 per month) for the
last two (2) years and five (5) months of the term hereof; and
(b) all other sums and charges required to be paid by Tenant
under the terms of this Lease (including without limitation, the payments
required to be made under Article 22), which shall be deemed to be and are
sometimes referred to hereafter as additional rent.
Section 3.02. Notwithstanding the provisions of Section 3.01 hereof,
and provided Tenant is not then in default hereunder after any applicable notice
and expiration of any applicable cure period, Tenant shall be entitled to an
abatement of part of the minimum rent only in the amount of $9,534.58 for the
1st, 2nd, 3rd, 16th and 17th months following the Commencement Date, provided
that the balance of minimum rent of $1,167.50 for said months shall be due and
payable. Tenant acknowledges that the consideration for the aforesaid abatement
of minimum rent is Tenant's agreement to perform all of the terms, covenants and
conditions of this Lease on its part to be performed. Therefore, if Tenant shall
be in default under any of such terms, covenants and conditions, the aggregate
amount of all minimum rent that was abated shall immediately thereafter become
due and payable by Tenant to Landlord, Landlord shall be entitled to the same
rights and remedies as in the event of Tenant's default in the
2
<PAGE>
payment of minimum rent. Except as otherwise expressly set forth herein, Tenant
shall be required to pay additional rent and all other sums form and after the
Commencement Date.
Section 3.03. The minimum rent shall be payable in equal monthly
installments in advance on the first business day of each and every month during
the term of this Lease, except that the first installment shall be paid upon the
execution of this Lease.
Section 3.04. Tenant shall pay the minimum rent and additional rent
in lawful money of the United States which shall be legal tender for the payment
of all debts, public and private, at the time of payment and such portion
thereof which is payable directly to Landlord shall be paid at the principal
place of business of Landlord, to wit: 750 Lexington Avenue, New York, New York
10022, or at such other place as Landlord may designate by written notice to
Tenant.
Section 3.05. The minimum rent and additional rent shall be payable
by Tenant without any set-off, abatement or deduction whatsoever and without
notice or demand, except as otherwise expressly provided herein.
ARTICLE 4
Use
Section 4.01. Tenant shall use and occupy the Demised Premises only
for the purposes of general, executive and administrative offices.
Section 4.02. Notwithstanding the provisions of Section 4.01, Tenant
shall not use or allow the use of the Demised Premises or any part thereof (1)
for the cooking and/or sale of food, however Tenant may warm food through a
microwave; (2) for storage for sale of any alcoholic beverage in the Demised
Premises; (3) for the storage and retail sale to the general public of any
product or material from the Demised Premises; (4) for manufacturing or printing
purposes; (5) for the conduct of a school or training facility or similar type
of business which results in the presence of the general public in the Demised
Premises; (6) for the conduct of the business of an employment agency or
personnel agency; (7) for the conduct of any public auction or public
exhibition; (8) for occupancy by a foreign, United States, state, municipal or
other governmental or quasi-governmental body, agency or department or any
authority or other entity which is affiliated therewith or controlled thereby
and which has diplomatic or sovereign immunity or the like with respect to a
commercial lease; (9) for messenger or delivery service (excluding Tenant's own
employees or outside services); (10) as a public stenographer or typist; (11) as
a telephone or telegraph agency; (12) as a company engaged in the business of
renting office(s) or desk space in the Demised Premises; (13) as medical offices
or a laboratory; (14) as a travel agency; (15) as a dating service; or (16) as a
restaurant.
Section 4.03. If any governmental license or permit, other than a
Certificate of Occupancy, shall be required for the proper and lawful conduct of
Tenant's business in the Demised Premises, or any part thereof, and if failure
to secure such license or permit would in any way affect Landlord, Tenant, at
its expense, shall duly procure and thereafter maintain such
3
<PAGE>
license or permit and submit the same for inspection by Landlord. Tenant shall
at all times comply with the terms and conditions of each such license or
permit.
Section 4.04. Tenant shall not at any time use or occupy, or suffer
or permit anyone to use or occupy, the Demised Premises, or do or permit
anything to be done in the Demised Premises, in violation of the Certificate of
Occupancy for the Demised Premises or for the Building, and will not permit or
cause any act to be done or any condition to exist on the Demised Premises which
may be dangerous unless safeguarded as required by law, or which in law
constitutes a nuisance, public or private, or which may make void or voidable
any insurance then in force covering the Building and building equipment.
ARTICLE 5
Alterations, Fixtures
Section 5.01. Tenant without Landlord's prior consent shall make no
alterations, installations, additions, or improvements in or to the Demised
Premises ("work"), including, but not limited to a water cooler, an air
conditioning or cooling system, or any unit or part thereof or other apparatus
of like or other nature, paneling, partitions, railings, mezzanine floors,
galleries and the like. However, Tenant may make non-structural interior changes
and improvements, subject to Landlord' s consent which shall not be unreasonably
withheld or delayed. If any contractor, other than Landlord, shall perform work,
such contractor shall first be approved by Landlord, and as a condition of such
approval, Tenant shall pay to Landlord ten (10%) percent of the cost of such
work for supervision, coordination and other expenses incurred by Landlord in
connection therewith. However, such ten (10%) charge shall not be applicable to
the initial work performed in the Demised Premises or to painting, wall
covering, floor covering and furnishings. Workers' compensation and public
liability insurance and property damage insurance, all in amounts and with
companies and/or forms reasonably satisfactory to Landlord, shall be provided
and at all times maintained by Tenant's contractors engaged in the performance
of the work, and before proceeding with the work certificates of such insurance
shall be furnished to Landlord. If consented to by Landlord, all such work shall
be done at Tenant's sole expense and at such times and in such manner as
Landlord may from time to time designate and in full compliance with all
governmental authorities having jurisdiction thereover. Upon completion of the
work, Tenant shall deliver to Landlord full scale "as built" plans for the same.
All work affixed to the realty or if not so affixed but for which Tenant shall
have received a credit (other than Tenant's trade fixtures), shall become the
property of Landlord and shall remain upon, and be surrendered with, the Demised
Premises as a part thereof at the end of the term, without allowance to Tenant
or charge to Landlord, unless Landlord elects otherwise on notice to Tenant
given at any time prior to or on any termination of this Lease. If Landlord
shall elect, otherwise, then all such work or such portion thereof as Landlord
shall elect shall be removed by Tenant and Tenant shall restore the Demised
Premises to its original condition, at Tenant's expense. If any Building
facilities or services, including but not limited to air-conditioning and
ventilating equipment installed by Landlord and adversely affected or damaged by
reason of work by Tenant, Tenant, at its expense, shall repair such damage and
shall correct the work so as to prevent any further damage or adverse affect on
such facilities or services.
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Section 5.02. Prior to commencing any work pursuant to the provisions
of Section 5.01, Tenant shall furnish to Landlord:
(a) Plans and specifications for the work.
(b) Copies of all governmental permits and authorizations which
may be required in connection with such work.
(c) A certificate evidencing that Tenant (or Tenant's
contractor) has procured worker's compensation insurance covering all
persons employed in connection with the work who might assert claims for
death or bodily injury against Overlandlord, as defined in Article 25,
Landlord, Tenant or the Building.
(d) Such additional personal injury and property damage
insurance (over and above the insurance required to be carried by Tenant
pursuant to the provisions of Section 9.03) as Landlord may reasonably
require because of the nature of the work to be done by Tenant.
(e) If such work shall exceed $25,000, a bond or other security
satisfactory to Landlord in the amount of one hundred ten (110%) percent of
the aggregate cost of the work to insure completion of the work.
Section 5.03. Where furnished by or at the expense of Tenant (except
the replacement of an item theretofore furnished and paid for by Landlord or for
which Tenant has received a credit), all movable property, furniture,
furnishings and trade fixtures ("personalty") other than those affixed to the
realty shall remain the property of and shall be removed by Tenant on or prior
to any termination or expiration of this Lease, and, in the case of damage by
reason of such removal, Tenant, at Tenant's expense, promptly shall repair the
damage. If Tenant does not remove any such personalty, Landlord, at its
election, (a) may cause the personalty to be removed and placed in storage at
Tenant's expense or (b) may treat the personalty as abandoned and may dispose of
the personalty as it sees fit without accounting to Tenant for any proceeds
realized upon such disposal.
Section 5.04. Tenant agrees that the exercise of its rights pursuant
to the provisions of this Article 5 shall not be done in a manner which would
create any work stoppage, picketing, labor disruption or dispute or violate
Landlord's union contracts affecting the Building or unreasonably interfere with
the business of Landlord or any Tenant or occupant of the Building. In the event
of the occurrence of any condition described above arising from the exercise by
Tenant of its right pursuant to the provisions of this Article 5, Tenant shall,
immediately upon written notice from Landlord, cease the manner of exercise of
such right giving rise to such condition. In the event Tenant fails to cease
such manner of exercise of its rights as aforesaid, Landlord, in addition to any
rights available to it under this Lease and pursuant to law, shall have the
right to injunction without notice. With respect to Tenant's work, Tenant shall
make all arrangements for, and pay all expenses incurred in connection with, use
of the freight elevators servicing the Demised Premises during those hours other
than as provided in Section 21.01 (a).
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ARTICLE 6
Repairs
Section 6.01. Tenant shall take good care of the Demised Premises and
the fixtures and appurtenances therein and of all portions of the HVAC,
mechanical, plumbing and electrical systems within and exclusively serving the
Demised Premises, and at its sole cost and expense make all non-structural
repairs thereto as and when needed to preserve them in good working order and
condition. All damage or injury to the Demised Premises or the Building or to
any building equipment caused by Tenant moving property in or out of the
Building or by installation or removal of personalty or resulting from
negligence or conduct of Tenant, its employees, agents, contractors, customers,
invitees and visitors, shall be repaired, promptly by Tenant at Tenant's
expense, and whether or not involving structural changes or alterations, to the
reasonable satisfaction of Landlord. All repairs shall include replacements or
substitutions where necessary and shall be at least equal to the quality, class
and value of the property repaired, replaced or substituted and shall be done in
a good and workmanlike manner.
Section 6.02. Landlord shall, at Landlord's sole expense, perform all
maintenance, repairs and replacements, structural and otherwise, to the exterior
and public portions of the Building and the Building systems, and structural
parts of the Demised Premises unless Tenant is required to make them under the
provisions of Section 6.01, or unless required as a result of the performance or
existence of alterations performed by Tenant or on its behalf, in which event
Tenant, at its expense, shall perform such maintenance, repairs or replacement.
Landlord shall have no liability to Tenant by reason of any inconvenience,
annoyance, interruption or injury to business arising from Landlord's making any
repairs or changes which Landlord is required or permitted by this Lease, or
required by law, to make in or to any portion of the Building or the Demised
Premises, or in or to the fixtures, equipment or appurtenances of the Building
or the Demised Premises. However, Landlord shall use reasonable efforts to make
such repairs or changes in a manner to minimize its interference with the normal
conduct of Tenant's business, provided Landlord shall not be required to employ
overtime or premium labor.
Section 6.03. Tenant shall not store or place any materials or other
obstructions in the lobby or other public portions of the Building, or on the
sidewalk abutting the Building.
ARTICLE 7
Floor Load; Noise
Section 7.01. Tenant shall not place a load upon any floor of the
Demised Premises which exceeds the load per square foot which such floor was
designed to carry (50 lbs. live load per square foot) and which is allowed by
law.
Section 7.02. Business machines and mechanical equipment belonging to
Tenant which cause noise, vibration or any other nuisance that may be
transmitted to the structure or other portions of the Building or to the Demised
Premises, to such a degree as to be reasonably objectionable to Landlord or
which unreasonably interfere with the use or enjoyment by other
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tenants of their premises or the public portions of the Building, shall be
placed and maintained by Tenant, at Tenant's expense, in settings of cork,
rubber or spring type vibration eliminators sufficient to eliminate such
objectionable or interfering noise or vibration.
ARTICLE 8
Laws, Ordinances, Requirements of Public Authorities
Section 8.01.
(a) Tenant, at its expense, from and after the Commencement
Date, shall comply with all laws, orders, ordinances, rules and regulations
and directions of Federal, State, County and Municipal authorities and
departments thereof having jurisdiction over the Demised Premises,
including without limitation the Americans With Disabilities Act
("Governmental Requirements") referable to Tenant or the Demised Premises,
arising by reason of (i) Tenant's occupancy, use or manner of use of the
Demised Premises, or any installations made therein by or at Tenant's
request, or (ii) any default by Tenant under this Lease.
(b) Landlord, at its expense, shall comply with Governmental
Requirements relating to the public portions of the Building and that
Tenant is not obligated to comply with them under the provisions of
subdivision (a) of this Section. Landlord, at its expense, may contest the
validity of any Governmental Requirements and postpone compliance therewith
pending such contest.
ARTICLE 9
Insurance
Section 9.01. [PAGE IS MISSING]
Section 9.02. [PAGE IS MISSING]
Section 9.03.
(a) Tenant covenants to provide on or before the Commencement
Date and to keep in force during the term hereof, the following insurance:
(i) A commercial policy of liability insurance protecting
and indemnifying Landlord, Tenant and Overlandlord (as defined in
Article 25) against any and all claims for personal injury, death or
property damage occurring upon, in or about the Demised Premises, and
the public portions of the Building used by Tenant, its employees,
agents, contractors, customers, invitees, and visitors, including,
without limitation, personal injury, death or property damage
resulting from any work performed by or on
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behalf of Tenant, with coverage of not less than an aggregate of
$3,000,000.00 combined single limit for personal injury, death and
property damage arising out of one occurrence or accident.
(ii) Fire and extended coverage in an amount adequate to
cover the cost of replacement of all personal property, fixtures,
furnishings and equipment, including Landlord's work as set forth in
Schedule B and Tenant's work as set forth in Section 5.01, located in
the Demised Premises.
(b) All such insurance shall (i) be effected under valid and
enforceable policies, (ii) be issued by insurers of recognized
responsibility authorized to do business in the State of New York, (iii)
contain a provision whereby the insurer agrees not to cancel the insurance
without at least thirty (30) days' prior written notice to Landlord, and
(iv) contain a provision that no act or omission of Tenant shall result in
forfeiture of the insurance as against Landlord only.
On or before the Commencement Date, Tenant shall deliver to Landlord
duplicate originals of the aforesaid policies or certificates evidencing the
aforesaid insurance coverage, and renewal policies or certificates shall be
delivered to Landlord at least thirty (30) days prior to the expiration date of
each policy with proof of payment of the premiums thereof.
Section 9.04. Landlord and Tenant shall each secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage policy
obtained by it and covering the Building, the Demised Premises or the personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation or permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against said third party. The waiver of subrogation or permission for waiver of
any claim herein before referred to shall extend to the agents of each party and
its employees and, in the case of Tenant, shall also extend to all other persons
and entities occupying or using the Demised Premises in accordance with the
terms of this lease. If and to the extent that such waiver or permission can be
obtained only upon payment of an additional charge, then, the party benefitting
from the waiver or permission shall pay such charge upon demand, or shall be
deemed to have agreed that the party obtaining the insurance coverage in
question shall be free of any further obligations under the provisions hereof
relating to such waiver or permission.
Subject to the foregoing provisions of this Section 9.04, and insofar
as may be permitted by the terms of the insurance policies carried by it, (i)
each party hereby releases the other with respect to any claim (including a
claim for negligence) which it might otherwise have against the other party for
loss, damages or destruction with respect to its property by fire or other
casualty (including rental value or business interruption, as the case may be)
occurring during the term of this Lease covered by insurance, and (ii) Tenant
releases other tenants but only to the extent that the policies of such other
tenants permit a similar waiver for the benefit of Tenant and such other tenant
gives such a waiver.
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ARTICLE 10
Damage by Fire or Other Cause
Section 10.01. If the Demised Premises shall be damaged by fire (or
other hazards included in extended coverage endorsements to fire insurance
policies covering property in the City of New York), the damage shall be
repaired as promptly as practical by and at the expense of Landlord and the
minimum rent until such repairs shall be made, shall be apportioned and abated
according to the part of the Demised Premises which is usable by Tenant.
Landlord shall have no responsibility to repair any damage to Landlord's work as
set forth in Schedule B and to Tenant's work (as referred to in Section 5.01),
the same being the responsibility of Tenant. No penalty shall accrue for delays
which may arise by reason of adjustment of insurance. by Landlord, unavoidable
delays (as hereinafter defined), or any other cause beyond Landlord's reasonable
control. Tenant shall give immediate notice to Landlord in case of fire or other
damage to the Demised Premises of which Tenant has knowledge. If the Demised
Premises are totally or substantially damaged or are rendered wholly or
substantially untenantable by fire or any such other casualty and if Landlord
decides not to restore or rebuild the same, or if the Building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it (whether or
not the Demised Premises shall have been damaged), Landlord at its election
shall, within sixty (60) days after such fire or other casualty, notify Tenant
of such decision, and thereupon the term of this Lease shall expire by lapse of
time upon the third (3rd) day after such notice is given, and Tenant shall
vacate and surrender the Demised Premises to Landlord. Tenant hereby waives the
provisions of Section 227 of the Real Property Law, and the provisions of this
Article shall govern and control in lieu thereof. Notwithstanding the foregoing,
if Landlord does not substantially complete such repairs within one hundred
eighty (180) days following the date of such casualty, then Tenant may elect to
terminate this Lease by notice to Landlord within ten (10) days following the
expiration of such one hundred eighty (180) day period, and thereupon the term
of this Lease shall expire on the thirtieth (30th) day after such notice is
given, and Tenant shall vacate and surrender the Demised Premises to Landlord,
unless within such thirty (30) day period, Landlord substantially completes such
restoration or rebuilding in which event this Lease shall remain in full force
and effect.
Section 10.02. No damages or compensation shall be payable by
Landlord nor shall Tenant make any claim for inconvenience, loss of business or
annoyance arising from any repair or restoration of any portion of the Demised
Premises or of the Building.
ARTICLE 11
Assignment, Subletting, Mortgaging
Section 11.01. Tenant will not, by operation of law or otherwise,
assign, mortgage or encumber this Lease or sublet or permit the Demised Premises
or any part thereof to be used by others, without Landlord's prior written
consent in each instance, which shall not be unreasonably withheld or delayed
subject to and upon compliance with the provisions of Section 11.05. If this
Lease be assigned, or if the Demised Premises or any part thereof be underlet or
occupied by anybody other than Tenant, Landlord may, after default by Tenant,
collect rent from the assignee, undertenant or occupant, and apply the net
amount collected to the rent herein
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reserved, but no assignment, underletting, occupancy or collection shall be
deemed a waiver of the provisions hereof, the acceptance of the assignee,
undertenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained. The
consent by Landlord to any assignment, subletting, mortgage or encumbrance shall
not in any manner be construed to relieve Tenant from obtaining Landlord's
express written consent to any other or further assignment, subletting, mortgage
or encumbrance. In no event shall any permitted sublessee assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance.
Section 11.02. If Tenant shall at any time or times during the term
of this Lease desire to assign this Lease or sublet all or part of the Demised
Premises, Tenant shall give written notice thereof to Landlord, which notice
shall be accompanied by (a) a conformed or photostatic copy of the proposed
assignment or sublease, the effective or commencement date, which shall be not
less than thirty (30) nor more than sixty (60) days after the giving of such
notice, (b) a statement setting forth in reasonable detail the identity of the
proposed assignee or subtenant, the nature of its business and its proposed use
of the Demised Premises, and (c) current financial information with respect to
the proposed assignee or subtenant, including, without limitation, its most
recent financial report. Such notice shall be deemed an offer from Tenant to
Landlord whereby Landlord (or Landlord's designee) may, at its option, (i)
terminate this Lease (if the proposed transaction is an assignment or a sublease
(by one or more subleases) of all or substantially all of the Demised Premises),
or (ii) terminate this Lease with respect to the space being sublet (if the
proposed transaction is a sublease of part of the Demised Premises). Said
options may be exercised by Landlord by written notice to Tenant at any time
within twenty (20) days after such notice has been given by Tenant to Landlord;
and during such twenty (20) day period Tenant shall not assign this lease nor
sublet such space to any person.
Section 11.03. If Landlord exercises its option to terminate this
Lease in the case where Tenant desires either to assign this Lease or sublet (by
one or more subleases) all or substantially all of the Demised Premises, then,
this Lease shall end and expire on the date that such assignment or sublet was
to be effective or commence, as the case may be, and the minimum rent and
additional rent shall be paid and apportioned to such date and any payments with
respect thereto made or to be made by Tenant to such date shall be promptly
returned to or paid by Tenant, as the case may be.
Section 11.04. If Landlord exercises its option to terminate this
Lease in part in any case where Tenant desires to sublet part of the Demised
Premises, then, (a) this, Lease shall end and expire with respect to such part
of the Demised Premises on the date that the proposed sublease was to commence;
and (b) from and after such date the minimum rent and additional rent shall be
adjusted, based upon the proportion that the rentable area of the Demised
Premises remaining bears to the total rentable area of the Demised Premises; and
(c) Tenant shall pay to Landlord, upon demand, the costs incurred by Landlord in
physically separating such part of the Demised Premises from the balance of the
Demised Premises and in complying with any laws and requirements of any public
authorities relating to such separation.
Section 11.05. In the event Landlord does not exercise an option
provided to it pursuant to Section 11.02 and provided that Tenant is not in
default of any of Tenant's
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obligations under this Lease, Landlord's consent (which must be in writing and
in form reasonably satisfactory to Landlord) to the proposed assignment or
sublease shall not be unreasonably withheld or delayed, provided and upon
condition that:
(a) Tenant shall have complied with the provisions of Section
11.02 and Landlord shall not have exercised any of its options under said
Section 11.02 within the time permitted therefor;
(b) The proposed assignee or subtenant is engaged in a business
and the Demised Premises, or the relevant part thereof, will be used in a
manner which (i) is limited to the use expressly permitted under Sections
4.01 and 4.02 of this Lease, and (ii) is in keeping with the then standards
of the Building;
(c) The proposed assignee or subtenant is a reputable person or
entity with sufficient financial worth considering the responsibility
involved, and Landlord has been furnished with reasonable proof thereof;
(d) Neither (i) the proposed assignee or sublessee nor (ii) any
person which, directly or indirectly, controls, is controlled by or is
under common control with, the proposed assignee or sublessee, is then an
occupant of any part of the Building; provided there is comparable space in
the Building available for leasing by Landlord;
(e) The proposed assignee or sublessee is not a person with whom
Landlord is currently negotiating to lease space in the Building;
(f) The proposed sublease shall be in form reasonably
satisfactory to Landlord and shall comply with the provisions of this
Article;
(g) At any one time there shall not be more than two (2)
subtenants (including Landlord or its designee) in the Demised Premises;
(h) Tenant shall reimburse Landlord on demand for any reasonable
costs that may be incurred by Landlord in connection with said assignment
or sublease, including costs incurred for obtaining financial and credit
reports of the proposed assignee or subtenant, and reasonable attorneys'
fees incurred in connection with the granting of any requested consent; and
(i) Tenant shall not have (i) advertised the Demised Premises
for subletting or assignment without prior notice to Landlord, or (ii)
listed the same at a rental rate less than the minimum rent or additional
rent at which Landlord is then offering to lease other space in the
Building.
Except for any subletting by Tenant to Landlord or its designee
pursuant to the provisions of this Article, each subletting pursuant to this
Article shall be subject to all of the covenants, agreements, terms, provisions
and conditions contained in this Lease. Notwithstanding any such subletting to
Landlord or any such subletting to any other subtenant and/or acceptance of rent
or additional rent by Landlord from any subtenant, Tenant shall and
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will remain fully liable for the payment for the minimum rent and additional
rent due and to become due hereunder and for the performance of all the
covenants, agreements, terms, provisions and conditions contained in this Lease
on the part of Tenant to be performed and all acts and omissions of any licensee
or subtenant or anyone claiming under or through any subtenant which shall be in
violation of any of the obligations of this Lease, and any such violation shall
be deemed to be a violation by Tenant. Tenant further agrees that
notwithstanding any such subletting, no other and further subletting of the
Demised Premises by Tenant or any person claiming through or under Tenant
(except as provided in Section 11.05) shall or will be made except upon
compliance with and subject to the provisions of this Article. If Landlord shall
decline to give its consent to any proposed assignment or sublease, or if
Landlord shall exercise any of its options under Section 11.02, Tenant shall
indemnify, defend and hold harmless Landlord against and from any and all loss,
liability, damages, costs and expenses (including reasonable counsel fees)
resulting from any claims that may be made against Landlord by the proposed
assignee or sublessee or by any brokers or other persons claiming a commission
or similar compensation in connection with the proposed assignment or sublease,
excluding any employed directly by Landlord and not claiming through Tenant or
the proposed assignee or subtenant.
Section 11.08. In the event that (a) Landlord fails to exercise any
of its options under Section 11.02 and consents to a proposed assignment or
sublease, and (b) Tenant fails to execute and deliver the assignment or sublease
to which Landlord consented within sixty (60) days after the giving of such
consent, then, Tenant shall again comply with all of the provisions and
conditions of Section: 11.02 before assigning this Lease or subletting all or
part of the Demised Premises.
Section 11.09. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease, it is further agreed:
(a) No subletting shall be for a term ending later than one day
prior to the expiration date of this Lease;
(b) No sublease shall be valid and no subtenant shall take
possession of the Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;
(c) Each sublease shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or
shall be subordinate, and that in the event of termination, re-entry
or dispossess by Landlord under this Lease Landlord may, at its
option, take over all of the right, title and interest of Tenant, as
sublessor, under such sublease, and such subtenant shall, at
Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not (i) be
liable for any previous act or omission of Tenant under such sublease,
(ii) be subject to any offset, not expressly provided in such
sublease, which theretofore accrued to such subtenant against Tenant,
or (iii) be bound by any previous modification of such sublease or by
any previous prepayment of more than one month's rent.
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Section 11.10. If Landlord gives its consent to any assignment of
this Lease or to any sublease, Tenant shall, in consideration therefor, pay to
Landlord, as additional rent:
(a) in the case of an assignment of this Lease or an assignment
by any sublessee of any Sublease, an amount equal to one-half 1/2) of
all sums and other considerations paid to Tenant from the assignee for
such assignment or paid to Tenant by any sublessee or other person
claiming through or under Tenant for such assignment, (including, but
not limited to sums paid for the sale of Tenant's or sublessee's
fixtures, leasehold improvements, less, in case of a sale thereof, the
then net unamortized or undepreciated cost thereof determined on the
basis of Tenant's or sublessee's federal income tax returns). The sums
payable to Landlord under this Section 11.10(a) shall be paid to
Landlord as and when paid by such assignee to Tenant; and
(b) in the case of a sublease by Tenant or by any sublessee or
other person claiming through or under Tenant, an amount equal to one-
half (1/2) of all of the rents and charges and other consideration
payable under the sublease to Tenant by the subtenant or paid to
Tenant by any such sublessee or other person claiming through or under
Tenant in connection with such subletting, which is in excess of the
minimum rent accruing during the term of the sublease in respect of
the subleased space (at the rate per square foot payable by Tenant
hereunder or such sublessee) pursuant to the terms of this Lease or
such sublease (including, but not limited to sums paid for the sale or
rental of Tenant's or such sublessee's fixtures, leasehold
improvements, less, in case of a sale thereof, the then net
unamortized or undepreciated cost thereof determined on the basis of
Tenant's or sublessee's federal income tax returns). The sums payable
to Landlord under this Section 11.10(b) shall be paid to Landlord as
and when paid by such subtenant to Tenant.
(c) For the purposes of computing the sums payable by Tenant to
Landlord under subparagraphs (a) and (b) hereof, there shall be from
the consideration payable to Tenant by any assignee or sublessee any
transfer taxes, rent concession, reasonable attorneys' fees, brokerage
commissions, advertising costs and fix-up costs paid by Tenant, with
respect to such assignment or subletting, but only to the extent any
such sums are allocable to the period of this Lease (in the case of
any assignment), or the term of any sublease, assuming the same are
amortized over the term of this Lease or sublease, as may be
applicable.
Section 11.11. If Tenant is a corporation, a partnership or other
entity, the provisions of Section 11.01 shall apply to a transfer (by one or
more transfers) of a majority of the stock or other ownership interests of
Tenant, as if such transfer of a majority of the stock or other ownership
interests of Tenant were an assignment of this Lease; but said provisions and
the provisions of Section 11.02 shall not apply to transactions with a
corporation or other entity into or with which Tenant is merged or consolidated
or to which substantially all of Tenant's assets are transferred or to any
corporation or other entity which controls or is controlled by Tenant or is
under common control with Tenant, provided that in any of such events, (i) the
successor to Tenant has a net worth computed in accordance with generally
accepted accounting principles at
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least equal to the greater of (1) the net worth of Tenant immediately prior to
such merger, consolidation or transfer, or (2) the net worth of tenant herein
named on the date of this Lease, and (ii) proof satisfactory to Landlord of such
net worth shall have been delivered to Landlord at least ten (10) days prior to
the effective date of any such transaction.
Section 11.12 Any assignment or transfer, whether made with
Landlord's consent pursuant to Section 11.01 or without Landlord's consent
pursuant to Section 11.11, shall be made only if, and shall not be effective
until, the assignee shall execute, acknowledge and deliver to Landlord an
agreement in form and substance satisfactory to Landlord whereby the assignee
shall assume the obligations of this Lease on the part of Tenant to be performed
or observed, and whereby the assignee shall agree that the provisions in Section
11.01 shall, notwithstanding such assignment or transfer, continue to be binding
upon it in respect of all future assignments and transfers. The original named
Tenant covenants that, notwithstanding any assignment or transfer, whether or
not in violation of the provisions of this Lease, and notwithstanding the
acceptance of minimum rent and/or additional rent by Landlord from an assignee,
transferee, or any other party, the original named Tenant shall remain fully
liable for the payment of the minimum rent and additional rent and for the other
obligations of this Lease on the part of Tenant to be performed or observed.
Section 11.13. The joint and several liability of Tenant and any
immediate or remote successor in interest of Tenant and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed shall
not be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this Lease.
Section 11.14. The listing of any name other than that of Tenant,
whether on the doors of the Premises or the Building directory, or otherwise,
shall not operate to vest any right or interest in this Lease or in the
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Premises or to the use or
occupancy thereof by others.
ARTICLE 12
Liability and Indemnity of Landlord and Tenant
Section 12.01. Each party shall indemnify the other, its agents,
contractors and employees against and save the other, its agents, contractors
and employees harmless from any liability to and claim by or on behalf of any
person, firm, governmental authority, corporation or entity for personal injury,
death or property damage, arising (a) (i) with respect to Tenant from it's use
of the Demised Premises or from any work whatsoever done or omitted to be done
by Tenant, its employees, agents, contractors, customers, invitees or visitors,
or from any accident thereat, except when caused solely by the negligence or
willful act of Landlord, its agents, contractors and employees, and (ii) with
respect to Landlord, from any work or thing whatsoever negligently done or
omitted to be done in the Building or the common areas by Landlord, its
employees, agents or contractors, except when caused by the negligence or
willful act of Tenant,
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its agents, contractors or employees; and (b) from any breach or default by it
of any under any of the terms, covenants and conditions of this Lease on its
part to be performed.
Each party also shall indemnify the other, its agents, contractors and
employees against and save the other, its agents, contractors and employees
harmless from all costs, reasonable counsel fees, expenses and penalties
incurred by the other, its agents, contractors and employees in connection with
any such liability or claim.
If any action or proceeding shall be brought against a party in
connection with any such liability or claim, such party ("Indemnitee") shall
promptly give notice thereof to the other party ("Indemnitor"), and Indemnitor
shall defend such action or proceeding, at Indemnitor's expense, by counsel
reasonably satisfactory to Indemnitee. Counsel for Indemnitor's insurance
carrier is satisfactory.
Section 12.02. Landlord shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise, except if
due to the negligence or willful act of Landlord, its agents, contractors or
employees. Landlord and its agents shall not be liable for any injury or damage
to persons or property resulting from fire, explosion, falling plaster, steam,
gas, electricity, water, rain or snow or leaks from any part of the Building or
from the pipes, appliances or plumbing works or from the roof, street or sub-
surface or from any other place or by dampness or by any other cause of
whatsoever nature, except if due to the negligence or willful act of Landlord,
its agents, contractors or employees; nor shall Landlord be liable for any such
damage caused by other tenants or persons in the Building or caused by
operations in construction of any public or quasi-public work. If, at any time
any windows of the Demised Premises are permanently closed, darkened or bricked
up in accordance with the requirements of law or are temporarily darkened or
closed by reason of repairs, alterations or maintenance by Landlord, Landlord
shall not be liable for any damage Tenant may sustain thereby and Tenant shall
not be entitled to any compensation therefor nor abatement of rent nor shall the
same release Tenant from its obligations hereunder nor constitute an eviction.
(Reference hereinabove to Landlord shall for all purposes be deemed to include
the Overlandlord as defined in Article 25.)
Tenant shall reimburse and compensate Landlord, as additional rent,
within ten (10) days after rendition of a statement for all expenditures made by
or damages or fines sustained or incurred by Landlord due to any default by
Tenant under this Lease.
Tenant shall give immediate notice to Landlord upon its discovery of
accidents in the Demised Premises.
Section 12.03. If in this Lease it is provided that Landlord's
consent or approval as to any matter will not be unreasonably withheld, and it
is established by a court or body having final jurisdiction thereover
that landlord has been unreasonable, the only effect of such finding shall be
that Landlord shall be deemed to have given its consent or approval; but
Landlord shall not be liable to Tenant in any respect for money damages by
reason of withholding its consent.
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ARTICLE 13
Moving of Heavy Equipment
Tenant shall not move any safe, heavy equipment or bulky matter,
except for standard office equipment or furniture, in or out of the Building
without Landlord's written consent, which shall not be unreasonably withheld or
delayed. If the movement of such items requires special handling, Tenant agrees
to employ only persons holding a Master Rigger's License to do said work and all
such work shall be done in full compliance with the Administrative Code of the
City of New York and other municipal requirements. All such movements shall be
made during hours which will least interfere with the normal operations of the
Building, and all damage caused by such movement shall be promptly repaired by
Tenant at Tenant's expense.
ARTICLE 14
Condemnation
Section 14.01. In the event that ten (10%) percent or more of the
Demised Premises shall be condemned or taken in any manner for any public or
quasi-public use, this Lease and the term and estate hereby granted shall
forthwith cease and terminate as of the date of vesting of title. In the event
that less than ten (10%) percent of the Demised Premises shall be so condemned
or taken, then, effective as of the date of vesting of title, the rent hereunder
for such part shall be equitably abated and this Lease shall continue as to such
part not so taken. In the event that a portion of the Building shall be so
condemned or taken, then (a) if substantial structural alteration or
reconstruction of the Building shall, in the reasonable opinion of Landlord, be
necessary or appropriate as a result of such condemnation or taking (whether or
not the Demised Premises be affected), Landlord may, at its option, terminate
this Lease and the term and estate hereby granted as of the date of such vesting
of title by notifying Tenant in writing of such termination within ninety (90)
days of following the date on which Landlord shall have received notice of
vesting of title, or (b) if Landlord doe's not elect to terminate this Lease, as
aforesaid, this Lease shall be and remain unaffected by such condemnation or
taking, except that the minimum rent and additional rent shall be abated to the
extent, if any, hereinbefore provided. In the event that only a part of the
Demised Premise's shall be so condemned or taken and this Lease and the term and
estate hereby granted are not terminated as hereinbefore provided, Landlord, out
of the portion of the award allocated for such purpose and to the extent such
award is sufficient, will restore with reasonable diligence the remaining
portions of the Demised Premises as nearly as practicable to the same condition
as it was in prior to such condemnation or taking.
Section 14.02. In the event of termination in any of the cases
hereinabove provided, this Lease and the term and estate hereby granted shall
expire as of the date of such termination with the same effect as if that were
the Expiration Date and the rent hereunder shall be apportioned as of such date.
Section 14.03. In the event of any condemnation or taking hereinabove
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the
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condemnation proceeding, including any award made for the value of the estate
vested by this Lease in Tenant, and Tenant hereby expressly assigns to Landlord
any and all right, title and interest of Tenant now or hereafter arising in or
to any such award or any part thereof, and Tenant shall be entitled to receive
no part of such award. However, Tenant may make a separate claim with the
condemning authority for Tenant's trade fixtures and relocation. costs, provided
the same does not affect Landlord's award.
ARTICLE 15
Entry, Right to Change Public Portions of the Building
Section 15.01. Tenant shall permit Landlord to erect, use and
maintain pipes and conduits in and through the walls, ceiling or below the
floors of the Demised Premises. Landlord, or its agents or designee shall have
the right, to enter the Demised Premises during business hours and upon prior
reasonable notice (except no notice in an emergency), for the purpose of making
such repairs or alterations, as Landlord shall desire, shall be required or
shall have the right to make under the provisions of this Lease; and shall also
have the right to enter the Demised Premises for the purpose of inspecting them
or exhibiting them to prospective purchasers or lessees of the Building or to
prospective mortgagees or to prospective assignees of any such mortgagees.
Landlord shall be allowed to take all material into and upon the Demised
Premises that may be required for the repairs or alterations above mentioned
without the same constituting an eviction of Tenant in whole or in part and the
rent reserved shall in no wise abate while said repairs or alterations are being
made. Landlord shall use reasonable efforts to perform such repairs or
alterations in a manner to minimize its interference with the conduct of
Tenant's business, provided Landlord shall not be required to employ overtime or
premium labor.
Section 15.02. During the nine (9) months prior to the expiration of
the term of this Lease, Landlord may exhibit the Demised Premises to prospective
tenants.
Section 15.03. Landlord shall have the right at any time without
thereby creating an actual or constructive eviction or incurring any liability
to Tenant therefor, to change the arrangement or location of, but not limited
to, such of the following as are not contained within the Demised Premises:
entrances, passageways, doors and doorways, corridors, elevators, stairs,
toilets, and other like public service portions of the Building.
Section 15.04. Landlord shall have the right at any time to name the
Building as it desires and to change any and all such names at any time
thereafter.
ARTICLE 16
Conditional Limitations, Etc.
Section 16.01. If at any time during the term of this Lease:
(a) Tenant shall file a petition in bankruptcy or insolvency or
for reorganization or arrangement or for the appointment of a receiver of
all or a portion of Tenant's property, or
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(b) Any petition of the kind referred to in subdivision (a) of
this Section shall be filed against Tenant and such petition shall not be
vacated or withdrawn within ninety (90) days after the date of filing
thereof, or
(c) Tenant shall be adjudicated a bankrupt by any court, or
(d) Tenant shall make an assignment for the benefit of
creditors, or
(e) a permanent receiver shall be appointed for the property of
Tenant by order of a court of competent jurisdiction by reason of the
insolvency of Tenant (except where such receiver shall be appointed in an
involuntary proceeding, if he shall not be withdrawn within ninety (90)
days after the date of his appointment),
then Landlord, at Landlord's option, may terminate this Lease on five (5) days'
notice to Tenant, and upon such termination, Tenant shall quit and surrender the
Demised Premises to Landlord.
Section 16.02.
(a) If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. (S)101 et seq.
(the "Bankruptcy Code") to any person or entity who shall have made a bona
fide offer to accept an assignment of this Lease on terms acceptable to
Tenant, then notice of such proposed assignment, setting forth (ii) the
name and address of such person, (ii) all of the terms and conditions of
such offer, and (iii) the adequate assurance to be provided Landlord to
assure such person's future performance under the Lease, including, without
limitation, the assurance referred to in section 365(b)(3) of the
Bankruptcy Code, shall be given to Landlord by Tenant not later than twenty
(20) days after receipt by Tenant but in no event later than ten (10) days
prior to the date that Tenant shall made application to a court of
competent jurisdiction for authority and approval to enter into such
assignment and assumption, and Landlord shall thereupon have the prior
right and option, to be exercised by notice to Tenant given at any time
prior to the effective date of such proposed assignment, to accept an
assignment of this Lease upon the same terms and conditions and for the
same consideration, if any, as the bona fide offer made by such person,
less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.
(b) If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant
or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
and all monies or other considerations constituting Landlord's Property
under the preceding sentence not paid or
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delivered to Landlord shall be held in trust for the benefit of Landlord
and shall be promptly paid to Landlord.
(c) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed without
further act or deed to have assumed all of the obligations arising under
this Lease on and after the date of such assignment. Any such assignee
shall upon demand execute and deliver to Landlord an instrument confirming
such assumption.
(d) Nothing contained in this Section shall, in any way,
constitute a waiver of the provisions of this Lease relating to assignment.
Tenant shall not, by virtue of this Section, have any further rights
relating to assignment other than those granted in the Bankruptcy Code.
(e) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of Landlord under this Lease,
whether or not expressly denominated as rent, shall constitute rent for the
purposes of Section 502(b)(6) of the Bankruptcy Code.
(f) The term "Tenant" as used in this Section and in Section
16.01, includes any guarantor(s) of this Lease and any trustee, debtor in
possession, receiver, custodian or other similar officer.
Section 16.03. If this Lease shall terminate pursuant to the
provisions of Section 16.01:
(a) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated
damages, an amount equal to the difference between the minimum rent and
additional rent for the unexpired portion of the term of this Lease which
had been in force immediately prior to the termination effected under
Section 16.01 of this Article and the fair and the reasonable rental value
of the Demised Premises, on the date of termination, for the same period,
both discounted at the rate of eight (8%) percent per annum to the date of
termination; or
(b) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated
damages, an amount equal to the maximum allowed by statute or rule of law
in effect at the time when and governing the proceedings in which such
damages are to be proved, whether or not such amount be greater or less
than the amount referred to in subdivision (a) of this Section.
Section 16.04.
(a) If Tenant shall fail to make any payment of any minimum rent
or additional rent when the same becomes due and payable, or if Tenant
shall fail to cancel or discharge the lien referred to in Section 17.02, or
if the Demised
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Premises become vacant or deserted, and if any such default shall continue
for a period of five (5) days after written notice by Landlord, or
(b) if Tenant shall be in default in the performance of any of
the other terms, covenants and conditions of this Lease, and such default
shall not have been remedied within thirty (30) days after notice by
Landlord to Tenant specifying such default and requiring it to be remedied;
or where such default reasonably cannot be remedied within such period of
thirty (30) days, if Tenant shall not have commenced the remedying thereof
within such period of time and shall not be proceeding with due diligence
to remedy it, then Landlord, at Landlord's election, may terminate this
Lease on five (5) days' written notice to Tenant, and upon such termination
Tenant shall quit and surrender the Demised Premises to Landlord.
Section 16.05. If this Lease shall terminate as provided in this
Article, or if Tenant shall be in default in the payment of minimum rent or
additional rent when the same become due and payable and such default shall
continue for a period of five (5) days after written notice by Landlord,
(a) Landlord may re-enter and resume possession of the Demised
Premises and remove all persons and property therefrom either by summary
dispossess proceedings or by a suitable action or proceeding, at law or
inequity, or by force or otherwise, without being liable for any damages
therefor, and
(b) Landlord may re-let the whole or any part of the Demised
Premises for a period equal to, greater or less than the remainder of the
then term of this Lease, at such rental and upon such terms and conditions
as Landlord shall deem reasonable to any tenant it may deem suitable and
for any use and purpose it may deem appropriate. Landlord shall not be
liable in any respect for failure to re-let the Demised Premises or, in the
event of such re-letting, for failure to collect the rent thereunder and
any sums received by Landlord on a re-letting in excess of the rent
reserved in this Lease shall belong to Landlord.
Section 16.06. If this Lease shall terminate as provided in this
Article or by summary proceedings (except as to any termination under Section
16.01), Landlord shall be entitled to recover from Tenant as damages, in
addition to arrears in minimum rent and additional rent,
(a) an amount equal to (i) all reasonable expenses incurred by
Landlord in recovering possession of the Demised Premises and in connection
with the re-letting of the Demised Premises, including, without limitation,
the reasonable cost of repairing, renovating or remodeling the Demised
Premises, and (ii) all reasonable brokers' commissions and legal fees
incurred by Landlord in re-letting the Demised Premises, which amounts set
forth in this subdivision (a) shall be due and payable by Tenant to
Landlord at such time or times as they shall have been incurred; and
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(b) an amount equal to the deficiency between the minimum rent
and additional rent which would have become due and payable had this Lease
not terminated and the net amount, if any, of rent collected by Landlord on
re-letting the Demised Premises. The amounts specified in this subdivision
shall be due and payable by Tenant on the several days on which such
minimum rent and additional rent would have become due and payable had this
Lease not terminated. Tenant consents that Landlord shall be entitled to
institute separate suits or actions or proceedings for the recovery of such
amount or amounts, and Tenant hereby waives the right to enforce or assert
the rule against splitting a cause of action as a defense thereto.
Landlord, at its election, at any time after such termination of this
Lease, may collect from Tenant and Tenant shall pay, in lieu of the sums
becoming due, under the provisions of subdivision (b) of this Section, an amount
equal to the difference between the minimum rent and additional rent which would
have become due and payable had this Lease not terminated (from the date of the
service of such notice to the end of the term of this Lease which had been in
force immediately prior to any termination effected under this Article) and the
then fair and reasonable rental value of the Demised Premises for the same
period, both discounted to the date of the service of such notice at the rate of
eight (8%) percent annum.
Section 16.07. Tenant, for itself and for all persons claiming
through or under it, hereby waives any and all rights which are or may be
conferred upon Tenant by any present or future law to redeem the Demised
Premises after a warrant to dispossess shall have been issued or after judgment
in an action of ejectment shall have been made and entered.
Section 16.08. The words "re-enter" and "re-entry", as used in this
Article, are not restricted to their technical legal meanings.
Section 16.09. Landlord shall not be required to give any notice of
its intention to re-enter, except as otherwise provided in this Lease.
Section 16.10. If this Lease shall terminate as provided in this
Article or by summary proceedings or otherwise, Landlord, in addition to any
other rights under this Article, shall be entitled to recover as damages, (a)
the reasonable cost of performing any work required to be done by Tenant under
this Lease; and (b) the reasonable cost of placing the Demised Premises in the
same condition as that in which Tenant is required to surrender them to Landlord
under this Lease.
Section 16.11. In any action or proceeding brought by Landlord
against Tenant, predicated on a default in the payment of minimum rent or
additional rent, Tenant shall not have the right to and shall not interpose any
set-off or counterclaim of any kind whatsoever, except for a mandatory
counterclaim. If Tenant has any claim, Tenant shall be entitled only to bring an
independent action therefor; and if such independent action is brought by
Tenant, Tenant shall not be entitled to and shall not consolidate it with any
pending action or proceeding brought by Landlord against Tenant for a default in
the payment of minimum rent or additional rent.
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ARTICLE 17
Mechanic's Liens
Section 17.01. If, subject to and notwithstanding Landlord's consent
as required under this Lease, Tenant shall cause any changes, alterations,
additions, improvements, installations or repairs to be made to or at the
Demised Premises or shall cause any labor to be performed or material to be
furnished in connection therewith, neither Landlord nor the Demised Premises,
under any circumstances, shall be liable for the payment of any expense incurred
or for the value of any work done or material furnished, and all such changes,
alterations, additions, improvements, installations and repairs and labor and
material shall be made, furnished and performed upon Tenant's credit alone and
at Tenant's expense, and Tenant shall be solely and wholly responsible to
contractors, laborers, and materialmen furnishing and performing such labor and
material. Nothing contained in this Lease shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied, to
any contractor, laborer or materialman to furnish to perform any such labor or
material.
Section 17.02. If, because of any act or omission (or alleged act or
omission) of Tenant, any mechanic's or other lien, charge or order for the
payment of money shall be filed against the Demised Premises or the Building or
Landlord's estate as tenant under any ground or underlying lease (whether or not
such lien, charge or order is valid or enforceable as such), Tenant, at Tenant's
expense, shall cause it to be cancelled or discharged of record by bonding or
otherwise within ten (10) days after such filing, and Tenant shall indemnify
Landlord against and save Landlord harmless from and shall pay all costs,
expenses, losses, fines and penalties, including, without limitation, reasonable
attorneys' fees-resulting therefrom.
ARTICLE 18
Landlord's and Tenant's Right to Perform Obligations
Section 18.01. If Tenant shall default in the performance of any of
the terms, covenants and conditions of this Lease, Landlord, without being under
any obligation to do so and without hereby waiving such default, may remedy such
default for the account and at the expense of Tenant. Any payment made or
expense incurred by Landlord for such purpose (including, but not limited to,
reasonable attorneys' fees) with interest at the maximum legal rate, shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Landlord
on demand, or at Landlord's election, added to any subsequent installment or
installments of minimum rent.
Section 18.02. If Landlord shall fail to perform any repair or
maintenance obligation required to be performed by Landlord in the Demised
Premises pursuant to the provisions of this Lease, then Tenant shall give
Landlord written notice (the `Repair Notice") stating the repair or maintenance
obligation which affects the Demised Premises. If Landlord fails to remedy the
condition set forth in the Repair Notice within thirty (30) days after such
Repair Notice is given then, to the extent such repair or maintenance may be
performed by Tenant solely within the Demised Premises, Tenant may perform the
same. Landlord shall reimburse Tenant for the reasonable actual costs and
expenses of performing the same, within
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twenty (20) days after receipt from Tenant of paid receipts therefor, together
with waivers of liens with respect thereto.
ARTICLE 19
Covenant of Quiet Enjoyment
Landlord covenants that upon Tenant paying the minimum rent and
additional rent and observing and performing all the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed, after
any applicable notice and prior to the expiration of any applicable cure period,
Tenant may peaceably and quietly enjoy the Demised Premises, subject
nevertheless to the terms and conditions of this Lease, and provided, however,
that no eviction of Tenant by reason of paramount title, the foreclosure of any
mortgage now or hereafter affecting the Demised Premises or by reason of any
termination of any ground or underlying lease to which this Lease is subject and
subordinate, whether such determination is by operation of law, by agreement or
otherwise, shall be construed as a breach of this covenant nor shall any action
be brought against Landlord by reason thereof.
ARTICLE 20
Excavation
In the event that construction is to be commenced or an excavation is
made or authorized for building or other purposes upon land adjacent to the
Building, Tenant shall, if necessary, afford to the person or persons causing or
authorized to commence construction or cause such excavation or to engage in
such other purpose, license to enter upon the Demised Premises for the purpose
of doing such work as shall reasonably be necessary to protect or preserve the
Building, from injury or damage and to support the Building and any new
structure to be built by proper foundations, pinning and/or underpinning, or
otherwise. Landlord agrees to cause such person(s) to use reasonable efforts to
make such work in a manner to minimize its interference with the normal conduct
of Tenant's business in the Demised Premises, provided overtime or premium labor
shall not be required to be employed.
ARTICLE 21
Services and Equipment
Section 21.01. So long as Tenant is not in default under any of the
terms, covenants and conditions of this Lease, Landlord shall, at its cost and
expense:
(a) Provide operatorless passenger elevator service Mondays
through Fridays from 8:00 A.M. to 6:00 P.M., holidays excepted. A passenger
elevator will be available at all other times. A service elevator shall be
available Mondays through Fridays, holidays excepted, only from 10:00 A.M.
to 11:30 A.M. and from 2:30 P.M. to 4:30 P.M.
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(b) Maintain and keep in good order and repair the central
heating, ventilating and air-conditioning system installed by Landlord. The
system will be operated by Landlord on Mondays through Fridays, holidays
excepted, from 8:30 A.M. to 5:30 P.M.
(c) Provide Building standard cleaning services in the Demised
Premises and public portions of the Building, except no services shall be
performed Saturdays, Sundays and holidays, in accordance with Schedule "E"
annexed hereto and made part hereof.
(d) Furnish hot and cold water for lavatory and drinking
purposes. If Tenant requires, uses or consumes water for any other
purposes, Landlord may install a meter or meters or other means to measure
Tenant's water consumption, and Tenant shall reimburse Landlord for the
cost of the meter or meters and the installation thereof, and shall pay for
the maintenance of said meter equipment and/or pay Landlord's cost of other
means of measuring such water consumption by Tenant. Tenant shall pay to
Landlord on demand the cost of all water consumed as measured by said meter
or meters or as otherwise measured, including sewer rents.
(e) If Tenant shall require and request any of the foregoing
services at times other than above provided, and if such request is made at
least twenty-four (24) hours prior to the time when such additional
services are required, Landlord will provide them and Tenant shall pay to
Landlord promptly thereafter the charges therefor at the then Building
standard rate charged to other tenants in the Building.
If Tenant shall request Landlord to furnish any services in addition
to those hereinabove provided or perform any work not required under this Lease,
and Landlord agrees to furnish and/or perform the same, Tenant shall pay to
Landlord promptly thereafter the charges therefor, which charges are deemed to
be additional rent and payable as such.
Section 21.02. Holidays shall be deemed to mean all federal holidays,
state holidays, Building Service Employees Union Contract holidays and all other
applicable union contract holidays.
Section 21.03. Landlord reserves the right to interrupt, curtail or
suspend the services required to be furnished by Landlord under this Lease when
the necessity therefor arises by reason of accident, emergency, mechanical
breakdown, or when required by any law, order or regulation of any Federal,
State, County or Municipal authority, or for any other cause beyond the
reasonable control of Landlord. Tenant shall not be entitled to nor shall Tenant
make claim for any diminution or abatement of minimum rent or additional rent or
other compensation, nor shall this Lease or any of the obligations of Tenant be
affected or reduced by reason of such interruption, curtailment, suspension,
work or inconvenience.
Section 21.04. Tenant shall reimburse Landlord promptly upon demand
for the cost to Landlord of removal from the Demised Premises and the Building
of any refuse and
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rubbish of Tenant not covered by the Cleaning Specifications and Tenant shall
pay all bills therefor when rendered.
ARTICLE 22
Escalation
Section 22.01. Taxes. Tenant shall pay to Landlord, as additional
rent, tax escalation in accordance with this Section:
(a) Definitions: For the purpose of this Section, the
following definitions shall apply:
(i) The term "Tax Base Factor" shall mean
the real estate taxes for the Building Project for the
period from January 1, 1998 to December 31, 1998.
(ii) The term "The Building Project" shall
mean the parcel of land described in Schedule C of this
Lease with all the improvements existing and erected
thereon.
(iii) The term "comparative tax year" shall
mean the New York City real estate tax year commencing
on July 1, 1998, and each subsequent New York City real
estate tax year. If the present use of July 1,-June 30
New York City real estate tax year shall hereafter be
changed, then such changed tax year shall be used with
appropriate adjustment for the transition.
(iv) The term "real estate taxes" shall mean
the total of all taxes and special or other assessments
levied, assessed or imposed at any time by any
governmental authority upon or against the Building
Project, and also any tax or assessment levied,
assessed or imposed at any time by any governmental
authority in connection with the receipt of income or
rents from said Building Project to the extent that
same shall be in lieu of all or a portion of any of the
aforesaid taxes or assessments, or additions or
increases thereof, upon or against said Building
Project, excluding income, estate and franchise taxes.
If, due to a future change in the method of taxation or
in the taxing authority, or for any other reason, a
franchise, income, transit, profit rents or other tax
or governmental imposition, however designated, shall
be levied against Landlord in substitution in whole or
in part for the real estate taxes, or in lieu of or
additions to or increases of said real estate taxes,
then such franchise, income, transit, profit or other
tax or governmental imposition shall be deemed to be
included within the definition of "real estate taxes"
for the purposes hereof.
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(v) The term "the Percentage" for purposes
of computing tax escalation, shall mean 1.4%.
(b) In the event that the real estate taxes payable for
any comparative tax year shall exceed the Tax Base Factor, Tenant
shall pay to Landlord, as additional rent for such comparative tax
year, an amount for tax escalation equal to the Percentage of the
excess. Before or after the start of each comparative year,
Landlord shall furnish to Tenant a statement of the real estate
taxes payable for such comparative tax year together - with a copy
of the tax bill. Tenant shall make its aforesaid tax escalation
payment to Landlord, in installments in the same manner that such
taxes are payable by Landlord to the governmental authority. If a
statement is furnished to Tenant after the commencement of the
comparative tax year in respect of which such statement is
rendered, Tenant shall, within ten (10) days thereafter, pay to
Landlord an amount equal to those installments of the total tax
escalation payable as provided in the preceding sentence, during
the period prior to the first day of the month next succeeding the
month in which the applicable statement has been furnished. If,
during the term of this Lease, taxes are required to be paid, in
full or in monthly or other installments, on any other date or
dates than as presently required, or if Landlord shall be required
to make monthly deposits of real estate taxes to the holder of any
first institutional mortgage then Tenant's tax escalation
payment(s) shall be correspondingly adjusted so that said payments
are due to Landlord in corresponding installments not later than
thirty (30) days prior to the last date on which the applicable
installment of such real estate taxes shall be due and payable to
the governmental authority or such mortgagee.
(i) If in establishing the amount of the
real estate taxes payable for any comparative tax year,
Landlord has incurred expenses for legal and/or
consulting services rendered in, applying for,
negotiating or obtaining a reduction of the assessment
upon which the real estate taxes are predicated, Tenant
shall pay an amount equal to the Percentage of such
expenses.
(ii) The statements of the tax escalation to
be furnished by Landlord as provided above shall be
certified by. Landlord as correct and shall constitute
a final determination as between Landlord and Tenant of
the tax escalation for the periods represented thereby,
except for manifest or other error for which notice
thereof has been given by Tenant.
(iii) In no event shall the fixed minimum
rent under this Lease be reduced by virtue of this
Section 22.01.
(iv) Upon the date of any expiration or
termination of this Lease, whether the same be the date
hereinabove set forth for the expiration of the term or
any prior or subsequent date, a proportionate share of
said additional rent for
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the comparative tax year during which such expiration
or termination occurs shall immediately become due and
payable by Tenant to Landlord, if it was not
theretofore already billed and paid. The said
proportionate share shall be based upon the length of
time that this Lease shall have been in existence
during such comparative tax year. Prior to or promptly
after said expiration or termination, Landlord shall
compute the additional rent due from Tenant, as
aforesaid and Tenant shall promptly pay Landlord any
amount unpaid. If Landlord shall receive a refund of
any amount of real estate taxes for any comparative tax
year for which Tenant has made a payment, Landlord
shall promptly pay to Tenant the Percentage of any such
refund, less the Percentage of any legal fees and other
expenses provided for in Section 22.01(b)(ii) to the
extent the same have theretofore been paid by Tenant to
Landlord.
(v) Tenant's and Landlord's obligations to
make the adjustments referred to in subdivision (v)
above shall survive any expiration or termination of
this Lease.
(vi) Any delay or failure of Landlord in
billing any tax escalation hereinabove provided shall
not constitute a waiver of or in any way impair the
continuing obligation of Tenant to pay such tax
escalation hereunder.
Section 22.02. Porter's Wage Rate. Tenant shall pay to the
Landlord, as additional rent, a porter's wage rate escalation in accordance with
this Section:
(a) For the purpose of this Section, the following
definitions shall apply:
(i) "Wage Rate" shall mean the minimum
regular hourly rate of wages in effect as of January
1st of each year (whether paid by Landlord or any
contractor employed by Landlord) computed as paid over
a forty hour week to Porters in Class A office
buildings pursuant to an Agreement between Realty
Advisory Board on Labor Relations, Incorporated, or any
successor thereto, and Local 32B-32J of the Building
Service Employees International Union, AFL-CIO, or any
successor thereto; and provided, however, that if there
is no such agreement in effect prescribing a wage rate
for Porters, computations and payments shall thereupon
be made upon the basis of the regular hourly wage rate
actually payable in effect as of January 1st of each
year, and provided, however, that if in any year during
the term, the regular employment of Porters shall occur
on days or during the hours when overtime or other
premium pay rates are in effect pursuant to such
Agreement, then the term "hourly rate of wages" as used
herein shall be deemed to mean the average hourly
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rate for the hours in a calendar week during which
Porters are regularly employed (e.g., if pursuant to an
agreement between Realty Advisory Board and the Local
the regular employment of Porters for forty hours
during a calendar week is at a regular hourly wage rate
of $3.00 for the first thirty hours, and premium or
overtime hourly wage rate of $4.50 for the remaining
ten hours, then the hourly rate of wages under this
Article during such period shall be the total weekly
rate of $135.00 divided by the total number of regular
hours of employment, forty or $3.375). Notwithstanding
the foregoing, if at any time such hourly wage rate is
different for new hire and old hire Porters, then
thereafter such hourly wage rate shall be based on the
weighted average of the wage rates for the different
classifications of Porters.
(ii) "Base Wage Rate" shall mean the
average of the Wage Rate in effect on January 1, 1998.
(iii) The term "Porters" shall mean that
classification of non-supervisory employees employed in
and about the Building who devote a major portion of
their time to general cleaning, maintenance and
miscellaneous services essentially of a non-technical
and non-mechanical nature and are the type of employees
who are presently included in the classification of
"Class A-Others" in the Commercial Building Agreement
between the Realty Advisory Board and the aforesaid
Union.
(iv) The term "minimum regular hourly rate
of wages" shall not include any payments for fringe
benefits or adjustments of any kind.
(v) The term "Multiplication Factor" shall
mean 4,670.
(b) If the Wage Rate for any calendar year during the
term shall be increased above the Base Wage Rate, then Tenant shall
pay, as additional rent, an amount equal to the product obtained by
multiplying the Multiplication Factor by 100% of the number of cents
(including any fraction of a cent) by which the Wage Rate is greater
than the Base Wage Rate, such payment to be made in equal one-twelfth
(1/12th) monthly installments commencing with the first monthly
installment of minimum rent falling due on or after the effective date
of such increase in Wage Rate (payable retroactive from said effective
date) and continuing thereafter until a new adjustment shall have
become effective in accordance with the provisions of this Article.
Landlord shall give Tenant notice of each change in Wage Rate which
will be effective to create or change Tenant's obligation to pay
additional rent pursuant to the provisions of this Section 22.02 and
such notice shall contain Landlord's calculation in reasonable detail
and
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certified as true by an authorized partner of Landlord or of its
managing agent, of the annual rate of additional rent payable
resulting from such increase in Wage Rate. Such amounts shall be
prorated for any partial calendar years during the term.
(c) Every notice given by Landlord pursuant to Section
22(b) hereof shall be conclusive and binding upon Tenant, except
for-manifest or other error for which notice thereof has been
given by Tenant.
(d) The "Wage Rate" is intended to be a substitute
comparative index of economic costs and does not necessarily
reflect the actual costs of wages or other expenses of operating
the Building. The Wage Rate shall be used whether or not the
Building is a Class A office building and whether or not Porters
are employed in the Building and without regard to whether such
employees are members of the Union referred to in subsection (a)
hereof.
ARTICLE 23
Electric Inclusion
Section 23.01.
(a) Landlord shall furnish electric energy on a rent
inclusion basis to the Demised Premises, the charges therefor
being included in the minimum rent. The amount included in the
minimum rent is based upon the normal use of such electric energy
between the hours of 9:00 A.M. to 5:30 P.M. on Mondays through
Fridays, holidays excepted, for lighting and for the normal use
of lamps, typewriters, personal computers and similar customary
office machines. Landlord shall not be liable in any way for any
loss, damage or expense that Tenant may sustain or incur by
reason of for any failure, change, interruption or defect in the
supply or character of electric energy furnished to the Demised
Premises by reason of any requirement, act or omission of the
Electric Service Provider or Alternate Service Provider (as said
terms are hereinafter defined) serving the Building with
electricity and no such failure, change, interruption or defect
shall constitute an actual of constructive eviction, in whole or
in part, or entitle Tenant to any abatement of minimum rent or
additional rent or relieve Tenant of its obligations under this
Lease. Except as otherwise provided in Schedule B hereof, Tenant
shall furnish and install, at its sole cost and expense, all
lighting fixtures, tubes, lamps, bulbs, ballasts and outlets
relating to Tenant's electrical equipment.
(b) Landlord has advised Tenant that presently Con
Edison ("Electric Service Provider") is the utility company
selected by Landlord to provide electricity service for the
Building. Notwithstanding the foregoing, if permitted by law,
Landlord shall have the right at any time and from time to time
during the term Of this Lease to either contract for service from
a different company or companies providing electricity service so
long as, at that time, such
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service is not interrupted or the rates are not increased, (each
such company shall hereinafter be referred to as an "Alternate
Service Provider") or continue to contract for service from the
Electric Service Provider.
(c) Tenant shall cooperate with Landlord, the Electric
Service Provider, and any Alternate Service Provider at all times
and, as reasonably necessary, shall allow Landlord, Electric
Service Provider, and any Alternate Service Provider reasonable
access to the Building's electric lines, feeders, risers, wiring,
and any other machinery within the Demised Premises. Landlord
shall cause the Alternate Service Provider to use reasonable
efforts to perform its work in a manner to minimize its
interference with the normal conduct of Tenant's business,
provided the Alternate Service Provided shall not be required to
employ overtime or premium labor.
Section 23.02. Tenant's connected electrical load in the Demised
Premises, including lighting, shall not at any time exceed the capacity of any
of the electrical conductors and equipment in or serving the Demised Premises.
In order to insure that such capacity is not exceeded and to avert possible
adverse effect upon the Building electric service, Tenant shall not, without
Landlord's prior consent in each instance, connect any additional fixtures,
appliances or equipment (other than as set forth in Section 23.01) or make any
alteration or addition to the electric system of the Demised Premises existing
on the Commencement Date. Should Landlord grant such consent, all additional
risers or other equipment required therefor shall be provided by Landlord and
the cost thereof shall be paid by Tenant upon Landlord's demand. As a condition
to granting such consent, Landlord may require Tenant to agree to an increase in
the annual minimum rent by an amount which will reflect the value to Tenant of
the additional service to be furnished by Landlord, that is the potential
additional electrical energy to be made available to Tenant based upon the
estimated additional capacity of such additional risers or other equipment. If
Landlord and Tenant cannot agree thereon, the amount of such increase shall be
determined by a reputable, independent electrical engineer or consultant, to be
selected by Landlord whose fees or charges shall be borne equally by Landlord
and Tenant. When the amount of such increase is so determined, Tenant shall pay
to Landlord within twenty (20) days following notification to Tenant of such
determination the amount thereof retroactive to the date of such increased
usage, unless within such twenty (20) day period Tenant disputes such
determination. If Tenant disputes such determination, it shall, at its own
expense, obtain from a reputable, independent electrical engineer or consultant,
its own survey of the additional electrical energy consumed by Tenant. Tenant's
consultant and Landlord's consultant shall then seek to agree on a finding of
such determination of such change in the consumption of electrical energy. If
they cannot agree, they shall choose a third reputable, independent electrical
engineer or consultant, whose cost shall be shared equally by Landlord and
Tenant, to make a similar survey, and the determination of such third consultant
shall be controlling. If they cannot agree on such third consultant, within ten
(10) days, then either party may apply to the Supreme Court in the County of New
York, for the appointment of such third consultant. However, pending such
determination, Tenant shall pay to Landlord the amount as determined by
Landlord's engineer or consultant. If the amount determined as aforesaid is
different from that determined by Landlord's engineer or consultant, then
Landlord and Tenant shall make adjustment for any deficiency owed by Tenant or
overage paid by Tenant. Following the final determination, the parties shall
execute an agreement supplementary hereto to reflect such increase in the annual
minimum rent and in the amount set
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forth in Section 23.03 but such increase shall be effective even if such
supplementary agreement is not executed.
Section 23.03. If, during the term of this Lease, the public utility
rate paid by Landlord for the supply of electric current to the Building shall
be increased or if there shall be an increase in taxes or if additional taxes
shall be imposed upon the sale or furnishing of such electric energy (hereafter
collectively as the "cost") the annual minimum rent shall be increased by an
amount arrived at by multiplying $14,010.00 (or the sum to which said sum may
have been increased pursuant to the provisions of Section 23.02 or this Section
23.03 prior to the effective date of the cost increases; such sum being referred
to herein as the "Rent Inclusion Factor") by the percentage of the increase of
such cost. When the amount of such increase is so determined, Landlord and
Tenant shall execute an agreement supplementary hereto to reflect such increase
in the amount of the minimum rent payable and effective from the effective date
of such increase, but such increase shall be effective from such date whether or
not such a supplementary agreement is executed.
Section 23.04. Landlord reserves the right to discontinue furnishing
electric energy at any time, whether or not Tenant is in default under this
Lease, upon not less than thirty (30) days notice to Tenant. If Landlord
exercises such right of discontinuance, this Lease shall continue in full force
and effect and shall be unaffected thereby, except only that, from and after the
effective date of such discontinuance, Landlord shall not be obligated to
furnish electric energy to Tenant, and the minimum rent payable under this Lease
shall be reduced by an amount per annum equal to the then prevailing Rent
Inclusion Factor. If Landlord so elects to discontinue furnishing electric
energy to Tenant, Tenant shall arrange to obtain electric energy directly from
the public utility company furnishing electric service to-the Building.
Notwithstanding the foregoing, Landlord shall not discontinue furnishing
electric energy until Tenant is able to obtain such electric energy directly
from said public utility. Such electric energy may be furnished to Tenant by
means of the then existing Building system feeders, risers and wiring. All
meters and additional panel boards, feeders, risers, wiring and other conductors
and equipment which may be required to obtain electric energy directly from such
public utility-company, and which are to be located within the Demised Premises,
shall be installed and maintained by Tenant at its expense.
Section 23.05. At no time shall Tenant's connected electrical load in
the Demised Premises, including lighting, exceed five (5) watts per usable
square foot.
Section 23.06. If any additional charge or tax is imposed upon
Landlord with respect to electric energy furnished to Tenant by any federal,
state or municipal authority, Tenant, unless prohibited by law or by any
governmental authority having jurisdiction thereover, shall pay to landlord,
within ten (10) days following Landlord's demand, accompanied by copies of all
relevant bills or back-up documentation, Tenant's pro rata share of such
additional charge or tax.
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ARTICLE 24
Broker
Landlord and Tenant covenant and represent that the sole brokers who
negotiated and brought about this transaction were Newmark & Company Real Estate
and Cohen Brothers Realty Corporation and Landlord agrees to pay a commission
therefor as per separate agreements. Landlord and Tenant agree to hold the other
harmless against any claims for a brokerage commission arising out of a breach
by the other of the representations contained in this Article.
ARTICLE 25
Subordination and Ground Lease
Section 25.01. This Lease is subject and subordinate to (a) the ground
and underlying lease, dated as of May 1, 1967 between Southern Associates, Inc.,
as landlord, and Sherman Cohen, Mortimer H. Cohen and Edward B. Cohen, as
tenant, (the "Ground Lease") a memorandum of which was recorded in the Office of
the City Register, New York County, in Reel 181, Page 194 and to the rights of
the landlord thereunder (the landlord under said Ground Lease being sometimes
referred to in this Lease as the "Overlandlord"), (b) any other future ground
and underlying lease, and (c) to a leasehold mortgage, dated October 3, 1989
(the "Leasehold Mortgage"), between 475 Park Avenue So. Co., et al., as
Mortgagor, and Mutual Life Insurance Company of New York, as Mortgagee, recorded
on October 5, 1988, in the Office of the City Register, New York County, in Reel
1474, Page 782, and (d) to all mortgages which may now or hereafter affect any
such ground and underlying lease or the Building, and to all renewals,
modifications, amendments, consolidations, replacements or extensions of any of
the foregoing (hereinafter collectively called the "Mortgages"). This clause
shall be self-operative and no further ` instrument of subordination shall be
required. However, in confirmation of such subordination. Tenant, at any time
and from time to time, shall execute. promptly any certificate and document that
Landlord may request, which reasonably evidences such subordination.
Section 25.02.
(a) The Tenant covenants and agrees that if by reason
of a default under any ground or underlying lease (including an
underlying lease through which the Landlord derives its leasehold
estate in the Demised Premises), or under the Leasehold Mortgage
or any Mortgage, such ground or underlying lease and the
leasehold estate of the Landlord in the premises demised hereby
is terminated, the Tenant will attorn to, the then holder of the
reversionary interest in the premises demised by this Lease and
will recognize such holder as the Tenant's Landlord under this
Lease, unless the lessor under such ground or underlying lease or
the holder of any such Mortgage shall, in any proceeding to
terminate such ground or underlying lease or foreclosure of such
Mortgage, elect to terminate this Lease and the rights of Tenant
hereunder; provided, however, the
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holder of the reversionary interest shall not be: (i) liable for
any act or omission or negligence of Landlord under this Lease;
(ii) subject to any counterclaim, defense or offset, which
theretofore shall have accrued to Tenant against Landlord; (iii)
obligated to perform any work; (iv) bound by any previous
modification or amendment of this Lease or by any previous
prepayment of more than one months' rent, unless such
modification or prepayment shall have been approved in writing by
the holder of such Mortgage; (v) obligated to repair the Demised
Premises, or the Building, or any part thereof, in the event of
any damage beyond such repair as can reasonably be accomplished
from the net proceeds of insurance actually made available to the
then holder of the reversionary interest; or (vi) obligated to
repair the Demised Premises or the Building, or any part thereof,
in the event of partial condemnation beyond such repair as can
reasonably be accomplished from the net proceeds of any award
actually made available to the then holder of the reversionary
interest on account of partial condemnation of the Demised
Premises or the Building. By execution of this Lease, Tenant
acknowledges that is has received sufficient notice of the
existence and text of Article 8 of the Leasehold Mortgage to
confer upon the Mortgagee of same only the benefits of Section
291-f of the Real Property Law of the State of New York. Tenant
agrees to execute and deliver, at any time and from time to time,
within fifteen (15) days after the request of the Landlord of or
the lessor under any such ground or underlying lease or the
holder of any such Mortgage any instrument which may be necessary
or appropriate to evidence such attornment. Tenant further waives
the provisions of any statute or rule or law now or hereafter in
effect which may give or purport to give Tenant any right of
election to terminate this Lease or to surrender possession of
the premises demised hereby in the event any proceeding is
brought by the lessor under any such ground or underlying lease
or the holder of any such Mortgage to terminate the same, and
agrees that unless and until any such lessor, in connection with
any such proceeding, shall elect-to terminate this Lease and the
rights of Tenant hereunder, this Lease shall not be affected in
any way whatsoever by any such proceeding.
(b) Upon its receipt of a written notice from the
lessor under any ground or underlying lease or the holder of any
such Mortgage to the effect that (i) the lessor of said ground or
underlying lease or the holder of any such Mortgage is entitled
to send a notice to Landlord, as tenant under said ground or
underlying lease, terminating said lease, and (ii) the Tenant
should pay the minimum rent and additional rent thereafter due
and payable under this Lease to said lessor or the holder of any
such Mortgage at a place designated in such notice, Tenant shall
pay such minimum rent and additional rent to said lessor under
said ground or underlying lease or the holder of any such
Mortgage at such designated place until such time as said lessor
or the holder of any such Mortgage shall notify Tenant that
Landlord is no longer in default under said ground or underlying
lease or said Mortgage and that Tenant may resume paying all
minimum rent and additional rent thereafter due and payable under
this Lease to Landlord. Tenant shall have no liability to
Landlord for paying any minimum rent or additional rent to said
lessor under the ground or underlying lease or the holder of any
such Mortgage or otherwise acting in accordance with the
provisions of
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any notice sent to it under this paragraph and shall be relieved of
its obligations to pay Landlord any minimum rent or additional rent
under this Lease to the extent such payments, are made to said
lessor under the ground or underlying lease or the holder of any
such Mortgage.
Section 25.03. 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, pursuant to the terms of this Lease, Tenant will not exercise
any such right until:
(a) it has given written notice of such act or omission
to the holder of any Mortgage and to the lessor of any ground or
underlying lease, whose names and addresses shall previously have
been furnished to Tenant in accordance with Article 31, addressed
to such holder and lessor at the last addresses so furnished, and
(b) a reasonable period (not to exceed the period in the
ground lease or the Mortgage, as the case may be) for remedying
such act or omission shall have elapsed following such giving of
notice during which such parties, or any of them, with reasonable
diligence, following the giving of such notice, shall not have
commenced and is or are not continuing to remedy such act or
omission or to cause the same to be remedied.
(c) Section 25.04. If, in connection with obtaining
financing for the Building, or of Landlord's interest in any ground
or underlying lease, a banking, insurance or other recognized
institutional lender shall request modifications in this Lease as a
condition to such financing, Tenant will not unreasonably withhold,
delay or defer its consent thereto and its execution and delivery-
of such modification agreement, provided that such modifications do
not increase the obligations of Tenant hereunder or adversely
affect the leasehold interest hereby created.
ARTICLE 26
Estoppel Certificate
Each party shall at any time, and from time to time, within ten (10)
days after so requested by the other party, execute, acknowledge and deliver to
the other party, a statement addressed to the other party or its designee
stating (a) that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), (b) stating the dates to which the
minimum rent and additional rent have been paid, (c) stating whether or not, to
the knowledge of, the certifying party, there exists any default by the other,
and, if so, specifying each such default, and (d) with respect to Tenant, such
other information requested by Landlord or the Mortgagee, it being intended that
any such statement may be relied upon by Landlord and parties with whom it may
be dealing, including any mortgagee or prospective mortgagee of any mortgage
affecting the Building or the leasehold estate under any ground or underlying
lease affecting the land described in Schedule B and/or Building and
improvements thereon, or may be relied upon by
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the landlord under any such ground or underlying lease or a purchaser of
Lessee's estate under any such ground or underlying lease or any interest
therein, or by Tenant or its permitted assignee.
ARTICLE 27
Waiver of Jury Trial
Landlord and Tenant hereby waive trial by jury in any proceeding,
action or counterclaim that may hereafter be instituted against it on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord or Tenant, Tenant's use or occupancy of the Demised
Premises, including any claims for injury or damage, or any emergency or other
statutory remedy with respect thereto.
ARTICLE 28
Surrender of Premises
Section 28.01. Upon the expiration or other termination of the term of
this Lease, Tenant shall quit and surrender the Demised Premises in good order
and condition, ordinary wear and tear and damage by the elements, fire or other
casualty or any other cause for which Tenant might not be liable excepted, and
shall remove all its property therefrom, except as otherwise provided in this
Lease. Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease.
Section 28.02. In the event Tenant shall remain in possession of the
Demised Premises after the expiration or other termination of the term of this
Lease, such holding over shall not constitute a renewal or extension of this
Lease. Landlord, may, at its option, elect to treat Tenant as one who is not
removed at the end of the term, and thereupon be entitled to all of the remedies
against Tenant provided by law in that situation or Landlord may elect to
construe such holding over as a tenancy from month-to-month, subject to all of
the terms and conditions of this Lease, except as to the duration thereof, and
the minimum rent shall be due, in either of such events, at a monthly rental
rate equal to two (2) times the monthly installment of minimum rent which would
otherwise be payable for such month, together with any and all additional rent.
ARTICLE 29
Rules and Regulations
Section 29.01. Tenant, its servants employees, agents, visitors and
licensees shall observe faithfully and comply with the rules and regulations set
forth in Schedule "D" attached hereto and made a part hereof. Landlord shall
have the right from time to time during the term of this Lease, upon reasonable
prior notice to Tenant, to make reasonable changes in and additions to the rules
thus set forth.
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Section 29.02. Any failure by Landlord to enforce any rules and
regulations now or hereafter in effect, either against Tenant or any other
tenant in the Building, shall not constitute a breach hereunder or waiver of any
such rules and regulations.
ARTICLE 30
Successors and Assigns and Definitions
Section 30.01. The covenants, conditions and agreements contained in
this Lease shall bind and enure to the benefit of Landlord and Tenant and their
respective distributees, legal representatives, successors and, except as
otherwise provided herein, their assigns.
Section 30.02. The term "Landlord" as used in this Lease, so far as
the covenants and agreements on the part of Landlord are concerned shall be
limited to mean and include only the owner or owners at the time in question of
the tenant's estate under the Ground Lease or under any ground or underlying
lease covering the land described in Schedule B hereto annexed and/or the
Building and improvements thereon. In the event of any assignment or assignments
of such tenant's estate, and regardless of whether the assignee is financially
responsible or solvent and not notwithstanding that the assignor may be a
stockholder, officer or director of a corporate assignee or may be associated
directly or indirectly with the assignee, Landlord herein named (and in case of
any subsequent assignment, the then assignor) shall be automatically freed and
relieved from and after the date of such assignment of all personal liability as
respects to performance of any of Landlord's covenants and agreements thereafter
to be performed, and such assignee shall, by acceptance of such assignment, be
bound by all of such covenants and agreements; it being intended that Landlord's
covenants and agreements shall be binding on Landlord, its successors and
assigns only during and in respect of their successive periods of such
ownership. Notwithstanding the foregoing, Landlord shall not be relieved of any
liability with respect to any security deposited with and held by Landlord until
said security is transferred to such assignee.
However, in any event, Landlord shall not have any personal liability
or obligation by reason of any default by Landlord under any of Landlord's
covenants and agreements in this Lease, and in case of such default, Tenant will
look only to Landlord's estate, as tenant under the Ground Lease or under any
ground or underlying, lease, covering the land described in Schedule B, to
recover any loss or damage resulting therefrom; and Tenant shall have no right
to nor shall Tenant assert any claim against nor have recourse to Landlord's
other property or assets to recover such loss or damage.
Section 30.03. All pronouns or any variation thereof shall be deemed
to refer to masculine, feminine or neuter, singular or plural as the identity of
the person or persons may require; and if Tenant shall consist of more than one
(1) person, the obligations of such persons, as Tenant, under this Lease, shall
be joint and several.
Section 30.04. The definitions contained in Schedule F annexed hereto
are hereby made a part of this Lease.
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ARTICLE 31
Notices
Any notice, statement, certificate, request, approval, consent or
demand required or permitted to be given under this Lease shall be in writing
sent by registered or certified mail (or reputable, commercial overnight courier
service), return receipt requested and postage prepaid, addressed, as the case
may be, to Landlord, at 750 Lexington Avenue, New York, New York 10022, and to
Tenant, prior to the Commencement Date at _______________________, and after the
Commencement Date, at the Demised Premises, or to such other addresses as
Landlord or Tenant respectively shall designate in the manner herein provided.
Such notice, statement, certificate, request, approval, consent or demand shall
be deemed to have been given two (2) days after the date of mailing, as
aforesaid, or on the date of delivery by overnight courier.
ARTICLE 32
No Waiver; Entire Agreement
Section 32.01. The specific remedies to which Landlord may resort
under the provisions of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which Landlord may be
lawfully entitled in case of any breach or threatened breach by Tenant of any of
the terms, covenants and conditions of this Lease. The failure of Landlord to
insist upon the strict performance of any of the terms, covenants and conditions
of this Lease, or to exercise any right or remedy herein contained, shall not be
construed as a waiver or relinquishment for the future of such term, covenant,
condition, right or remedy. A receipt by Landlord of minimum rent or additional
rent with knowledge of the breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such breach. This Lease may not be changed
or terminated orally. In addition to the other remedies in this Lease provided,
Landlord shall be entitled to restraint by injunction of the violation or
attempted or threatened violation of any of the terms, covenants and conditions
of this Lease or to a decree, any court having jurisdiction in the matter,
compelling performance of any such terms, covenants and conditions.
Section 32.02. No receipt of monies by Landlord from Tenant, after any
re-entry or after the cancellation or termination of this Lease in any lawful
manner, shall reinstate the Lease; and after the service of notice to terminate
this Lease, or after commencement of any action, proceeding or other remedy,
Landlord may demand, receive and collect any monies due, and apply them of
account of Tenant's obligations under this Lease but without in any respect
affecting such notice, action, proceeding or remedy, except that if a money
judgment is being sought in any such action or proceeding, the amount of such
judgment shall be reduced by such payment.
Section 32.03. If Tenant is in arrears in the payment of minimum rent
or additional rent, Tenant waives its right, if any, to designate the items in
arrears against which any payments made by Tenant are to be credited and
Landlord may apply any of such payments to any such items in arrears as
Landlord, in its sole discretion, shall determine, irrespective of any
37
<PAGE>
designation or request by Tenant as to the items against which any such payments
shall be credited.
Section 32.04. No payment by Tenant nor receipt by Landlord of a
lesser amount than may be required to be paid hereunder shall be deemed to be
other than on account of any such payment, nor shall any endorsement or
statement on any check or any letter accompanying any check tendered as payment
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
payment due or pursue any other remedy in this Lease provided.
Section 32.05. This Lease and the Schedules annexed hereto constitute
the entire agreement between Landlord and Tenant referable to the Demised
Premises, and all prior negotiations and agreements are merged herein.
Section 32.06. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
ARTICLE 33
Captions
The captions of Articles in this Lease are inserted only as a matter
of convenience and for reference and they in no way define, limit or describe
the scope of this Lease or the intent of any provision thereof.
ARTICLE 34
Inability to Perform
Tenant's obligation to pay minimum rent and additional rent and to
perform all of the other terms, covenants and conditions of this Lease shall not
be affected, diminished, or excused if, by reason of unavoidable delays (as
hereinafter defined), Landlord fails or is unable to supply any services or make
any repairs or perform any work which under this Lease Landlord has expressly
agreed to supply, make or perform, and the time for the performance or
observance thereof shall be extended for the period of time as Landlord shall
have been so delayed.
The words "unavoidable delays", as used in this Lease shall mean (a)
enactment of any law or issuance of any governmental order, rule or regulation
(i) prohibiting or restricting performance of work of the character required to
be performed by Landlord under this Lease, or (ii) establishing rationing or
priorities in the use of materials, or (iii). restricting the use of labor, and
(b) strikes, lockouts, acts of God, inability to obtain labor or materials,
enemy action, civil commotion, fire, unavoidable casualty or other similar types
of causes beyond the reasonable control of Landlord, other than financial
inability.
38
<PAGE>
ARTICLE 35
No Representations by Landlord
Neither Landlord nor any agent or employee of Landlord has made any
representation whatsoever with respect to the Demise Premises except as
expressly set forth in this Lease.
ARTICLE 36
Rent Control
In the event the minimum rent and/or additional rent or any part
thereof provided to be paid by Tenant under the provisions of this Lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any federal, state, county or city law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, code or regulations of any organization or entity
formed pursuant to law, Tenant shall enter into such agreement(s) and take such
other steps (without additional expense or liability to Tenant) as Landlord may
reasonably request and as may be legally permissible to permit Landlord to
collect the maximum rents which from time to time during the continuance of such
legal rent restriction may be legally permissible (and not in excess of the
amounts reserved therefor under this Lease). Upon the termination of such legal
rent restriction, (a) the minimum rent and/or additional rent shall become and
thereafter be payable in accordance. with the amounts reserved herein for the
periods following such termination, and (b) Tenant shall pay to Landlord
promptly upon being billed, to the maximum extent legally permissible, an amount
equal to (i) minimum rent and/or additional rent which would have been paid
pursuant to this Lease but for such legal rent restriction less (ii) the rents
paid by Tenant during the period such legal rent restriction was in effect.
ARTICLE 37
Late Payment Charges
If Tenant shall fail to pay any minimum rent or additional rent within
ten (10) days after its due date, Tenant shall pay a late charge of $.05 for
each $1.00 which remains unpaid after such period to compensate Landlord for
additional expense in processing such late payment. In addition, if Tenant fails
to pay any minimum rent or additional rent within fifteen (15) days after its
due date, Tenant shall pay interest thereon from the date due until the date
paid at the rate of one and one-half percent (1 1/2%), per month. If any check
of Tenant in payment of any sum due under this Lease, including but not limited
to minimum rent and additional rent, fails to clear the bank, Tenant shall pay a
charge of $100.00.
ARTICLE 38
Security Deposit
39
<PAGE>
Section 38.01. Concurrently with the execution of this Lease, Tenant
shall deposit with Landlord the sum of $53,510.40, by Letter of Credit as
provided in Section 38.02, as security for the faithful performance and
observance by Tenant of the terms, provisions and conditions of this Lease.
Tenant agrees that, in the event that Tenant defaults, after any applicable
notice and expiration of any applicable cure period, in respect of any of the
terms, provisions and conditions of this Lease (including the payment of minimum
rent and additional rent), Landlord may notify the "Issuing Bank" (as such term
is defined in Section 38.02) and thereupon receive all of the monies represented
by the said Letter of Credit and use, apply, or retain the whole or any part of
such proceeds to the extent required for the payment of any rent, additional
rent, or any other sum as to which Tenant is in default, or for any sum that
Landlord may expend or may be required to expend by reason of Tenant's default,
in respect of any of the terms, covenants and conditions of this Lease
(including any damages or deficiency accrued before or after summary proceedings
or other re-entry by Landlord). In the event that Landlord applies or retains
any portion or all of the proceeds of such Letter of Credit Tenant shall
forthwith restore the amount so applied or retained so that, at all times, the
amount deposited shall be $53,510.40. Upon Tenant making such additional
deposit, Landlord is hereby authorized to act as Tenant's agent to use the
proceeds of the Letter of Credit to obtain a new Letter of Credit and Tenant
hereby irrevocably appoints Landlord as Tenant's agent and attorney-in-fact to
obtain a replacement Letter of Credit from the Issuing Bank or any such
qualifying back (such qualifying bank shall then be the Issuing Bank). If Tenant
shall fail or refuse to make such additional deposit, Landlord shall have the
same rights in law and in equity and under this Lease as it has with respect to
a default by Tenant in the payment of minimum rent. In the event that Tenant
shall fully and faithfully comply with all of the terms, provisions, covenants
and conditions of this Lease, the Letter of Credit shall be returned to Tenant
within thirty (30) days after the expiration date and after delivery of
possession of the entire Demised Premises to Landlord in the condition provided
in this Lease for such delivery of possession.
Section 38.02. Such letter of credit (the "Letter of Credit") shall be
a clean, irrevocable and unconditional Letter of Credit (the "Letter of Credit")
issued by and drawn upon any commercial bank (the "Issuing Bank") with offices
for banking purposes in the City of New York and having at all times that such
Letter of Credit is in effect a net worth of not less than $500,000,000.00,
which Letter of Credit shall have an initial term of not less than one year or
thereafter having a term expiring not less than ninety (90) days following the
expiration of the term of this Lease, shall permit multiple drawings, shall be
transferable by the beneficiary on one or more occasions at no charge to the
beneficiary, and otherwise be in form and content satisfactory to Landlord, be
for the account of Landlord and be in the amount of $53,510.40. Notwithstanding
the foregoing, if at any time the net worth of the issuing Bank is less than
$500,000,000.00 or its rating is downgraded from its current rating, and
provided Tenant does not replace the existing Letter of Credit with a Letter of
Credit meeting the criteria of Section 38.02 within the sooner of thirty (30)
days following Tenant's receipt of Landlord's notice to Tenant of either of the
foregoing events or the number of days remaining until the expiration date of
the existing Letter of Credit, Landlord shall have the right, at any time
thereafter, to draw down the entire proceeds of the existing Letter of Credit
and hold such proceeds pursuant to the terms of Section 38.01 as cash security
pending the replacement of such Letter of Credit. The Letter of Credit shall
provide that:
40
<PAGE>
(a) the Issuing Bank shall pay to Landlord or its duly
authorized representative an amount up to the face amount of the
Letter of Credit upon presentation of the Letter of Credit and a sight
draft, in the amount to be drawn;
(b) it shall be deemed automatically renewed, without
amendment, for consecutive periods of one (1) year each thereafter
during the term of this Lease, unless Issuing Bank sends written
notice (hereinafter. referred to as the Non-Renewal Notice) to
Landlord by certified or registered mail, return receipt requested,
not less than sixty (60) days next preceding the expiration date of
the Letter of Credit that it elects not to have the Letter of Credit
renewed, and it being agreed that the giving of such Non-Renewal
Notice shall for the purpose of this Article 38 be deemed a default
under this Lease;
(c) Landlord, subsequent to its receipt of a Non-Renewal
Notice, and prior to the expiration date of the Letter of Credit,
shall have the right, exercisable by means of sight draft, to receive
the monies represented by the Letter of Credit and hold such proceeds
pursuant to the terms of Section 38.01 as cash security pending the
replacement of such Letter of Credit; and
(d) upon Landlord's sale or assignment of its estate as
Tenant under any ground or underlying lease, the Letter of Credit.
shall be transferable by Landlord, as provided in Section 38.03.
Section 38.03. In the event Landlord's estate as tenant under any
ground or underlying Lease is sold or assigned, Landlord shall to transfer the
cash security or the Letter of Credit then held by Landlord to the vendee or
assignee, and Landlord shall thereupon be released by Tenant from all liability
for the return of such cash security or Letter of Credit. In such event, Tenant
agrees to look solely to the new Landlord for the return of said cash security
or Letter of Credit. It is agreed that the provisions hereof shall apply to
every transfer or assignment made of the cash security or Letter of Credit to a
new Landlord.
Section 38.04. Tenant covenants that it will not assign or
encumber, or attempt to assign or encumber, the monies or Letter of Credit
deposited hereunder as security, and that neither Landlord nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted
assignment, or attempted encumbrance.
Section 38.05. The use of the security, as provided in this
Article, shall not be deemed or construed as a waiver of Tenant's default or as
a waiver of any other rights and remedies to which Landlord may be entitled
under the provisions of this Lease by reason of such default, it being intended
that Landlord's rights to use the whole or any part of the security shall be in
addition to but not in limitation of any such other rights and remedies; and
Landlord may exercise any of such other rights and remedies independent of or in
conjunction with its rights under this Article.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
475 PARK AVENUE SO. CO.
By: /s/ Charles Steven Cohen, Agent
-------------------------------------
Landlord
INTELLIQUEST INFORMATION GROUP, INC.
By: /s/ Susan M. Georgen
-------------------------------------
Tenant
42
<PAGE>
STATE OF NEW YORK )
- -----------------
: ss.:
COUNTY OF NEW YORK )
On the ________ day of ____________________, 1998, before me
personally came Charles Steven Cohen, to me known and known to me to be an agent
of the firm of 475 PARK AVENUE SO. CO., the firm described in and which executed
the foregoing instrument, and acknowledged that he executed the same for and on
behalf of and with the authority of the said firm of 475 PARK AVENUE SO. CO.,
for the uses and purposes therein mentioned.
_________________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 1 day of April, 1998, before me personally came SUSAN M.
GEORGEN-SAAD to me known, who being by me duly sworn, did depose and say that
she resides at 4906 Mancie Drive, Austin Texas; that she is the CFO of
INTELLIQUEST INFORMATION GROUP, INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
/s/ Harris Bornstein
---------------------------------
Notary Public
<PAGE>
SCHEDULE A
Floor Plan
[DIAGRAM]
<PAGE>
SCHEDULE B
Work
LEASE
Between
475 PARK AVENUE SO. CO.
As Landlord
And
INTELLIQUEST INFORMATION GROUP, INC.,
As Tenant
Relating to part of the 17th floor in Building
475 Park Avenue South, New York, New York
1. Landlord, at Landlord's expense, will provide materials, work and
services to build the installation in the Demised Premises, as more particularly
shown on the plans and specifications prepared by Tenant's architect, IRI Design
Associates, dated March 10, 1998, and the plans and specifications prepared by
Tenant's engineer, _________________________, dated ________________________,
all of which have been delivered to and initialed and approved by Landlord and
Tenant.
Tenant shall cause said plans to be filed promptly, at Tenant's
expense, with the appropriate governmental agencies in such form (building
notice, alteration or other form) as Landlord may direct, including filing of
Building Department Form No. TR-1. Tenant, at Tenant's expense, shall obtain a
building permit for such work.
Landlord shall not be obligated to commence its work until such permit
is obtained. Tenant shall be responsible for the coordination of all
architectural and engineering design drawings including applicable code and
local law compliance, project dimensions and existing field conditions.
2. (a) In accordance with and as indicated on the said plans and
specifications, Landlord, at Landlord's expense, except as otherwise specified
in this Schedule B and the Lease, will perform and install the work and
installations, all of which shall be of material, manufacture, design, capacity,
finish and color of the building standard adopted by Landlord for the Building,
except as otherwise set forth on said plans and specifications.
(b) In addition to work set forth on said plans, Landlord, at
the expense of Landlord, shall do the following additional work:
<PAGE>
(i) Paint entry door to premises.
(ii) Paint entry doors to bathrooms on 17th floor hall.
(iii) Paint frame of freight elevator.
(iv) Cover holes on wall close to elevators on 17th floor.
(v) Clean and shampoo hallway carpets
(c) Landlord, at the cost of Tenant, shall do the following
above building standard work:
(i) Glazing $ 1,968.00
(ii) Carpet "Upgrade" 7,486.73
(iii) Blocking for manual projection screen 475.60
(iv) Wood caps 980.00
(v) Blocking for electrical screen Conf. Room 625.00
(vi) Ceilings soffit Large conference Room 1,035.90
----------
TOTAL: $12,569.73
The above amount of $12,569.73 shall be paid to Landlord at the time of
execution of this Lease.
3. If Tenant shall request Landlord to perform any additional or
non-standard work, Tenant shall submit to Landlord the necessary plans and
specifications therefor. Landlord, at its' sole option, may perform such work,
at Tenant's expense, as a Tenant's extra, together with twenty-one (21 %)
percent of such price for Landlord's overhead. Prior to commencing any such work
requested by Tenant, Landlord will submit to Tenant written itemization of the
price of any such work. If Tenant shall fail to approve any such price(s) within
seven (7) days, they shall be deemed disapproved in all respects by Tenant and
Landlord shall not be authorized to proceed thereon, and Tenant shall then have
the work performed by other contractors subject to the provisions of Section
5.01 of the Lease. Concurrently with Tenant's approval, Tenant shall pay
Landlord as additional rent, fifty (50%) percent of the price of such work or
one hundred (100 %) of the price of the work if the price is less than $10,000,
together with 21 % of the aggregate price of all work for Landlord's overhead,
and thereafter, within seven (7) days after being billed therefor, Tenant shall
pay Landlord as additional rent the pro rata portion of the price of such work
for which Tenant is obligated to pay or toward which Tenant is obligated to
contribute, which has been previously completed. If Tenant shall default in
making such payment within seven (7) days after being billed, Landlord shall
have the same rights as in the event of default by Tenant in the payment of
minimum rent and additional rent, and Landlord shall have the further eight to
discontinue performing any additional work without the same affecting the date
of substantial completion as provided in Paragraph 4 below. Upon Landlord
advising Tenant that Landlord has substantially completed its work, Tenant shall
pay to Landlord the entire price of such work remaining unpaid, notwithstanding
that minor details or adjustments which shall not materially interfere with
Tenant's use of the Demised Premises may not then have been completed, as
provided in Section 2.01.
4. Tenant acknowledges that Landlord will be delayed in
substantially completed the work to be performed by Landlord under Article 1 of
this Schedule B, as a result of:
46
<PAGE>
(i) Tenant's request for materials, finishes or installations
other than Landlord's building standard; or
(iii) Delays in the completion of work performed on behalf of
Tenant by a person, firm or corporation employed by Tenant; or
(iv) Any other delay caused by Tenant,
therefore the Commencement Date of the Lease, and the payment of minimum rent
thereunder shall be accelerated by the number of days of such delay.
5. Landlord will permit Tenant and its agents to enter the Demised
Premises prior to the Commencement. Date of the Lease in order that Tenant may
perform through its own contractors, to be first approved by Landlord, such
other work and decorations as Tenant may desire, at the same time that
Landlord's contractors are working in the space. The foregoing license to enter
prior to the Commencement Date is conditioned upon Tenant's workmen and
mechanics working in harmony and not interfering with the labor employed by
Landlord, Landlord's mechanics or contractors or by any other tenants or their
contractors. If at any time such entry shall cause disharmony or interference
therewith, this license may be withdrawn by Landlord upon 24 hours notice to
Tenant.
Workers' Compensation and public liability insurance and property
damage insurance, all in amounts and with companies and on forms reasonably
satisfactory to Landlord, shall be provided and at all times maintained by
Tenant's contractors engaged in the performance of the work, and before
proceeding with the work, certificates of such insurance shall be furnished to
Landlord.
Such entry shall be deemed to be under all of the terms, covenants,
and conditions of the Lease except as to the covenant to pay fixed rent.
Landlord shall not be liable in any way for any injury, loss or damage which may
occur to any of Tenant's decorations or installations so made prior to the
Commencement Date, the same being solely at Tenant's risk.
475 PARK AVENUE SO. CO.
By: /s/ Charles Steven Cohen, as agent
----------------------------------
Landlord
Accepted by:
INTELLIQUEST INFORMATION GROUP, INC.
By: /s/ Susan M. Georgen-Saad
-------------------------
Tenant
47
<PAGE>
SCHEDULE C
----------
Description of Land
All that certain plot, piece or parcel of land situate, lying and
being in the Borough of Manhattan, City, County and State of New York, and the
buildings and improvements thereon, bounded and described as follows:
BEGINNING at the southeasterly comer of Park Avenue South and 32nd
Street; running
thence southerly along the easterly side of Park Avenue South 162 feet
3-1/2 inches;
thence easterly parallel with 31st Street 80 feet;
thence northerly parallel with Park Avenue South 35 feet 5-7/8 inches;
thence southeasterly on an angle on it's southerly side of 86 degrees
34 minutes 00 seconds with the last described line 20 feet 1/2 inch to a
line drawn parallel with Park Avenue South and distant 100 feet easterly
therefrom;
thence northerly along said last mentioned line 29 fee 3 inches to the
center line of the block;
thence easterly along said center line of the block 61 feet 2 inches;
thence northerly parallel with Park Avenue South 98 feet 9 inches;
thence westerly along the southerly side of 32nd Street 161 feet 2
inches to the, point or place of BEGINNING.
SAID PREMISES being known as and by the street numbers 465 to 477 Park
Avenue South.
<PAGE>
SCHEDULE D
----------
Rules and Regulations
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite to the
tenant's premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators and other facilities of the Building
by other tenants. Fire exits and stairways are for emergency use only, and they
shall not be used for any other purposes by the tenants, their employees,
licensees or invitees. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of any of the sidewalks, plazas, entrances,
corridors, escalators, elevators, fire exits or stairways of the Building. The
Landlord reserves the right to control and operate the public portions of the
Building and the public facilities, as well as facilities, furnished for the
common use of the tenants, in such manner as it deems best for the benefit of
the tenants generally.
2. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees or invitees of the
tenant, shall be paid by such tenant.
3. The Landlord may refuse admission to the Building outside of
ordinary business hours to any person not known to the watchman in charge or not
having a pass issued by the Landlord or not properly identified, and may require
all persons admitted to or leaving the Building outside of ordinary business
hours to register. Tenant's employees, agents and visitors shall be permitted to
enter and leave the building after ordinary business hours whenever appropriate
arrangements have been previously made between the Landlord and the Tenant with
respect thereto. Each tenant shall be responsible for all persons for whom he
requests such permission and shall be liable to the Landlord for all acts of
such persons. Any person whose presence in the Building at any time shall, in
the judgment of the Landlord, be prejudicial to the safety, character,
reputation and interests of the Building or its tenants may be denied access to
the Building or may be rejected therefrom. In case of invasion, riot, public
excitement or other commotion the Landlord may prevent all access to the
Building during the continuance of the same, by closing the doors or otherwise,
for the safety of the tenants and protection of property in the Building. The
Landlord may require any person leaving the Building with any package or other
object to exhibit a pass from the tenant from whose premises the package or
object is being removed, but the establishment and enforcement of such
requirement shall not impose any responsibility on the Landlord for the
protection of any tenant against the removal of property from the premises of
the tenant. The Landlord shall, in no way, be liable to any tenant for damages
or loss arising from the admission, exclusion or ejection of any person to or
from the tenant's premises or the Building under the provisions of this rule.
4. No tenant shall obtain or accept for use in its premises towel,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning or
other similar services from any persons not authorized by the Landlord in
writing to furnish such services, provided always that
<PAGE>
the charges for such services by persons authorized by the Landlord are not
excessive. Such services shall be furnished only at such hours, in such places
within the tenant's premises and under such reasonable regulations as may be
fixed by the Landlord.
5. No awnings or other projections over or around the windows shall
be installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of
the Building, either by the Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
7. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors shall not be left open
at any time. All windows in each tenant's premises shall be kept closed at all
times and all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the Building air conditioning system to cool or ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio
or television, which, in the reasonable judgment of the Landlord, might disturb
other tenants in the Building shall be made or permitted by any tenant, and no
cooking shall be done in the tenant's premises, except as expressly approved by
the Landlord. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building services or the proper and economic
heating, cleaning or other servicing of the Building or the premises, or the use
or enjoyment by any other tenant of any other premises, nor shall there be
installed by any tenant any ventilating, air conditioning, electrical or other
equipment of any kind which, in the judgment of the Landlord, might cause any
such impairment or interference. No dangerous, flammable, combustible or
explosive object or material shall be brought into the Building by any tenant or
with the permission of any tenant.
9. Tenant shall not permit any cooking or food odors emanating
within the Demised Premises to seep into other portions of the Building.
10. No acids, vapor or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures in
or serving any tenant's premises shall not be used for any purpose other than
the purpose for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein. All
damages resulting from any misuse of the fixtures shall be borne by the tenant
who, or whose servants, employees, agents, visitors or licensees, shall have
caused the same.
11. Except as otherwise set forth in the Lease, no signs,
advertisement, notice or other lettering shall be exhibited, inscribed, painted
or affixed by any tenant on any part of the outside or inside the premises or
the Building without the prior written consent of the Landlord, which consent
shall not be unreasonably withheld. In the event of the violation of the
foregoing by any tenant, Landlord may remove the same without any liability, and
may charge the expense
50
<PAGE>
incurred by such removal to the tenant or tenants Violating this rule. Interior
signs and lettering on doors and elevators shall be inscribed, painted, or
affixed for each tenant by Landlord at the expense of such tenant, (the charge
not to exceed that which a reputable outside contractor would charge), and shall
be of a size, color and style reasonably acceptable to Landlord. Landlord shall
have the right to prohibit any advertising by any tenant which impairs the
reputation of the building or its desirability as a building for offices, and
upon written notice from Landlord, Tenant shall refrain from or discontinue such
advertising.
12. Duplicate keys for a tenant's premises and toilet rooms shall be
procured only from the Landlord, which may make a reasonable charge therefor.
Upon the termination of a tenant's lease, all keys of the tenant's premises and
toilet rooms shall be delivered to the Landlord.
13. No tenant shall in any way deface any part of the Building or the
premises demised to such tenant. No boring, cutting or stringing of wires shall
be permitted, except with the prior written consent of Landlord, which will not
be unreasonably withheld or delayed, and as Landlord may reasonably direct. No
tenant shall install any resilient tile or similar floor covering in the
premises demised to such tenant except in a manner approved by Landlord.
14. No tenant shall use or occupy, or permit any portion of the premises
demised to such tenant to be used or occupied, as an office for a public
stenographer or typist, or as a barber or manicure shop, or as an employment
bureau. No tenant or occupant shall engage or pay any employees in the Building,
except those actually working for such tenant or occupant in the Building, nor
advertise for laborers giving an address at the Building.
15. Except as otherwise permitted in its lease, no premises shall be used,
or permitted to be used, at any time, as a store for the sale or display of
goods, wares or merchandise of any kind, or as a restaurant, shop, booth,
bootblack or other stand, or for the conduct of any business or occupation which
predominantly involves direct patronage of the general public in the premises
demised to such tenant, or for manufacturing or for other similar purposes.
16. The requirements of tenants will be attended only upon application at
the office of the Building. Employees of Landlord shall not perform any work or
do anything outside of the regular duties, unless under special instructions
from the office of the Landlord.
17. The tenant's employees shall not loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
18. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
51
<PAGE>
SCHEDULE E
----------
Cleaning Specifications
for
475 Park Avenue South
New York, New York
Landlord will perform cleaning services in the Demised Premises and related
areas as follows:
NIGHTLY
- -------
- Empty and wipe clean all ash trays from designated smoking areas only.
- Empty and wipe clean all waste receptacles.
- Place waste in bags and remove to a designated area.
- Empty, clean and refill smoking urns as needed.
- Wipe clean all areas within hand high reach; including but not limited
to window sills, wall ledgers, chairs, desks, tables, baseboards, file
cabinets, convector enclosures, pictures and all manner of office
furniture.
- Wipe clean all glass top desks and tables.
- Sweep with treated cloths all composition tile flooring.
- Sweep all carpeted areas nightly and vacuum clean carpeting weekly.
- Wash clean all water fountains and coolers, emptying waste water as
necessary.
PUBLIC LAVATORIES (Nightly or as otherwise designated)
- -----------------
- Wash and dry all bowls, seats, urinals, washbasins and mirrors.
- Wash and wipe dry all metal work.
- Empty paper towel and sanitary napkin disposal receptacles and remove
to designated area.
- Supply and insert toilet tissue, toweling and soap in dispensers.
- Sweep and wash floors.
- Wipe clean all sills, partitions and ledges.
- Wipe clean exterior of waste cans and dispensing units.
- Wash booth partitions monthly.
- Wash tile walls monthly.
- Wash and dry interior of waste cans and sanitary disposal containers
weekly.
- Machine scrub flooring monthly.
- Dust exterior of light fixtures quarterly.
FLOOR MAINTENANCE
- -----------------
A. Public Corridors in Multi-Tenanted Floors only.
<PAGE>
Damp mop and buff all composition flooring monthly.
B. High Dusting Public Areas.
High dust all walls, ledges, pictures, anemostats,
registers, grilles, etc., not reached in normal nightly
cleaning quarterly.
WINDOW CLEANING SERVICES
- ------------------------
Clean all exterior windows, inside and out periodically
during the year, as Landlord deems necessary.
RUBBISH REMOVAL SERVICES
- ------------------------
Remove all dry normal office rubbish and paper from the
office premises of the Demised Premises only, Mondays
through Fridays, holidays excepted.
53
<PAGE>
SCHEDULE F
----------
Definitions
(a) The term mortgage shall include an indenture of mortgage and deed
--------
of trust to a trustee to secure an issue of bonds, and the term mortgagee shall
---------
include such a trustee.
(b) The terms include, including and such as shall each be construed
------- --------- -------
as if followed by phrase "without being limited to".
(c) The term obligations of this lease, and words of like import,
-------------------------
shall mean the covenants to pay rent and additional rent under this lease and
all of the other covenants and conditions contained in this lease. Any provision
in this lease that one party or the other or both shall do or not do or shall
cause or permit or not cause or permit a particular act, condition, or
circumstance shall be deemed to mean that such party so covenants or both
parties so covenant, as the case may be.
(d) The term Tenant's obligations hereunder, and words of like
------------------------------
import, and the term Landlord's obligations hereunder, and words of like import,
--------------------------------
shall mean the obligations of this lease which are to be performed or observed
by Tenant, or by Landlord, as the case may be. Reference to performance of
-----------
either party's obligations under this lease shall be construed as "performance
and observance".
(e) Reference to Tenant or Landlord being or not being in default
----------
hereunder or words of like import, shall mean that Tenant or Landlord is in
- ---------
default in the performance of one or more of Tenant's or Landlord's obligations
hereunder, or that Tenant or Landlord is not in default in the performance of
any of Tenant's or Landlord's obligations hereunder, or that a condition of the
character described in Section 16.01 has occurred and continues or has not
occurred or does not continue, as the case may be.
(f) The term laws and/or requirements of public authorities and words
----------------------------------------------
of like import shall mean laws and ordinances of any or all of the Federal,
state, city, county and borough governments and rules, regulations, orders
and/or directives of any or all departments, subdivisions, bureaus, agencies or
offices thereof, or of any other governmental, public or quasi-public
authorities, having jurisdiction in the premises, and/or the direction of any
public officer pursuant to law.
(g) The term requirements of insurance bodies and words of like
--------------------------------
import shall mean rules, regulations, orders and other requirements of the New
York Board of Fire Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance of the Building and/or the
Demised Premises.
(h) Reference to termination of this lease includes expiration or
-------------------------
earlier termination of the term of this lease or cancellation of this lease
pursuant to any of provisions of this lease or to law. Upon a termination of
this lease, the term and estate granted by this lease shall end at noon of the
date of termination as if such date were the date of expiration of the term of
this lease and neither party shall have any further obligation or liability to
the other after such
<PAGE>
termination (i) except as shall be expressly provided for in this lease, or (ii)
except for such obligation as by its nature or under the circumstances can only
be, or by the provisions of this lease, may be, performed after such
termination, and, in any event, unless expressly otherwise provided in this
lease, any liability for a payment which shall have accrued to or with respect
to any period ending at the time of termination shall survive the termination of
this lease.
(i) The term in full force and effect when herein used in reference
------------------------
to this lease as a condition to the existence or exercise of a right on the part
of Tenant shall be construed in each instance as including the further condition
that at the time in question no default on the part of Tenant exists, and no
event has occurred which has continued to exist for such period of time (after
the notice; if any, required by this lease), as would entitle Landlord to
terminate this lease or to dispossess Tenant.
(j) The term Tenant shall mean Tenant herein named or any assignee or
------
other successor in interest (immediate or remote) of Tenant herein named, but
only while such Tenant or such assignee or other successor in interest, as the
case may be, is in possession of the Demised Premises as owner of the Tenant's
estate and interest granted by this lease and also, if Tenant is not an
individual or a corporation, all of the persons, firms and corporations then
comprising Tenant.
(k) Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any particular gender
shall be deemed to include any other gender.
55
<PAGE>
AMENDMENT OF LEASE
------------------
AGREEMENT, made this 7th day of April, 1998 between 475 PARK AVENUE
SO. CO., having an office at 750 Lexington Avenue, New York, New York 10022
("Landlord") and INTELLIQUEST INFORMATION GROUP, INC., having an office at 1250
Capital of Texas Highway, Building One, Austin. Texas 78746.
WITNESSETH:
WHEREAS, Landlord and Tenant have executed a lease dated April 1, 1998
for part of the 17th floor at 475 Park Avenue South, New York, New York; and
WHEREAS, Landlord and Tenant wish to amend the Lease as hereinafter
provided,
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenant hereinafter provided, it is agreed that the Lease Is hereby amended as
follows:
1. Except as otherwise herein defined, all terms contained in this
Agreement shall for the purposes hereof have the same meaning ascribed to them
in the Lease.
2. Section 38.01 of the Lease is deleted in its entirety and the
following is substituted in its place:
"Section 38.01. Concurrently with the execution of this Lease, Tenant
shall deposit with Landlord the sum of $53,510.40, either in cash or by Letter
of Credit as provided in Section 38.02, as security for the faithful performance
and observance by Tenant of the terms, provisions and conditions of this Lease.
Tenant agrees that, in the event that Tenant defaults in respect of any of the
terms, provisions and conditions of this Lease (including the payment of minimum
rent and additional rent) beyond applicable grace periods, Landlord may use,
apply, or retain the whole or any part of the cash security so deposited or may
notify the "Issuing Bank" (as such term is defined in Section 38.02) and
thereupon receive all of the monies represented by the said Letter of Credit and
use, apply, or retain the whole or any part of such proceeds, as the case may
be, to the extent required for the payment of any rent, additional rent, or any
other sum as to which Tenant is in default, or for any sum that Landlord may
expend or may be required to expend by reason of Tenant's default, in respect of
any of the terms, covenants and conditions of this Lease (including any damages
or deficiency accrued before or after summary proceedings or other re-entry by
Landlord), and Landlord shall hold the portion of such monies not applicable to
Tenant's obligations as security for the future performance of Tenant's
obligations under this Lease. In the event that Landlord applies or retains any
portion or all of such cash security or proceeds of such Letter of Credit, as
the case may be, Tenant shall forthwith restore the amount so applied or
retained so that, at all times, the amount deposited shall be $53,510.40. If
Tenant shall fail or refuse to make such additional deposit, Landlord shall have
the same rights in law and in equity and under this Lease as it has with respect
to a default by Tenant in the payment of minimum rent. In the event that Tenant
shall fully and faithfully comply with all of the terms, provisions, covenants
and conditions of this Lease, the cash security or Letter of Credit, as the case
may be, shall be returned to Tenant within thirty (30) days after the expiration
date and after
<PAGE>
delivery of possession of the entire Demised Premises to Landlord in the
condition provided in the condition provided in this Lease for such delivery of
possession."
3. The first line of Section 38.02, beginning with the word "Such"
and ending with the word "be" is deleted and the following is substituted in its
place. "In lieu of a cash deposit, Tenant may deliver to Landlord".
4. Except as hereinabove amended, all of the terms, covenants and
conditions of the Lease shall remain controlling between the parties.
IN WITNESS WHEREOF, Landlord and Tenant have exercised this Agreement
on the day and year first above written.
475 PARK AVENUE SO. CO.
Landlord
By: /s/ Charles Steven Cohen, as agent
----------------------------------------
Name:
Title:
INTELLIQUEST INFORMATION GROUP, INC.
Tenant
By: /s/ Susan N. Georgen-Saad
---------------------------------------
Name: Susan N. Georgen-Saad
Title: C.F.O.
2
<PAGE>
SECOND AMENDMENT OF LEASE
-------------------------
SECOND AMENDMENT OF LEASE ("Agreement"), dated this 12th day of
November, 1999, between 475 PARK AVENUE SO. CO., a New York partnership having
an office at 750 Lexington Avenue, New York, New York 10022 ("Landlord"), and
NAVIANT, INC., a Delaware corporation having an office at 475 Park Avenue South,
New York, New York 10016 ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Intelliquest Information Group, Inc., Tenant's
predecessor-in-interest have heretofore entered into a lease dated April 1,
1998, as amended by agreement dated April 7, 1998 (collectively the "Lease") for
part of the 17th floor ("Existing Premises") in the building known as 475 Park
Avenue South, New York, New York ("Building"), for the term ending October 31,
2003; and
WHEREAS, Tenant wishes to rent additional space on the 17th floor
which adjoins the Existing Premises (the "Additional Premises"), and extend the
term of the Lease, and Landlord is willing to do so, upon the terms and
conditions hereinafter provided.
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter provided, Landlord and Tenant agree as follows:
1. Except as otherwise herein defined, all terms contained in this
Agreement shall for the purposes hereof have the same meaning ascribed to them
in the Lease.
2. Tenant has examined and agrees to accept the Additional Premises
in its present "as is" condition and state of repair, subject to and upon
substantial completion by
<PAGE>
Landlord, at Landlord's own expense, of the installation of new carpeting and
wall covering in the 17/th/ floor common corridor.
3. (A) Landlord shall deliver the Additional Premises to Tenant on
the date that Landlord substantially completes its work (the "Effective Date"),
and following the Effective Date, wherever the term Demised Premises is referred
to in the Lease, the same shall mean collectively, the Additional Premises more
particularly delineated in the plan annexed hereto as Schedule A, and the
Existing Premises. Except as set forth in Article 2 above, Landlord shall have
no obligation to perform any other work in connection with preparing the
Additional Premises for Tenant's occupancy.
B. If, prior to the Effective Date, Tenant shall enter the
Additional Premises to make any installations, Landlord shall have no liability
or obligation for the care or preservation of Tenant's property, except for the
negligence of Landlord, its agents, servants and employees.
C. Promptly after the Effective Date, Landlord and Tenant will
execute a statement in recordable form confirming the Effective Date in
accordance with the foregoing provisions.
4. The Lease is amended as follows:
A. Notwithstanding the provisions of Article 1 of
the Lease, the term of the Lease shall be extended to
the date (the "Extended Expiration Date") that shall be
five (5) years and one (1) month following the
Effective Date, plus the number of days required, if
any, to have such term expire on the last day of the
4
<PAGE>
calendar month, or on such earlier date upon which said
term may expire or terminate pursuant to any of the
conditions or covenants of the Lease or pursuant to
law.
B. Commencing from and after the Effective Date,
with respect to the Additional Premises only:
(i) Tenant shall pay as minimum rent for the period from the
Effective Date to the Extended Expiration Date the amount of $133,000
per annum (or $11,083.33 per month), provided if the Effective Date is
not the first day of the month then the minimum rent for such month
shall be prorated; however, part of the minimum rent for the 1st month
following the Effective Date in the amount of $10,208.33 shall be
abated and the balance of minimum rent of $875.00 for such month shall
be payable.
(ii) In Section 22.01 (a) of the Lease:
(a) in subdivision (i) the "Tax Base Factor"
shall mean the average of the real estate taxes
for the periods from July 1, 1999 to June 30, 2000
and from July 1, 2000 to June 30, 2001.
(b) in subdivision (iii), the "comparative
tax year" shall mean the tax year commencing July
1, 2000 and each subsequent real estate tax year.
(c) in subdivision (v), "the Percentage"
shall mean "1.045%".
(iii) In Section 22.02 of the Lease:
5
<PAGE>
(a) in subdivision (ii), the "Base Wage Rate"
shall mean the Wage Rate for the calendar year
2000, without fringes.
(b) in subdivision (v), the "Multiplication
Factor' shall mean 3,500.
(iv) In Section 23.03, the "Rent Inclusion Factor" shall mean
$10,500.
C. With respect to the Existing Premises only,
Section 301(a) is amended to provide that the minimum
rent for the period commencing November 1, 2003 to the
Extended Expiration Date shall be at the rate of
$177,460.00 per annum (or $14,788.33 per month).
5. Concurrently with the execution of this Agreement, Tenant shall
deposit with Landlord the sum of $55,415, either in cash or by a Letter of
Credit meeting the criteria provided in Section 38.02 of the Lease, to be held
by Landlord as additional security pursuant to the provisions of Article 38 of
the Lease. Upon such payment the total security deposit referred to in said
Article 38 shall be $108,925.00.
6. Subject to the provisions of Article 5 of this Lease, Tenant
agrees to perform the initial work and installations required to make the
Additional Premises suitable for the conduct of Tenant's business. Tenant agrees
to deliver to Landlord, for Landlord's approval, the plans and specifications
for Tenant's initial work within thirty (30) days from the date hereof. Landlord
agrees to contribute up to the sum of $52,500.00 ("Landlord's Contribution")
towards the cost of such work, which shall include hard and soft costs. Landlord
shall pay to Tenant,
6
<PAGE>
from time to time, ninety (90%) percent of the cost of the work requested by
Tenant theretofore performed by the contractor, provided Tenant delivers to
Landlord concurrently with its request, receipted bills of the contractor
involved approved by Tenant, a certificate by Tenant's architect that such bills
have been approved and the work or materials evidenced by such bills have been
satisfactorily performed or delivered and a waiver of mechanic's lien signed by
the contractor with respect to the amount paid as evidenced by the receipted
bill, such payment to be made to Tenant within twenty (20) days after receipt of
Tenant's request together with the aforesaid documentation. Within ten (10) days
after Landlord receives a certificate from Tenant's architect stating that
Tenant's work (including the work, if any, performed by Landlord) has been
substantially completed, that the same has been performed in compliance with all
applicable Governmental Requirements and the approved plans and specifications
and delivery to Landlord of the final "sign off" letters and equipment use
permits (as necessary) for all work performed from the applicable municipal
authorities. Landlord shall pay to Tenant the aggregate of the ten (10%) percent
sums retained by Landlord. Landlord shall have no obligation or responsibility
to pay any cost exceeding the amount of Landlord's Contribution. If the amount
Tenant expends for the cost exceeds the amount of Landlord's Contribution,
Tenant shall be responsible for the payment to the contractors of the excess. If
said amount is less than the amount of Landlord's Contribution, Landlord shall
not be obligated to pay such difference to Tenant. Tenant shall indemnify and
hold Landlord harmless from and against any and all claims, costs and expenses
in connection with such work exceeding the amount of Landlord's Contribution.
7. The following Articles 39 and 40 shall be added to the Lease to
read as follows:
7
<PAGE>
"ARTICLE 39
Expansion Space
"Section 39.01. So long as this Lease is then in full force and
effect and Tenant is not then in default in performing any of the conditions of
this Lease on its part to be performed, both at the time of Landlord's
Availability Notice (as hereinafter defined) and on the Effective Date (as
hereinafter defined) for the Expansion Space (as hereinafter defined), at the
time during the two (2) year period following the Effective Date that Landlord
becomes aware of the potential availability of the remainder of the space on the
17th floor (the "Expansion Space") which Landlord anticipates will become
available for lease and future occupancy by Tenant, Landlord shall then give
Tenant notice thereof (the "Availability Notice"). Such notice shall also state
the rentable square feet of the Expansion Space, which for the purpose of this
Article 39 is deemed to be 4,200 rentable square feet, and Landlord's reasonable
estimation of the date when such Expansion Space will be available for Tenant's
occupancy (the "Occupancy Date"). If the same is subject to the prior right of
the then tenant thereof to renew the term thereof or of another existing tenant
to lease the same (collectively, the "Prior Right"), Landlord shall include in
its Availability Notice the existence of such Prior Right and the date by which
the same must be exercised by the existing tenant having such Prior Right.
Concurrently with giving the Availability Notice to Tenant, Landlord shall give
to the existing tenant notice to exercise its Prior Right. Landlord thereafter
shall notify Tenant of the exercise or non-exercise of such Prior Right. Tenant
shall have the one time right to exercise its option to lease such Expansion
Space by giving Landlord written notice of its election to do so (the "Exercise
Notice"), within thirty (30) days from the date of its receipt of the
Availability Notice, with TIME OF THE ESSENCE. However, if such Expansion Space
is subject to a Prior Right, Tenant may exercise its option by giving the
Exercise Notice within thirty (30) days from the date of its receipt of written
notice from Landlord of the non-exercise of such Prior Right, with TIME OF THE
ESSENCE. If Landlord does not receive the Exercise Notice within the applicable
thirty (30) day period, then Tenant shall have no further rights with respect to
the Expansion Space under this Article 39, and Landlord may lease such Expansion
Space to any other party upon such terms and conditions as Landlord may deem
desirable.
Section 39.02. Tenant shall take possession of the Expansion Space
and Landlord shall deliver possession thereof to Tenant on the later of the
Occupancy Date and the actual date on which Landlord shall have delivered such
Expansion Space to Tenant vacant (the "Effective Date"), and from and after the
Effective Date such Expansion Space shall automatically be deemed added to and
made part of the Demised Premises upon all of the terms, covenants and
conditions as are contained in this Lease (except those which by their terms are
no longer applicable), except as follows:
1. Tenant agrees to accept possession of the Expansion Space in
its then "As Is" condition and Landlord shall not be required to do
any work therein to prepare the same for Tenant's occupancy.
2. The respective amounts of the minimum rent provided in
Section 3.01 (a) shall be increased by the amount equal to the fair
market annual rental value ("Rental Value") of the Expansion Space as
of the Effective Date, but not
8
<PAGE>
less than at the aggregate rate per square foot payable for minimum
rent and additional rent payable under Article 22 of this Lease
immediately prior to the Effective Date. In the event the parties fail
to agree on such Rental Value within ninety (90) days prior to the
Effective Date, such Rental Value shall be determined by arbitration
in the manner as hereinafter provided in Article 40; and the
determination of such arbitrator shall be conclusive and binding on
the parties. If for any reason such Renal value shall not be
determined prior to the commencement of the Effective Date, Tenant, in
the meantime shall pay the monthly installments of minimum rent at the
rate per square foot payable for minimum rent and said additional rent
immediately prior to the Effective Date. If the Rental Value shall be
greater than the amount paid by Tenant for the Additional Space
following the Effective Date, Tenant forthwith after the arbitrators'
decision, shall pay to Landlord the difference between the monthly
installments actually paid and the monthly installments which should
have been paid from the commencement of the Effective Date, and
thereafter Tenant shall pay the monthly installments of the new
minimum rent.
3. In Section 22.01(a), with respect to the Expansion Space
only, in subdivision (i) the "Tax Base Factor" shall mean the July 1 -
June 30 fiscal year in which the Effective Date occurs; in subdivision
(iii) the "comparative tax year" shall mean the July - June 30 fiscal
year immediately following the Tax Base Factor; and in subdivision (v)
the "Percentage" shall mean 1.058%.
4. In Section 22.02(a), with respect to the Expansion Space
only, in subdivision (ii), the "Base Wage Rate" shall man the Wage
Rate in effect for the calendar year in which the Effective Date
occurs; and in subdivision (v) the "Multiplication Factor" shall mean
4,200.
Section 39.03. Notwithstanding the provisions of Section 39.02, if
Landlord is unable to give possession of the Expansion Space on the Effective
Date because of the holding-over of the tenant thereof, Landlord shall not be
subject to any liability for failure to give possession on the Effective Date,
but the Effective Date shall not be deemed to have occurred for any purpose
whatsoever until the date that Landlord shall actually deliver possession of the
Expansion Space to Tenant. In any event, Landlord shall promptly commence and
diligently prosecute holdover proceedings or such other legal proceedings as may
be required in order to obtain prompt possession of the Expansion Space as
promptly thereafter as may be practical.
Section 39.04. Following the determination of the Effective Date, the
minimum rent and the escalation rents of the Expansion Space, Landlord and
Tenant shall execute an agreement amending this Lease to reflect the foregoing,
but the provisions of this Article 39 shall be effective with respect to the
Expansion Space effective from and after the Effective Date whether or not such
an amendment is executed.
Section 39.05. Except as specifically amended in this Article 39, all
of the terms, covenants and conditions of this Lease shall continue in full
force and effect and unchanged."
9
<PAGE>
ARTICLE 40
Arbitration
Section 40.01. The arbitration provided for in Article 39 shall be
settled in the Borough of Manhattan, City, County and State of New York,
conducted to the extent consistent with this Article 40 in accordance with the
rules then obtaining of the American Arbitration Association, or any successor
body of similar function, governing commercial arbitration, except that the
forgoing shall not be deemed or construed to require that such arbitration
actually be conducted by or before the American Arbitration Association or any
successors body of similar function. The arbitration shall be conducted before
arbitrators selected as follows: The party desiring arbitration shall appoint a
disinterested person as arbitrator on its behalf and give notice thereof to the
other party who shall, within twenty (20) days thereafter, appoint a second
disinterested person as arbitrator on its behalf and give written notice thereof
to the first party. The arbitrators thus appointed shall, within twenty (20)
days after the date of the appointment of the second arbitrator, appoint a third
disinterested person, who shall be a person licensed by the State of New York
(if such license is required by law) or otherwise qualified and having the
necessary expertise, including at least ten (10) years experience, in the manner
or discipline which is the primary subject or is primarily involved in such
arbitration. If the arbitrators thus appointed shall fail to appoint such third
disinterested person within said twenty (20) day period, then either party may,
by application to the presiding Justice of the Appellate Division of the Supreme
Court of the State of New York for the First Judicial Department, which
application shall be made within fifteen (15) days after the end of said twenty
(20) day period, seek to appoint such third disinterested person, such
appointment being made not later than thirty (30) days after the date of said
application. Upon such appointment, such person shall be the third arbitrator as
if appointed by the original two arbitrators. The decision of the majority of
the arbitrators shall be final, non-appealable, conclusive and binding on all
parties and judgment upon the award may be entered in any court having
jurisdiction. If a party who shall have the right pursuant to the foregoing, to
appoint an arbitrator, fails or neglects to do so, then and in such event the
other party shall select the arbitrator not so selected by the first party, and
upon such selection, such arbitrator shall be deemed to have been selected by
the first party. The expenses of arbitration shall be shared equally by Landlord
and Tenant, unless this Lease expressly provides otherwise, but each party shall
and be separately responsible for its own counsel and witness fees and
disbursements, unless this Lease expressly provides otherwise. Landlord and
Tenant agree to sign all documents and to do all other things reasonably
necessary to submit any such matter to arbitration and further agrees to, and
hereby do, waive any and all rights they or either of them may at any time have
to revoke their agreement hereunder to submit to arbitration and to abide by the
decision rendered thereunder and agree that a judgment or order may be entered
in any court of competent jurisdiction based on an arbitration award (including
the granting of injunctive relief).
Second 40.02. The arbitrators shall be disinterested persons having
at least ten (10) years experience in the County of New York in a calling
connected with the dispute, and shall have the right to retain and consult
experts and competent authorities skilled in the matter under arbitration, but
any such consultation shall be made in the presence of both parties, with full
right on their part to cross-examine such experts and authorities. The
arbitrators shall render their decision and award upon the concurrent of at
least two (2) of their number, not later than
10
<PAGE>
sixty (60) days after appointment of the third arbitrator. Their decision and
award shall be in writing and counterpart copies thereof shall be delivered to
each of the parties. In rendering their decision and award, the arbitrators
shall have no power to modify or in any manner alter or reform any of the
provisions of this Lease, and the jurisdiction of the arbitrators is limited
accordingly."
8. Landlord and Tenant represent and warrant that they had no
dealings or negotiations with any brokers or agents other than Newmark & Company
Real Estate, Inc. and Cohen Brothers Realty Corporation, in connection with this
Agreement. Landlord will pay said brokers a commission pursuant to separate
agreements. Landlord and Tenant agree to indemnify and hold harmless the other
from and against any cost, expense or liability for any compensation,
commissions or charges arising out of a breach by the other of the
representations contained in this paragraph.
9. Except as modified by this Agreement, the Lease and all the terms,
covenants and conditions thereof (except those which by their terms are no
longer applicable) shall remain in full force and effect and are hereby in all
respects ratified and confirmed.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement
on the day and year first above written.
475 PARK AVENUE SO. CO.
Landlord
By: /s/ Charles Steven Cohen
------------------------------------
Charles Steven Cohen, Agent:
NAVIANT, INC.
By: /s/ R.T. Butkus
------------------------------------
Name: R.T. Butkus
Title: Senior Vice President
Tenant
11
<PAGE>
EXHIBIT 10.9
NAVIANT TECHNOLOGY SOLUTIONS, INC.
1999 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1999 Stock Option/Stock Issuance Plan is intended to promote the
interests of Naviant Technology Solutions, Inc., a Delaware corporation, by
providing eligible persons in the Corporation's employ or service with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to continue in
such employ or service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares
or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary).
B. The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may
<PAGE>
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan or any option or
stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine,
(i) with respect to the grants made under the Option Grant Program, which
eligible persons are to receive the option grants, the time or times when those
grants are to be made, the number of shares to be covered by each such grant,
the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times when each option is to become exercisable,
the vesting schedule (if any) applicable to the option shares and the maximum
term for which the option is to remain outstanding and (ii) with respect to
stock issuances made under the Stock Issuance Program, which eligible persons
are to receive stock issuances, the time or times when those issuances are to be
made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration to be
paid by the Participant for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 13,029,000
shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan.
2.
<PAGE>
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.
3.
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
--------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Four and
the documents evidencing the option, be payable in cash or check made payable to
the Corporation. Should the Common Stock be registered under Section 12 of the
1934 Act at the time the option is exercised, then the exercise price may also
be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option grant. However, no option shall have a term in excess of
ten (10) years measured from the option grant date.
4.
<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any reason
other than death, Permanent Disability or Misconduct, then the Optionee
shall have a period of three (3) months following the date of such
cessation of Service during which to exercise each outstanding option held
by such Optionee.
(ii) Should Optionee's Service terminate by reason of Permanent
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding option, then
the personal representative of his or her estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or the
laws of inheritance shall have a twelve (12)-month period following the
date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be outstanding
with respect to any and all option shares for which the option is not
otherwise at the time exercisable or in which the Optionee is not otherwise
at that time vested.
(vi) Should Optionee's Service be terminated for Misconduct, then
all outstanding options held by the Optionee shall terminate immediately
and cease to remain outstanding.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
5.
<PAGE>
(ii) permit the option to be exercised, during the applicable post-
Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. First Refusal Rights. Until such time as the Common Stock is
--------------------
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Option Grant Program. Such right of first refusal shall be exercisable
in accordance with the terms established by the Plan Administrator and set forth
in the document evidencing such right.
G. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
H. Withholding. The Corporation's obligation to deliver shares of
-----------
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
6.
<PAGE>
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the
-----------------
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall not vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are
7.
<PAGE>
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the immediate termination of the
Corporation's repurchase rights with respect to the shares subject to those
options) upon the occurrence of a Corporate Transaction, whether or not those
options are to be assumed in the Corporate Transaction.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the earlier of (i) the expiration of the option term or (ii) the
-------
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate on an accelerated basis, and the shares subject to those
terminated rights shall accordingly vest at that time.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure
8.
<PAGE>
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Option Grant Program
and to grant in substitution new options covering the same or different number
of shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new grant date.
9.
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value per share of Common Stock on the issue date.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
10.
<PAGE>
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or non-
attainment of the applicable performance objectives.
C. First Refusal Rights. Until such time as the Common Stock is first
--------------------
registered under Section 12 of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
II. CORPORATE TRANSACTION
A. All of the outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent: (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
11.
<PAGE>
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
12.
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Option Grant Program or the purchase price
for shares issued under the Stock Issuance program by delivering a full
recourse, interest bearing promissory note payable in one or more installments
and secured by the purchased shares. The terms of any such promissory note
(including the interest rate and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion. In no event shall the maximum
credit available to the Optionee or Participant exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such limitation, the Plan Administrator may grant options and issue shares
under the Plan at any time after the effective date of the Plan and before the
date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration
--------
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with an Corporate Transaction. All options and
unvested stock issuances outstanding at the time of a clause (i) termination
event shall continue to have full force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect any rights and obligations with respect
to options or unvested stock issuances at the time outstanding under the Plan,
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Option Grant Program and shares of Common Stock may be issued under the
Stock Issuance
13.
<PAGE>
Program which are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease to
be outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short-Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the
Plan and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
14.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Code shall mean the Internal Revenue Code of 1986, as amended.
----
C. Committee shall mean a committee of one (1) or more Board
---------
members appointed by the Board to exercise one or more administrative functions
under the Plan.
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean Naviant Technology Solutions, Inc., a
-----------
Delaware corporation, and any successor corporation to all or substantially all
of the assets or voting stock of Naviant Technology Solutions, Inc. which shall
by appropriate action adopt the Plan.
G. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
I. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
A-1.
<PAGE>
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem appropriate.
J. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
K. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her duties and responsibilities or the level of management to which
he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonuses under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected without the individual's consent.
L. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
M. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
N. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
A-2.
<PAGE>
O. Option Grant Program shall mean the option grant program in
--------------------
effect under the Plan.
P. Optionee shall mean any person to whom an option is granted
--------
under the Option Grant Program.
Q. Parent shall mean any corporation (other than the Corporation)
------
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. Participant shall mean any person who is issued shares of
-----------
Common Stock under the Stock Issuance Program.
S. Permanent Disability shall mean the inability of the Optionee
--------------------
or the Participant to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which is expected to
result in such person's death or to continue for a period of twelve (12)
consecutive months or more.
T. Plan shall mean the Corporation's 1999 Stock Option/Stock
----
Issuance Plan, as set forth in this document.
U. Plan Administrator shall mean either the Board or the
------------------
Committee acting in its capacity as administrator of the Plan.
V. Service shall mean the provision of services to the
-------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
W. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
X. Stock Issuance Agreement shall mean the agreement entered into
------------------------
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
Y. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under the Plan.
Z. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
A-3.
<PAGE>
AA. 10% Stockholder shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-4.
<PAGE>
ADDENDUM
TO
STOCK ISSUANCE AGREEMENT
The following provisions are hereby incorporated into, and are hereby made
a part of, that certain Stock Issuance Agreement (the "Issuance Agreement") by
and between Naviant Technology Solutions, Inc. (the "Corporation") and
__________________ ("Participant") evidencing the shares of Common Stock
purchased on this date by Participant pursuant to the shares granted to him or
her under the Corporation's 1999 Stock Option/Stock Issuance Plan, and such
provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to such terms in the Issuance Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Issuance Agreement. Participant
shall, over his or her period of Service following the Corporate Transaction,
continue to vest in the Purchased Shares in one or more installments in
accordance with the provisions of the Issuance Agreement. However, upon an
Involuntary Termination of Participant's Service within eighteen (18) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically, and all the Purchased Shares shall immediately vest in full at
that time.
2. For purposes of this Addendum, the following definitions shall be in
effect:
An Involuntary Termination shall mean the termination of Participant's
Service by reason of:
(a) Participant's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(b) Participant's voluntary resignation following (A) a change in his
or her position with the Corporation (or Parent or Subsidiary employing
Participant) which materially reduces his or her duties and responsibilities or
the level of management to which he or she reports, (B) a reduction in
Participant's level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based incentive programs) by more
than fifteen percent (15%) or (C) a relocation of Participant's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without Participant's
consent.
<PAGE>
Misconduct shall include the termination of Participant's Service by reason
or Participant's commission of any act of fraud, embezzlement or dishonesty, any
unauthorized use or disclosure by Participant of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by Participant adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material manner.
The foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of the Participant or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
2.
<PAGE>
EXHIBIT 10.12
NAVIANT TECHNOLOGY SOLUTIONS, INC.
STOCK ISSUANCE AGREEMENT
------------------------
AGREEMENT made as of this __ day of _________ 19__, by and among
Naviant Technology Solutions, Inc., a Delaware corporation and
_______________________, Participant in the Corporation's 1999 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
------------------
1. Purchase. Participant hereby purchases _____________ shares of
--------
Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $______ per share (the "Purchase
Price").
2. Payment. Concurrently with the delivery of this Agreement to the
-------
Corporation, Participant shall pay the Purchase Price for the Purchased Shares
in cash or check payable to the Corporation and shall deliver a duly-executed
blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
3. Escrow. The Corporation shall have the right to hold the
------
Purchased Shares in escrow until those shares have vested in accordance with the
Vesting Schedule.
4. Stockholder Rights. Until such time as the Corporation exercises
------------------
the Repurchase Right or the First Refusal Right, Participant (or any successor
in interest) shall have all the rights of a stockholder (including voting,
dividend and liquidation rights) with respect to the Purchased Shares, subject,
however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
-------------------------
1. Restricted Securities. The Purchased Shares have not been
---------------------
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of
unrestricted securities is not presently available to exempt the resale of the
Purchased Shares from the registration requirements of the 1933 Act.
2. Disposition of Purchased Shares. Participant shall make no
-------------------------------
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
<PAGE>
(i) Participant shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
(ii) Participant shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that (a) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (b) all appropriate action necessary
for compliance with the registration requirements of the 1933 Act or any
exemption from registration available under the 1933 Act (including Rule
144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
---
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
--
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. The stock certificates for the Purchased
-------------------
Shares shall be endorsed with the following restrictive legends:
(i) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement
for the shares under such Act, (b) a 'no action' letter of the Securities
and Exchange Commission with respect to such sale or offer or (c)
satisfactory assurances to the Corporation that registration under such Act
is not required with respect to such sale or offer."
(ii) "The shares represented by this certificate are unvested and
are subject to certain repurchase rights and rights of first refusal
granted to the Corporation and accordingly may not be sold, assigned,
transferred, encumbered, or in any manner disposed of except in conformity
with the terms of a written agreement dated ____________, 199__ between the
Corporation and the registered holder of the shares (or the predecessor in
interest to the shares). A copy of such agreement is maintained at the
Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
---------------------
1. Restriction on Transfer. Except for any Permitted Transfer,
-----------------------
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2.
<PAGE>
2. Transferee Obligations. Each person (other than the Corporation)
----------------------
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Participant.
3. Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off")
shall be in effect for such period of time from and after the effective date of
the final prospectus for the offering as may be requested by the Corporation or
such underwriters. In no event, however, shall such period exceed one hundred
eighty (180) days and the Market Stand-Off shall in all events terminate two (2)
years after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
------------
only if the officers and directors of the Corporation are also subject to
- -------
similar--restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation
may impose stop-transfer instructions with respect to the Purchased Shares until
the end of the applicable stand-off period.
D. REPURCHASE RIGHT
----------------
1. Grant. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service, vested
in accordance with the Vesting Schedule (such shares to be hereinafter referred
to as the "Unvested Shares").
2. Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the ninety (90)-day exercise period. The notice
shall indicate the number of Unvested Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of such notice. The certificates representing the
Unvested Shares to be repurchased shall be delivered to the Corporation prior to
3.
<PAGE>
the close of business on the date specified for the repurchase. Concurrently
with the receipt of such stock certificates, the Corporation shall pay to Owner,
in cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Participant vests in accordance with the following Vesting
Schedule:
(i) Upon Participant's completion of one (1) year of Service
measured from ______________, 199__, Participant shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, twenty-
five percent (25%) of the Purchased Shares .
(ii) Participant shall acquire a vested interest in, and the
Repurchase Right shall lapse with respect to, the remaining Purchased
Shares in a series of successive equal monthly installments upon
Participant's completion of each additional month of Service over the
thirty-six (36)-month period measured from the initial vesting date under
subparagraph (i) above.
All Purchased Shares as to which the Repurchase Right lapses shall,
however, remain subject to (i) the First Refusal Right and (ii) the Market
Stand-Of.
4. Recapitalization. Any new, substituted or additional securities
----------------
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
--------
same.
5. Corporate Transaction.
---------------------
(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety,
except to the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payments) received in exchange for
the Purchased Shares in consummation of the Corporate Transaction, but only to
the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
4.
<PAGE>
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate purchase price shall remain the same. The new securities or other
property (including cash payments) issued or distributed with respect to the
Purchased Shares in consummation of the Corporate Transaction shall immediately
be deposited in escrow with the Corporation (or the successor entity) and shall
not be released from escrow until Participant vests in such securities or other
property in accordance with the same Vesting Schedule in effect for the
Purchased Shares.
E. RIGHT OF FIRST REFUSAL
----------------------
1. Grant. The Corporation is hereby granted the right of first
-----
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Participant has vested in accordance
with the Vesting Schedule. For purposes of this Article E, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of
------------------------------
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. Exercise of the First Refusal Right. The Corporation shall, for a
-----------------------------------
period of forty-five (45) days following receipt of the Disposition Notice, have
the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
forty-five (45)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than fifteen (15)
business days after delivery of the Exercise Notice; and at such time the
certificates representing the Target Shares shall be delivered to the
Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within thirty (30) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within forty-five (45) days after the Corporation's
receipt of the Disposition Notice, each shall select an appraiser of recognized
standing and the two (2) appraisers shall designate a third appraiser of
recognized standing, whose appraisal shall be determinative of such value. The
cost of such appraisal shall be shared equally by Owner and the Corporation.
The closing
5.
<PAGE>
shall then be held on the later of (i) the fifteenth business day following
-----
delivery of the Exercise Notice or (ii) the fifteenth business day after such
valuation shall have been made.
4. Non-Exercise of the First Refusal Right. In the event the
---------------------------------------
Exercise Notice is not given to Owner prior to the expiration of the forty-five
(45)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
--------
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right and the First Refusal Right, but the acquired shares
shall remain subject to the provisions of Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30)-day period, the First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. Partial Exercise of the First Refusal Right. In the event the
-------------------------------------------
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within fifteen (15) business days after Owner's receipt of the
Exercise Notice, to effect the sale of the Target Shares pursuant to either of
the following alternatives:
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the Corporation
did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected in
substantial conformity with the provisions of Paragraph E.3. The First
Refusal Right shall continue to be applicable to any subsequent disposition
of the remaining Target Shares until such right lapses.
Failure of Owner to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. Recapitalization/Reorganization.
-------------------------------
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.
6.
<PAGE>
7. Lapse. The First Refusal Right shall lapse upon the earliest to
----- --------
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
--------------------
1. Section 83(b) Election. Under Code Section 83, the excess of
----------------------
the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the fair market value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT III HERETO. PARTICIPANT
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-
DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE FORFEITURE
RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
---------------------
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
------------------
1. Assignment. The Corporation may assign the Repurchase Right
-----------
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more stockholders of the Corporation.
2. No Employment or Service Contract. Nothing in this Agreement
---------------------------------
or in the Plan shall confer upon Participant any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
7.
<PAGE>
3. Notices. Any notice required to be given under this
-------
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice at the
address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.
4. No Waiver. The failure of the Corporation in any instance
---------
to exercise the Repurchase Right or the First Refusal Right shall not constitute
a waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make
----------------------
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
6. Participant Undertaking. Participant hereby agrees to take
---------------------
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
7. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of ________________ without resort to
that State's conflict-of-laws rules.
8. Successors and Assigns. The provisions of this Agreement
----------------------
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
8.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:__________________________________
Title:_______________________________
Address:_____________________________
_____________________________________
_____________________________________
PARTICIPANT
Address: ____________________________
_____________________________________
9.
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _____________________ hereby sell(s), assign(s)
and transfer(s) unto Naviant Technology Solutions, Inc. (the "Corporation"),
_________________ (_____) shares of the Common Stock of the Corporation standing
in his or her name on the books of the Corporation represented by Certificate
No. ________________ herewith and do(es) hereby irrevocably constitute and
appoint ________________________ Attorney to transfer the said stock on the
books of the Corporation with full power of substitution in the premises.
Dated: _______________
Signature:______________________
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE>
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is _________
shares of the common stock of Naviant Technology Solutions, Inc.
(3) The property was issued on _________________.
(4) The taxable year in which the election is being made is the calendar year
_____________.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of installments over a _____________-
year period ending on ____________________, 200__.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $___________ per share.
(7) The amount paid for such property is $__________ per share.
(8) A copy of this statement was furnished to Naviant Technology Solutions,
Inc. for whom taxpayer rendered the services underlying the transfer of
property.
(9) This statement is executed on __________________________________.
____________________________________________ ______________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE>
EXHIBIT III
1999 STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Issuance Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean Naviant Technology Solutions, Inc., a Delaware
-----------
corporation.
G. Disposition Notice shall have the meaning assigned to such term in
------------------
Paragraph E.2.
H. Exercise Notice shall have the meaning assigned to such term in
---------------
Paragraph E.3.
I. Fair Market Value of a share of Common Stock on any relevant date
-----------------
prior to the initial public offering of the Common Stock shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
J. First Refusal Right shall mean the right granted to the Corporation in
-------------------
accordance with Article E.
K. Market Stand-Off shall mean the market stand-off restriction specified
----------------
in Paragraph C.3.
L. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by Participant, any unauthorized use or disclosure by Participant
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other
A-1
<PAGE>
intentional misconduct by Participant adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material manner.
The foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of Participant or any other person in the
Service of the Corporation (or any Parent or Subsidiary).
M. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
N. Owner shall mean Participant and all subsequent holders of the
-----
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
O. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
P. Participant shall mean the person to whom shares are issued under the
-----------
Stock Issuance Program.
Q. Permitted Transfer shall mean (i) a gratuitous transfer of the
------------------
Purchased Shares, provided and only if Participant obtains the Corporation's
--------------------
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
R. Plan shall mean the Corporation's 1999 Stock Option/Stock Issuance
----
Plan attached hereto as Exhibit III.
S. Plan Administrator shall mean either the Board or a committee of Board
------------------
members, to the extent the committee is at the time responsible for
administration of the Plan.
T. Purchase Price shall have the meaning assigned to such term in
--------------
Paragraph A.1.
U. Purchased Shares shall have the meaning assigned to such term in
----------------
Paragraph A.1.
V. Recapitalization shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration.
W. Reorganization shall mean any of the following transactions:
--------------
(i) a merger or consolidation in which the Corporation is not
the surviving entity,
A-2
<PAGE>
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
X. Repurchase Right shall mean the right granted to the Corporation in
----------------
accordance with Article D.
Y. SEC shall mean the Securities and Exchange Commission.
---
AA. Service shall mean the Participant's performance of services to the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or a consultant or independent advisor.
AB. Stock Issuance Program shall mean the Stock Issuance Program under the
----------------------
Plan.
AC. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AD. Target Shares shall have the meaning assigned to such term in
-------------
Paragraph E.2.
AE. Vesting Schedule shall mean the vesting schedule specified in
----------------
Paragraph D.3, subject to the acceleration provisions upon an Involuntary
Termination following a Corporate Transaction.
AF. Unvested Shares shall have the meaning assigned to such term in
---------------
Paragraph D.1.
A-3
<PAGE>
EXHIBIT 10.13
NAVIANT TECHNOLOGY SOLUTIONS, INC.
STOCK OPTION AGREEMENT
----------------------
RECITALS
- --------
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as
---------------
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability. This option shall be neither
-----------------------
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may be assigned in
whole or in part during Optionee's lifetime either as (i) as a gift to one or
more members of Optionee's Immediate Family, to a trust in which Optionee and/or
one or more such family members hold more than fifty percent (50%) of the
beneficial interest or an entity in which more than fifty percent (50%) of the
voting interests are owned by Optionee and/or one or more such family members,
or (ii) pursuant to a domestic relations order. The assigned portion shall be
exercisable only by the person or persons who acquire a proprietary interest in
the option pursuant to such assignment. The terms applicable to the assigned
portion shall be the same as those in effect for this option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
4. Exercisability. This option shall become exercisable for the
--------------
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall
<PAGE>
remain exercisable for the accumulated installments until the Expiration Date or
sooner termination of the option term under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2
--------------------
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any
reason (other than death, Permanent Disability or Misconduct) while this option
is outstanding, then the period for exercising this option shall be limited to a
three (3)-month period measured from the date of such cessation of Service but
in no event shall this option be exercisable at any time after the Expiration
Date.
(ii) Should Optionee die while holding this option, then
the personal representative of Optionee's estate or the person or persons to
whom the option is transferred pursuant to Optionee's will or in accordance with
the laws of descent and distribution shall have the right to exercise this
option. Such right shall lapse, and this option shall cease to be outstanding,
upon the earlier of the expiration of the twelve (12)-month period measured from
the date of Optionee's death or the Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then the period for exercising this
option shall be limited to a twelve (12)-month period measured from the date of
such cessation of Service. In no event shall this option be exercisable at any
time after the Expiration Date.
(iv) Should Optionee's Service be terminated for
Misconduct, then this option shall terminate immediately and cease to remain
outstanding.
(v) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for more than
the number of Option Shares in which Optionee is, at the time of Optionee's
cessation of Service, vested in accordance with the Vesting Schedule specified
in the Grant Notice or the special vesting acceleration provisions of Paragraph
6. Upon the expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be outstanding for any
vested Option Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's cessation
of Service, this option shall immediately terminate and cease to be outstanding
with respect to those shares.
6. Special Acceleration of Option.
------------------------------
(a) All the Option Shares subject to this option at the time of
a Corporate Transaction but not otherwise vested shall automatically vest and
the Corporation's repurchase rights with respect to those Option Shares shall
immediately terminate so that this
2.
<PAGE>
option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all of the Option Shares as fully-vested
shares of Common Stock and may be exercised for any or all of those Option
Shares. No such accelerated vesting of the Option Shares, however, shall occur
if and to the extent: (i) this option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested Option Shares are assigned to such or (ii) this
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested Option Shares at
the time of the Corporate Transaction (the excess of the Fair Market Value of
those Option Shares over the Exercise Price payable for such shares) and
provides for subsequent payout in accordance with the Vesting Schedule.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the
---------------------------
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.
9. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
3.
<PAGE>
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance with
Paragraph 14.
Should the Common Stock be registered under Section 12 of the 1934 Act
at the time the option is exercised, then the Exercise Price may also be
paid as follows:
(C) in shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date; or
(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure pursuant to
which Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable instructions to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise Price
payable for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and to the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent the sale and remittance procedure is utilized in
connection with the option exercise, payment of the Exercise Price must
accompany the Purchase Agreement delivered to the Corporation in connection
with the option exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to comply
with the applicable requirements of Federal and state securities laws.
(v) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the
4.
<PAGE>
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto. To the extent any such Option
Shares are unvested, the certificates for those Option Shares shall be endorsed
with an appropriate legend evidencing the Corporation's repurchase rights and
may be held in escrow with the Corporation until such shares vest.
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
-----------------
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.
11. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. Successors and Assigns. Except to the extent otherwise provided
----------------------
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
13. Notices. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. Financing. The Plan Administrator may, in its absolute
---------
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse,
interest-bearing promissory note secured by those
5.
<PAGE>
Option Shares. The payment schedule in effect for any such promissory note shall
be established by the Plan Administrator in its sole discretion.
15. Construction. This Agreement and the option evidenced hereby are
------------
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. Governing Law. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.
17. Stockholder Approval. If the Option Shares covered by this
--------------------
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may without stockholder approval be issued under the Plan, then this
option shall be void with respect to such excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. Additional Terms Applicable to an Incentive Option. In the event
--------------------------------------------------
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment as
an Incentive Option if (and to the extent) this option is exercised for one or
more Option Shares: more than three (3) months after the date Optionee ceases to
be an Employee for any reason other than death or Disability or more than twelve
(12) months after the date Optionee ceases to be an Employee by reason of
Permanent Disability.
(b) This option shall not become exercisable in the calendar year in
which granted if (and to the extent) the aggregate Fair Market Value (determined
at the Grant Date) of the Common Stock for which this option would otherwise
first become exercisable in such calendar year would, when added to the
aggregate value (determined as of the respective date or dates of grant) of the
Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be
6.
<PAGE>
assumed, whereupon the option shall become immediately exercisable as a Non-
Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations on
the exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
7.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean Naviant Technology Solutions, Inc., a Delaware
-----------
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Naviant Technology Solutions, Inc. which shall be
appropriate action adopt the Plan.
G. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. Exercise Date shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.
I. Exercise Price shall mean the exercise price payable per Option Share
--------------
as specified in the Grant Notice.
J. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
K. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as the price is reported by
the
A-1.
<PAGE>
National Association of Securities Dealers on the Nasdaq National Market.
If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem appropriate.
L. Grant Date shall mean the date of grant of the option as specified in
----------
the Grant Notice.
M. Grant Notice shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. Immediate Family of Optionee shall mean Optionee's child, stepchild,
----------------
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law, including adoptive relationships.
O. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
R. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
A-2.
<PAGE>
S. Option Shares shall mean the number of shares of Common Stock subject
-------------
to the option as specified in the Grant Notice.
T. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
U. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Permanent Disability shall mean the inability of Optionee to engage in
--------------------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
W. Plan shall mean the Corporation's 1999 Stock Option/Stock Issuance
----
Plan.
X. Plan Administrator shall mean either the Board or a committee of the
------------------
Board acting in its capacity as administrator of the Plan.
Y. Purchase Agreement shall mean the stock purchase agreement in
------------------
substantially the form of Exhibit B to the Grant Notice.
Z. Service shall mean Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor.
AA. Stock Exchange shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
BB. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
CC. Vesting Schedule shall mean the vesting schedule specified in the
----------------
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3.
<PAGE>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement (the "Option Agreement") by
and between Naviant Technology Solutions, Inc. (the "Corporation") and
________________________ ("Optionee") evidencing the stock option (the "Option")
granted on this date to Optionee under the terms of the Corporation's 1999 Stock
Option/Stock Issuance Plan, and such provisions shall be effective immediately.
All capitalized terms in this Addendum, to the extent not otherwise defined
herein, shall have the meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed in accordance with Paragraph 6 of the Option
Agreement, none of the Option Shares shall vest on an accelerated basis upon the
occurrence of that Corporate Transaction, and Optionee shall accordingly
continue, over his or her period of Service following the Corporate Transaction,
to vest in the Option Shares in one or more installments in accordance with the
provisions of the Option Agreement. However, upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following such Corporate
Transaction, all the Option Shares at the time subject to the Option shall
automatically vest in full on an accelerated basis so that the Option shall
immediately become exercisable for all the Option Shares as fully-vested shares
and may be exercised for any or all of those Option Shares as vested shares. The
Option shall remain so exercisable until the earlier of (i) the Expiration
-------
Date or (ii) the expiration of the one (1)-year period measured from the date of
the Involuntary Termination.
2. For purposes of this Addendum, an Involuntary Termination shall
mean the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's duties and responsibilities
or the level of management to which he or she reports, (B) a reduction in
Optionee's level of compensation (including base salary, fringe benefits
and target bonuses under any corporate-performance based incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
Optionee's place of employment by more than fifty (50) miles, provided and
only if such change, reduction or relocation is effected by the Corporation
without Optionee's consent.
<PAGE>
3. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within eighteen (18) months after the
Corporate Transaction and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement. The provisions of this Addendum shall also
supersede any provisions to the contrary in Paragraph 18 of the Option Agreement
concerning the deferred exercisability of the Option.
2.
<PAGE>
EXHIBIT 10.14
NAVIANT TECHNOLOGY SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT made as of this __ day of _________, 19__, by and between
Naviant Technology Solutions, Inc., a Delaware corporation and
_____________________________, Optionee under the Corporation's 1999 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
------------------
1. Exercise. Optionee hereby purchases ___________ shares of
--------
Common Stock (the "Purchased Shares") pursuant to that certain option (the
"Option") granted Optionee on ____________________, 199__ (the "Grant Date") to
purchase up to _______________ shares of Common Stock under the Plan at the
exercise price of $______ per share (the "Exercise Price").
2. Payment. Concurrently with the delivery of this Agreement to
-------
the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares
in accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. Escrow. The Corporation shall have the right to hold the
------
certificates representing any Purchased Shares which are subject to the
Repurchase Right in escrow.
4. Stockholder Rights. Until such time as the Corporation
------------------
exercises the Repurchase Right or the First Refusal Right, Optionee (or any
successor in interest) shall have all the rights of a stockholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
including any Purchased Shares held in escrow hereunder, subject, however, to
the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
-------------------------
1. Restricted Securities. The Purchased Shares have not been
---------------------
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act which exempts certain resales of unrestricted
securities
<PAGE>
is not presently available to exempt the resale of the Purchased Shares from the
registration requirements of the 1933 Act.
2. Restrictions on Disposition of Purchased Shares. Optionee shall
-----------------------------------------------
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:
(i) Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed
disposition.
(ii) Optionee shall have complied with all requirements
of this Agreement applicable to the disposition of the Purchased
Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that (a) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (b) all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
---
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
--
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. The stock certificates for the Purchased
-------------------
Shares shall be endorsed with the following restrictive legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not
be sold or offered for sale in the absence of (a) an effective
registration statement for the shares under such Act, (b) a 'no
action' letter of the Securities and Exchange Commission with respect
to such sale or offer or (c) satisfactory assurances to the
Corporation that registration under such Act is not required with
respect to such sale or offer."
(ii) "The shares represented by this certificate are
unvested and are subject to certain repurchase rights and rights of
first refusal granted to the Corporation and accordingly may not be
sold, assigned, transferred, encumbered, or in any manner disposed of
except in conformity with the terms of a written agreement dated
____________, 199__ between the Corporation and the registered holder
of the shares (or the predecessor in interest to the shares). A copy
of such agreement is maintained at the Corporation's principal
corporate offices."
2.
<PAGE>
C. TRANSFER RESTRICTIONS
---------------------
1. Restriction on Transfer. Except for any Permitted Transfer,
-----------------------
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. Transferee Obligations. Each person (other than the
----------------------
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off")
shall be in effect for such period of time from and after the effective date of
the final prospectus for the offering as may be requested by the Corporation or
such underwriters. In no event, however, shall such period exceed one hundred
eighty (180) days and the Market Stand-Off shall in all events terminate two (2)
years after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
------------
only if the officers and directors of the Corporation are also subject to
- -------
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation
may impose stop-transfer instructions with respect to the Purchased Shares until
the end of the applicable stand-off period.
D. REPURCHASE RIGHT
----------------
1. Grant. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the ninety (90)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price all or any portion of the
Purchased Shares in which Optionee is not, at the time of his or her cessation
of
3.
<PAGE>
Service, vested in accordance with the Vesting Schedule (such shares to be
hereinafter referred to as the "Unvested Shares").
2. Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the ninety (90)-day exercise period. The notice
shall indicate the number of Unvested Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of such notice. The certificates representing the
Unvested Shares to be repurchased shall be delivered to the Corporation prior to
the close of business on the date specified for the repurchase. Concurrently
with the receipt of such stock certificates, the Corporation shall pay to Owner,
in cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Optionee vests in accordance with the Vesting Schedule. All
Purchased Shares as to which the Repurchase Right lapses shall, however, remain
subject to (i) the First Refusal Right and (ii) the Market Stand-Off.
4. Aggregate Vesting Limitation. If the Option is exercised in more
----------------------------
than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. Recapitalization. Any new, substituted or additional securities
----------------
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
--------
same. Any securities or other property (including cash) distributed with
respect to the Purchased Shares may be held in escrow.
6. Corporate Transaction.
---------------------
(a) The Repurchase Right shall lapse immediately prior to the
consummation of the Corporate Transaction except to the extent assigned to the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
4.
<PAGE>
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payments) received in exchange for
the Purchased Shares in consummation of the Corporate Transaction, but only to
the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
--------
the aggregate purchase price shall remain the same. Any capital stock or other
property (including any cash payments) received in exchange for the Purchased
Shares may be held in escrow.
E. RIGHT OF FIRST REFUSAL
----------------------
1. Grant. The Corporation is hereby granted the right of first
-----
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the Vesting Schedule. For purposes of this Article E, the term "transfer" shall
include any sale, assignment, pledge, encumbrance or other disposition of the
Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of
------------------------------
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. Exercise of the First Refusal Right. The Corporation shall, for
-----------------------------------
a period of forty-five (45) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
forty-five (45)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than fifteen (15)
business days after delivery of the Exercise Notice; and at such time the
certificates representing the Target Shares shall be delivered to the
Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within thirty (30) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within forty-five (45) days after the Corporation's
receipt of the Disposition Notice, each shall select an appraiser of recognized
standing and the two (2) appraisers shall designate a
5.
<PAGE>
third appraiser of recognized standing, whose appraisal shall be determinative
of such value. The cost of such appraisal shall be shared equally by Owner and
the Corporation. The closing shall then be held on the later of (i) the
-----
fifteenth (15th) business day following delivery of the Exercise Notice or (ii)
the fifteenth (15th) business day after such valuation shall have been made.
4. Non-Exercise of the First Refusal Right. In the event the
---------------------------------------
Exercise Notice is not given to Owner prior to the expiration of the forty-five
(45)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
--------
disposition must not be effected in contravention of the provisions of Article B
and Paragraph C.3. The third-party offeror shall acquire the Target Shares free
and clear of the Repurchase Right and the First Refusal Right, but the acquired
shares shall remain subject to Article B and Paragraph C.3. In the event Owner
does not effect such sale or disposition of the Target Shares within the
specified thirty (30)-day period, the First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. Partial Exercise of the First Refusal Right. In the event the
-------------------------------------------
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within fifteen (15) business days after Owner's receipt of the
Exercise Notice, to effect the sale of the Target Shares pursuant to either of
the following alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph
E.3. The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such
right lapses.
Failure of Owner to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. Recapitalization/Reorganization.
-------------------------------
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
6.
<PAGE>
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.
7. Lapse. The First Refusal Right shall lapse upon the earliest to
----- --------
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
--------------------
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
------------------
1. Assignment. The Corporation may assign the Repurchase Right and/or
----------
the First Refusal Right to any person or entity selected by the Board, including
(without limitation) one or more stockholders of the Corporation.
2. No Employment or Service Contract. Nothing in this Agreement or in
---------------------------------
the Plan shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. Notices. Any notice required to be given under this Agreement shall
-------
be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other
7.
<PAGE>
address as such party may designate by ten (10) days advance written notice
under this paragraph to all other parties to this Agreement.
4. No Waiver. The failure of the Corporation in any instance to
---------
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make available,
----------------------
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
6. Optionee Undertaking. Optionee hereby agrees to take whatever
--------------------
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
7. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of _______________ without resort to that
State's conflict-of-laws rules.
8. Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
8.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:________________________________
Title:_____________________________
Address:___________________________
___________________________________
___________________________________
OPTIONEE
Address:___________________________
___________________________________
9.
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________________ hereby sell(s), assign(s) and
transfer(s) unto Naviant Technology Solutions, Inc. (the "Corporation"),
__________________ (_______) shares of the Common Stock of the Corporation
standing in his or her name on the books of the Corporation represented by
Certificate No. __________________ herewith and do(es) hereby irrevocably
constitute and appoint __________________________ Attorney to transfer the said
stock on the books of the Corporation with full power of substitution in the
premises.
Dated: _________________
Signature:_______________________________
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE>
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES
AND SECTION 83(b) TAX ELECTION
I. Federal Income Tax Consequences and Section 83(b) Election For
--------------------------------------------------------------
Exercise of Non-Statutory Option. If the Purchased Shares are acquired pursuant
- --------------------------------
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code
Section 83(b) to be taxed at the time the Purchased Shares are acquired, rather
than when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair
Market Value of the Purchased Shares on the date of the Agreement equals the
Exercise Price paid (and thus no tax is payable), the election must be made to
avoid adverse tax consequences in the future. The form for making this election
is attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. Federal Income Tax Consequences and Conditional Section 83(b) Election
----------------------------------------------------------------------
For Exercise of Incentive Option. If the Purchased Shares are acquired pursuant
- --------------------------------
to the exercise of an Incentive Option, as specified in the Grant Notice, then
the following tax principles shall be applicable to the Purchased Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (b)
the Exercise Price paid for the Purchased Shares will be includible in
Optionee's taxable income for alternative minimum tax purposes.
(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the year
of such disposition equal in amount to the excess of (a) the Fair Market
Value of the Purchased Shares on the date the Option is exercised or (if
later) on the date any forfeiture restrictions applicable to the Purchased
Shares lapse over (b) the Exercise Price paid for the Purchased Shares. Any
additional gain recognized upon the disqualifying disposition will be
either short-term or long-term capital gain depending upon the period for
which the Purchased Shares are held prior to the disposition.
<PAGE>
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right. The term "disqualifying
disposition" means any sale or other disposition /1/ of the Purchased
Shares within two (2) years after the Grant Date or within one (1) year
after the exercise date of the Option.
(v) Optionee may, in connection with the exercise of the
Option for any Purchased Shares at the time subject to forfeiture
restrictions, file a protective election under Code Section 83(b) which
would limit Optionee's alternative minimum taxable income upon exercise to
the excess of the Fair Market Value of the Purchased Shares on the date the
Option is exercised over the Exercise Price paid for the Purchased Shares.
In the absence of final Treasury Regulations relating to Incentive Options,
it is not certain whether Optionee may similarly file a protective election
under Section 83(b) which would limit Optionee's ordinary income upon a
disqualifying disposition to the excess of the Fair Market Value of the
Purchased Shares on the date the Option is exercised over the Exercise
Price paid for the Purchased Shares. Accordingly, such election if properly
filed will only be allowed to the extent the final Treasury Regulations
permit such a protective election. Page 2 of the attached form for making
the election should be filed with any election made in connection with the
exercise of an Incentive Option.
______________________
/1/ Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
II-2.
<PAGE>
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
___________ shares of the common stock of Naviant Technology Solutions,
Inc.
(3) The property was issued on ____________________.
(4) The taxable year in which the election is being made is the calendar year
______________.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of installments over a
________-year period ending on ___________, 200__.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $_____________ per share.
(7) The amount paid for such property is $__________ per share.
(8) A copy of this statement was furnished to Naviant Technology Solutions,
Inc. for whom taxpayer rendered the services underlying the transfer of
property.
(9) This statement is executed on _________________________.
_______________________________________ _______________________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE>
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Internal Revenue Code (the "Code").
Accordingly, it is the intent of the Taxpayer to utilize this election to
achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
2.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Purchase Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean Naviant Technology Solutions, Inc., a Delaware
-----------
corporation.
G. Disposition Notice shall have the meaning assigned to such term in
------------------
Paragraph E2.
H. Exercise Notice shall have the meaning assigned to such term in
---------------
Paragraph E.3.
I. Exercise Price shall have the meaning assigned to such term in
--------------
Paragraph A.1.
J. Fair Market Value of a share of Common Stock on any relevant date,
-----------------
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
K. First Refusal Right shall mean the right granted to the Corporation in
-------------------
accordance with Article E.
L. Grant Date shall have the meaning assigned to such term in Paragraph
----------
A.1.
M. Grant Notice shall mean the Notice of Grant of Stock Option pursuant
------------
to which Optionee has been informed of the basic terms of the Option.
A-1.
<PAGE>
N. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
O. Market Stand-Off shall mean the market stand-off restriction specified
----------------
in Paragraph C.3.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
person in the Service of the Corporation (or any Parent or Subsidiary).
Q. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
R. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
S. Option shall have the meaning assigned to such term in Paragraph A.1.
------
T. Option Agreement shall mean all agreements and other documents
----------------
evidencing the Option.
U. Optionee shall mean the person to whom the Option is granted under the
--------
Plan.
V. Owner shall mean Optionee and all subsequent holders of the Purchased
-----
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
W. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. Permitted Transfer shall mean (i) a gratuitous transfer of the
------------------
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
---
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. Plan shall mean the Corporation's 1999 Stock Option/Stock Issuance
----
Plan.
AA. Plan Administrator shall mean either the Board or a committee of Board
------------------
members, to the extent the committee is at the time responsible for
administration of the Plan.
A-2.
<PAGE>
AB. Prior Purchase Agreement shall have the meaning assigned to such term
------------------------
in Paragraph D.4.
AC. Purchased Shares shall have the meaning assigned to such term in
----------------
Paragraph A.1.
AD. Recapitalization shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AE. Reorganization shall mean any of the following transactions:
--------------
(i) a merger or consolidation in which the Corporation is not
the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company structure.
AF. Repurchase Right shall mean the right granted to the Corporation in
----------------
accordance with Article D.
AG. SEC shall mean the Securities and Exchange Commission.
---
AH. Service shall mean Optionee's provision of services to the Corporation
-------
(or any Parent or Subsidiary) in the capacity of an employee, subject to the
control and direction of the employer entity as to both the work to be performed
and the manner and method of performance, a non-employee member of the board of
directors or a consultant or independent advisor.
AI. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AJ. Target Shares shall have the meaning assigned to such term in
-------------
Paragraph E.2.
AK. Vesting Schedule shall mean the vesting schedule specified in the
----------------
Grant Notice, subject to the acceleration provisions upon an Involuntary
Termination following a Corporate Transaction.
A-3.
<PAGE>
AL. Unvested Shares shall have the meaning assigned to such term in
---------------
Paragraph D.1.
A-2.
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of September 15, 1999, by and between Naviant Technology Solutions, Inc., a
Delaware corporation (the "Company"), and Raymond Butkus, an individual (the
"Executive").
RECITALS
--------
WHEREAS, the Company desires to hire the Executive and the Executive
desires to become employed by the Company; and
WHEREAS, the Company and the Executive have determined that it is in
their respective best interest to enter into this Agreement on the terms and
conditions as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT TERMS AND DUTIES
---------------------------
1.1 Employment. The Company hereby employs the Executive, and the
----------
Executive hereby accepts employment by the Company, upon the terms and
conditions set forth in this Agreement.
1.2 Duties. The Executive shall serve as Senior Vice President,
------
overseeing Sales and Marketing for the Company. The Executive shall perform all
reasonable duties assigned by the President of the Company. The Company agrees
to provide Executive with Proprietary Information and specialized training
necessary to assist Executive in performing his duties under this Agreement.
During the term of his employment hereunder, the Executive shall devote his full
working time and efforts to the performance of his duties and the furtherance of
the interests of the Company and shall not be otherwise employed.
Notwithstanding the above, Executive may serve as a director or trustee of other
organizations, or engage in charitable, civic, and/or governmental activities
provided that such service and activities do not prevent Executive from
performing his duties under this Agreement and further provided that Executive
obtains written consent for all such activities from a designated committee of
the Company. As of the date of this Agreement, all such approved activities are
set forth on Exhibit 1 to this Agreement. Executive may also engage in personal
activities, including, without limitation, personal investments (subject to
Section 3.1.1), provided that such activities do not interfere with his
performance of duties hereunder.
1.3 Term. Subject to the provisions of Section 1.5 below, the
---- -----------
initial term of employment of the Executive under this Agreement shall commence
on the closing date of the Company's acquisition of IQ2.net (the "Hire Date")
and shall continue for a period of twenty-four (24) months (the "Initial Term").
This Agreement will automatically be renewed by mutual agreement of the parties
for an additional one (1) year period, unless notice of non-renewal is given to
Executive in writing by the Company at least six months prior to the expiration
of the Initial Term. (When used herein, the phrase "Employment Term" shall refer
to the Initial Term and any subsequent renewal period under this Agreement).
1.4 Compensation and Benefits.
-------------------------
1.4.1 Base Salary. In consideration of the services rendered to
-----------
the Company hereunder by the Executive and the Executive's covenants hereunder,
the Company shall, during the
1
<PAGE>
Employment Term, pay the Executive a salary at the annual rate of Two Hundred
Thousand Dollars ($200,000.00) (the "Base Salary"), less statutory deductions
and withholdings, payable in accordance with the Company's regular payroll
practices. The Base Salary shall be subject to review and modification, but any
modification will only be binding and effective if it is contained in a written
agreement, duly executed by Executive and by the designated representative of
the Company's Board of Directors.
1.4.2 Incentive Compensation. In addition to the Base Salary,
----------------------
Executive shall also be entitled to receive annual Incentive Compensation in the
event, and only in the event, the Company achieves target financial objectives
("Target") as set forth in the annual financial plan approved by the Company's
Board of Directors. Executive shall be entitled to Incentive Compensation in
accordance with the following provisions:
(i) At the conclusion of the time period from the
commencement of this Agreement until December 31, 1999, Executive shall be
entitled to receive Incentive Compensation in an amount to be determined by the
Board of Directors, in their sole discretion.
(ii) At the conclusion of the calendar year 2000,
Executive shall be entitled to receive Incentive Compensation of Eighty Thousand
Dollars ($80,000.00) in the event that the Company achieves its Target for
revenue and/or pretax objectives for calendar year 2000 as those objectives are
set forth and approved by the Board of Directors. In the event that the Company
exceeds its Target financial objectives, Executive shall be eligible to receive
additional Incentive Compensation of up to Twenty Thousand Dollars ($20,000.00)
at a rate determined by the Board of Directors. Provided, however, that in no
-----------------------------
event shall Executive be entitled to total combined Incentive Compensation for
- ------------------------------------------------------------------------------
his calendar year 2000 in excess of One Hundred Thousand Dollars ($100,000.00).
- ------------------------------------------------------------------------------
The actual Incentive Compensation amount shall be calculated based upon separate
weightings attributed to revenue objectives and pre-tax income objectives as set
forth and approved by the Board of Directors of the Company in the Company's
annual operating plan.
(iii) At the conclusion of the calendar year 2001,
Executive shall be entitled to receive Incentive Compensation of Eighty Thousand
Dollars ($80,000.00) in the event that the Company achieves its Target for
revenue and/or pretax objectives for calendar year 2001 as those objectives are
set forth and approved by the Board of Directors. In the event that the Company
exceeds its Target financial objectives, Executive shall be eligible to receive
additional Incentive Compensation of up to Twenty Thousand Dollars ($20,000.00)
at a rate determined by the Board of Directors. Provided, however, that in no
-----------------------------
event shall Executive be entitled to total combined Incentive Compensation for
- ------------------------------------------------------------------------------
his calendar year 2001 in excess of One Hundred Thousand Dollars ($100,000.00).
- ------------------------------------------------------------------------------
The actual Incentive Compensation amount shall be calculated based upon separate
weightings attributed to revenue objectives and pre-tax income objectives as set
forth and approved by the Board of Directors of the Company in the Company's
annual operating plan.
1.4.3 Benefits Package. In addition to the Base Salary,
----------------
during the Employment Term, the Executive shall be entitled to receive such
employee benefits and holidays as may be in effect from time to time as are
afforded to other executives of the Company
1.4.4 Vacation. The Executive shall be entitled to four (4)
--------
weeks' vacation each year of employment.
1.4.5 Expenses. The Company shall, upon receipt from the
--------
Executive of supporting receipts to the extent required by applicable income tax
regulations and the Company's
2
<PAGE>
reimbursement policies, reimburse the Executive for all out-of-pocket business
expenses reasonably incurred by the Executive in connection with his employment
hereunder.
1.4.6 Stock Option. The Executive will be entitled to
------------
participate in the Company's Stock Option Plan at the discretion of the
Company's Board of Directors upon the terms and conditions set forth in the
stock option agreement to be executed separately from this Agreement.
1.5 Termination. The Executive's employment and this Agreement
-----------
(except as otherwise provided hereunder) shall terminate upon the occurrence of
any of the following, at the time set forth therefor (the "Termination Date"):
1.5.1 Death or Disability. Immediately upon the death of the
-------------------
Executive or the determination by the Company that the Executive has ceased to
be able to perform the essential functions of his duties, with or without
reasonable accommodation, for a period of not less than ninety (90) days, due to
a mental or physical illness or incapacity ("Disability") (termination pursuant
to this Section 1.5.1 being referred to herein as termination for "Death or
-------------
Disability"); or
1.5.2 Voluntary Termination. Thirty (30) days following the
---------------------
Executive's written notice to the Company of termination of employment;
provided, however, that the Company may waive all or a portion of the thirty
- --------- -------
(30) days' notice and accelerate the effective date of such termination (and the
Termination Date) (termination pursuant to this Section 1.5.2 being referred to
-------------
herein as "Voluntary" termination); or
1.5.3 Termination For Cause. Immediately following notice of
---------------------
termination for "Cause" (as defined below), specifying such Cause, given by the
Company (termination pursuant to this Section 1.5.3 being referred to herein as
-------------
termination for "Cause"). As used herein, "Cause" means termination based on
(i) the Executive's material breach of this Agreement after receiving written
notification from the Company and following a reasonable cure period, (ii) the
Executive's conviction or plea of "guilty" or "no contest" to (x) any crime
constituting a felony in the jurisdiction in which committed, (y) any crime
involving moral turpitude (whether or not a felony), or (z) any other violation
of criminal law involving dishonesty or willful misconduct that materially
injures the Company (whether or not a felony), (iii) substance abuse by the
Executive that in any manner materially interferes with the performance of his
duties under this Agreement, (iv) the failure or refusal of the Executive to
follow the lawful and proper directives of the Company that are within the scope
of the Executive's duties set forth in Section 1.2 above and that is not
-----------
corrected within fifteen (15) days after written notice from the Company to the
Executive identifying such failure or refusal, (v) willful malfeasance or gross
misconduct by the Executive that discredits or damages the Company including,
without limitation, any breach of his obligations under Section 2 or Section 3
--------- ---------
below, (vi) indictment of the Executive for a felony violation of the federal
securities laws, (vii) the Executive's chronic absence from work for reasons
other than illness, or (viii) material sub-par performance (as determined by the
Board of Directors of the Company) by Executive of Executive's duties (provided
that, under this part (viii), Executive shall be entitled to a one-time ninety
--------
(90) day period in which to improve his material sub-par performance; in the
event that the Company chooses not to terminate Executive's employment after
such 90-day period, the Company may elect at any time in the future to terminate
the Executive's employment in accordance with this provision without further
notice to Executive or grant of time to improve his performance); or
1.5.4 Termination Without Cause. Thirty (30) days following
-------------------------
notice of termination without Cause given by the Company; provided, however,
--------- -------
that during any such thirty (30) day notice period, the Company may suspend,
with no reduction in pay or benefits, the Executive from his duties as set forth
herein (including, without limitation, the Executive's position as a
representative
3
<PAGE>
and agent of the Company) (termination pursuant to this Section 1.5.4 being
-------------
referred to herein as termination "Without Cause").
1.5.5 Other Remedies. Termination pursuant to Section 1.5.3
-------------- -------------
above shall be in addition to and without prejudice to any other right or remedy
to which the Company may be entitled at law, in equity, or under this Agreement.
1.6 Severance and Termination.
-------------------------
1.6.1 Voluntary Termination, Termination for Cause,
---------------------------------------------
Termination for Death or Disability. In the case of a termination of
- -----------------------------------
Executive's employment hereunder for Death or Disability in accordance with
Section 1.5.1 above, or Executive's Voluntary termination of employment
- -------------
hereunder in accordance with Section 1.5.2 above, or a termination of the
-------------
Executive's employment hereunder for Cause in accordance with Section 1.5.3
-------------
above, (i) the Executive shall not be entitled to receive payment of, and the
Company shall have no obligation to pay, any severance or similar compensation
attributable to such termination, other than Base Salary earned but unpaid,
accrued but unused vacation to the extent allowed by the Company's policies,
vested benefits under any employee benefit plan, and any unreimbursed expenses
pursuant to Section 1.4.5 hereof incurred by the Executive as of the termination
-------------
date, and (ii) the Company's obligations under this Agreement shall immediately
cease.
1.6.2 Termination Without Cause; Non-Renewal. In the case of a
--------------------------------------
termination of the Executive's employment hereunder Without Cause in accordance
with Section 1.5.4 above, the Company shall pay the Executive Twelve (12)
-------------
months' salary (hereinafter the "Severance Payment"), payable at the times and
subject to the tax withholding specified in Section 1.4.1 above. The Company's
-------------
obligation to pay and the Executive's right to receive the Severance Payment
shall cease in the event of the Executive's breach of his obligations under
Section 2 or Section 3 below. It is expressly acknowledged that the provisions
- --------- ---------
of this Section 1.6.2 have the effect, in some or all cases of termination of
-------------
the Executive's employment, of eliminating or reducing compensation (salary,
bonuses, and/or benefits) which would have been paid or available had
Executive's employment not been terminated.
1.7 Offset Against Severance. During the period in which the
------------------------
Executive is receiving Severance Payments from the Company (the "Severance
Period"), such Severance Payments to be provided to the Executive shall be
reduced on a dollar-for-dollar basis by any wages actually received by the
Executive during the Severance Period for full-time employment. The Executive
promises and agrees to promptly advise the Company of the amount and source of
any wages received by him.
2. CONFIDENTIAL INFORMATION - NON-DISCLOSURE
-----------------------------------------
2.1 Recognition of the Company's Rights: Nondisclosure. Executive
--------------------------------------------------
understands that the Company possesses Proprietary Information, which the
Company agrees to disclose to Executive for the purpose of performing his duties
under this Agreement.
2.1.1 "Proprietary Information" shall mean Information (as
defined below) of value to the Company that is created, invented, developed,
prepared, conceived, reduced to practice, made, suggested, discovered, received,
or learned by the Company including, for example, but not limited to, any trade
secret, know-how, show-how and other proprietary information, irrespective of
(a) whether in tangible or non-tangible form, (b) whether patentable or
copyrighted or subject to confidentiality, (c) its media, (d) whether solely or
jointly created, invented, developed, prepared, conceived, reduced to practice,
made, suggested, discovered, received, or learned by Executive and/or one or
more other persons, or (e) whether created, invented, developed, prepared,
conceived, reduced to practice, made,
4
<PAGE>
suggested, discovered, received, or learned before, during, or after the term of
this Agreement. Proprietary Information does not include Information (as defined
below) that Executive develops entirely on his own time without using the
Company's equipment, supplies, facilities, Proprietary Information, or trade
secret information except for such Information that either relates at the time
of conception or reduction to practice of the Information to the Company's
business, or actual or demonstrably anticipated research or development of the
Company, or results from any work performed by the Executive for the Company.
2.1.2 "Information" shall mean any list, schematic, diagram,
circuitry, technology, inventory, invention, idea, discovery, improvement,
design, concept, technique, algorithm, formula, method, process, configuration,
tooling, mechanism, manufacture, assembly, installation, model, apparatus,
product, device, system, network, data, plan, library, work of authorship, file,
media, record, report, copy, pictorial work, graphic work, audiovisual work,
hardware, firmware, computer interface (including for example but not limited to
programming interfaces), computer language, computer protocol, computer software
program or application (irrespective of whether source code or object code),
flow chart, blueprint, drawing, photograph, chart, graph, notebook, book,
computer disk, tape, storage media, printout, sound recording, note, memorandum,
specification, paper, document (irrespective of whether printed, typewritten,
handwritten or otherwise), information, material, account, business plan,
business operation, business method, business practice, business strategy,
research, development, marketing, revenue, sale, forecast, budget, finance,
license, price, cost, salary, compensation, knowledge about suppliers, knowledge
about available skills, and knowledge about actual and/or prospective employees,
clients, and/or customers (including for example but not limited to their names,
addresses, and telephone numbers).
2.1.3 "Non-party Information" shall mean Information
discovered, received, or learned by the Company from non-parties with respect to
which the Company is subject to a duty to maintain confidentiality or to use
only for certain limited purposes.
2.2 The Executive Covenant. In consideration of the Company's
----------------------
entering into this Agreement, providing Executive with Proprietary Information,
and providing the Base Salary, opportunities for Incentive Compensation, Stock
Options, and other benefits to the Executive, the receipt and sufficiency of
which are hereby acknowledged by the Executive, the Executive covenants as
follows:
2.2.1 Non-Disclosure of Proprietary Information and Non-Party
-------------------------------------------------------
Information. At all times during the term of this Agreement and thereafter,
- -----------
Executive shall hold all Proprietary Information and Non-party Information in
strictest trust and confidence and shall neither disclose (to anyone other than
the Company personnel having a need to know such Information in connection with
their activities for the Company) nor use (except insofar as required by
Executive's activities for the Company under this Agreement) any Proprietary
Information or any Non-party Information, unless: (a) Executive is expressly
authorized in writing to the contrary by a duly authorized officer of the
Company; (b) absent breach or violation of this Agreement, such Information is
or becomes generally known to the public or available to the public, as
evidenced by a printed publication or other equally conclusive evidence; (c)
absent breach or violation of this Agreement, such Information is rightfully
received absent any confidentiality obligation by Executive from a non-party
outside of the Company, as evidenced by a dated and witnessed writing prepared
in the normal course of business or other equally conclusive evidence; or (d) is
required to be disclosed pursuant to a valid order by a court or other
governmental body or otherwise required by law, provided that Executive informs
the Company immediately upon Executive's receipt of notice, in any form, that
disclosure pursuant to this section may be required so that the Company may
oppose any compelled disclosure of its Proprietary Information. Executive
further agrees not to disclose any Proprietary Information pursuant to this
section unless and
5
<PAGE>
until he is informed that the Company will not oppose such disclosure or that
the Company's attempt to oppose such disclosure has been denied.
2.2.2 Trade Secrets. All trade secrets of the Company will be
-------------
entitled to all of the protection and benefits under all applicable federal and
state trade secrets law. If any information that the Company deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless, be
considered Proprietary Information for purposes of this Agreement. The Executive
hereby waives any requirement that the Company submit proof of the economic
value of any trade secret or post a bond or other security.
2.3 Assignment of Inventions.
------------------------
2.3.1 Definitions.
-----------
(i) "Moral Rights" shall mean (a) any right of
paternity or integrity, (b) any right to claim authorship or require authorship
identification, (c) any right to object to distortion, mutilation, or other
modification of, or other derogatory action in relation to, a work of
authorship, and (d) any similar right existing under judicial or statutory law
of any country or under any treaty, irrespective of whether such right is
generally referred to as a "moral right."
(ii) "Proprietary Right" shall mean any patent, trade
secret, confidentiality protection, know-how right, show-how right, mask work
right, copyright (e.g., including but not limited to any Moral Right), and any
other intellectual property protection and intangible interests and legal rights
of exclusion, of any and all countries, including for example but not limited to
(a) any person's publicity or privacy right, (b) any utility model or
application therefor, (c) any industrial model or application therefor, (d) any
certificate of invention or application therefor, (e) any application for
patent, including, for example, but not limited to, any provisional, divisional,
reissue, reexamination or continuation application, (f) any substitute, renewal
or extension of any such application, and (g) any right of priority resulting
from the filing of any such application.
(iii) "The Company Inventions" shall mean (a) any and
all Proprietary Information that is created, invented, developed, prepared,
conceived, reduced to practice, made, suggested, discovered, received, or
learned by Executive, either alone or jointly with one or more other persons,
during the term of this Agreement, and (b) any and all Proprietary Rights that
may be available in such Proprietary Information or result therefrom.
(iv) Executive may develop and/or review business
plans, provided (a) he does so entirely on his own time and without using the
Company's equipment, supplies, facilities, Proprietary Information, or trade
secret information, and (b) that any such business plans do not conflict with
any of Executive's obligations under Section 3. Business plans developed or
reviewed by Executive in a manner consistent with this Section shall be excluded
from the definition of Company Inventions.
2.3.2 Executive's Covenant. Executive does hereby, without
--------------------
reservation, irrevocably:
(i) sell, assign, grant, transfer, and convey to the
Company (and the Company's successors and assigns): Executive's entire right,
title, and interest (present and future and throughout the world) in and to all
Company Inventions; provided however that, to the extent that any one or more of
the Company Inventions includes a work of authorship created by Executive
(solely or jointly with others), each such work of authorship shall
automatically be deemed to be created as a "work made
6
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for hire" (as that term is defined in the United States Copyright Act (17 U.S.C.
Section (S) 101)) that is owned solely by the Company (as between Executive and
the Company);
(ii) acknowledge and agree that, as between the
Company and Executive, (i) all the Company Inventions shall be the sole and
exclusive property of the Company, its successors and assigns, and (ii) the
Company, its successors and assigns shall be the sole and exclusive owner of all
the Company Inventions throughout the world;
(iii) waive and quitclaim to the Company any and all
claims, of any nature whatsoever, that Executive has now or may hereafter have
for infringement or violation of any one or more of the Company Inventions;
(iv) consent to any and all use of names,
likenesses, voices, and similar aspects of all the Company Inventions or related
to or associated with all the Company Inventions;
(v) authorize the Company (and its successors,
assigns, nominees, representatives, and designees) to apply (in the Company's
own name) for any and all patents (and similar non-U.S. rights) that may be
available in (or result from) all the Company Inventions, and to claim any and
all rights of priority without further authorization from Executive so that such
patents issue in the name of the Company (or its successors or assigns);
(vi) represent, warrant, and covenant that Executive
shall never assert any Moral Right in any one or more of the Company Inventions;
(vii) forever waive all Moral Rights in the Company
Inventions;
(viii) represent, warrant, and covenant that
Executive shall disclose and deliver, fully and in writing, to the Company, each
and every Company Invention promptly after such Company Invention is created,
invented, developed, prepared, conceived, reduced to practice, made, suggested,
discovered, received, or learned by Executive; and
(ix) represent, warrant, and covenant that
Executive shall (at the request of the Company, or any of its successors,
assigns, nominees, representatives, or designees) in every proper way cooperate
and do everything (at the Company's sole expense for Executive's reasonable
actual costs, but without additional charge to the Company) that the Company (or
any one or more of its successors, assigns, nominees, representatives, or
designees) may reasonably consider necessary or appropriate to assist the
Company (and its successors, assigns, nominees, representatives, and designees)
to prepare and make filings in any and all countries to apply for, prosecute,
register, evidence, defend, obtain, hold, secure, vest title to, protect,
perfect, maintain, uphold, and enforce any and all Proprietary Rights that may
be available in (or result from) the Company Inventions, including for example
but not limited to: communicating to the Company (and its successors, assigns,
nominees, representatives, and designees) any Information relating to conception
or reduction to practice or prosecution of any one or more of such Proprietary
Rights; testifying and rendering prompt assistance and cooperation in any and
all legal proceedings (e.g., including but not limited to any opposition,
cancellation proceeding, interference proceeding, priority contest, public use
proceeding, reexamination proceeding, and court proceeding) involving any one or
more of such Proprietary Rights; and executing, verifying and delivering any and
all assignments, oaths, declarations, powers of attorney, and other instruments
and documents. If Executive fails or refuses to execute any such assignment,
oath, declaration, power of attorney, instrument, or document, Executive hereby
designates and appoints the Company (and its successors and assigns) as
Executive's true and lawful agent and attorney-in-fact (such agency and power of
attorney being irrevocable by Executive and coupled with an interest in favor of
the Company and its
7
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successors and assigns), with full power of substitution, to act for Executive
and in Executive's behalf to do any lawfully permitted act in furtherance of the
purposes of the immediately preceding sentence (e.g., including but not limited
to executing, verifying, and filing such assignments, oaths, declarations,
powers of attorney, and other instruments and documents) in Executive's name and
stead and on behalf of and for the benefit of the Company and its successors and
assigns, with the same legal force and effect as if Executive performed such
act, irrespective of whether in Executive's name or the Company's name or
otherwise.
3. NON-COMPETITION AND NON-INTERFERENCE
------------------------------------
3.1 Covenant of the Executive. In consideration of the Company's
-------------------------
entering into this Agreement, providing Executive with Proprietary Information
and specialized training, providing the Base Salary, opportunities for Incentive
Compensation, the Option, and other benefits to the Executive, the receipt and
sufficiency of which are hereby acknowledged by Executive, the Executive
covenants as follows:
3.1.1 Non-Competition. Executive hereby agrees that during
---------------
the Employment Term and for a period of one (1) year following the Termination
Date, for any reason, Executive will not, directly or indirectly (i) engage in
Restricted Activities in the Commonwealth of Pennsylvania or in any other State
of the United States, or in any other country in the world, where the Company
engages in business, or proposes to engage in business on the Termination Date,
or (ii) participate in the ownership, management, operation, financing, or
control of, or be employed by or consult for or otherwise render services to, a
Restricted Business located in the Commonwealth of Pennsylvania or in any other
State of the United States or in any other country in the world, where the
Company conducts or proposes to conduct business on the Termination Date.
Notwithstanding the foregoing, Executive is permitted to own up to 5% of any
class of securities of any corporation which is traded on a national securities
exchange or through Nasdaq.
(i) Restricted Activities shall mean shall mean (A)
the Company's business as of the date of termination and/or (B) designing,
developing, manufacturing, marketing, or selling products or services which
directly compete with business, products and/or services of the Company and/or
its subsidiaries as of the Termination Date. Provided, however, that restricted
Activities shall not include any activities for which Executive has obtained
prior written approval from the Company to engage in.
(ii) Restricted Business shall mean any person,
corporation, firm, company (or a division or group thereof), partnership,
proprietorship, or other business entity which engages in Restricted Activities.
3.1.2 No Diversion of Others. During the Employment Term and
----------------------
for a period of one (1) year following the Termination Date, for any reason, the
Executive shall not, either for himself or for any other person, firm,
corporation, or other entity, directly or indirectly, or by action in concert
with others:
(i) individually or on behalf of any other person,
corporation, firm, or other entity, solicit or encourage any employee of the
Company or any subsidiary or affiliate of the Company to terminate his or her
employment with the Company or such subsidiary or affiliate, without the express
prior written consent of the Company;
(ii) take away or attempt to take away, or solicit or
attempt to solicit, any existing or Potential Customer (defined below) of the
Company (whether or not such customer is
8
<PAGE>
actually a customer of the Company as of the date hereof, including without
limitation any customer solicited by the Executive or which became known by the
Executive prior to the date hereof) with the purpose of obtaining such person as
an employee or customer for a business competitive with the Company's business.
For purposes of this Section, Potential Customer means any company or entity
actually solicited by the Company as of the Termination Date.
For purposes of this Agreement, "affiliate" shall mean a
corporation or other legal entity in common control with the Company.
3.1.3 Organizing Competitive Business. Without limiting any of the
-------------------------------
other provisions contained in this Section 3, during the Employment Term and any
---------
period during which Executive receives any Severance Payment, the Executive
shall not undertake planning for or organization of any business activity
competitive with the business of the Company, or conspire with agents,
employees, consultants, or other representatives of the Company for the purpose
of organizing any such competitive business activity.
4. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
---------------------------------------
The Executive acknowledges and agrees that any breach of the
terms of Sections 2 or 3 above would result in irreparable injury and damage to
the Company for which the Company would have no adequate remedy at law; the
Executive therefore also acknowledges and agrees that in the event of such
breach or any threat of breach, the Company shall be entitled to an immediate
injunction and restraining order to prevent such breach and/or threatened breach
and/or continued breach by the Executive and/or any and all persons and/or
entities acting for and/or with the Executive, without having to prove damages,
in addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Executive.
5. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE
----------------------------------------------
The Executive represents and warrants to the Company that (i)
this Agreement is valid and binding upon and enforceable against him in
accordance with its terms, (ii) the Executive is not bound by or subject to any
contractual or other obligation that would be violated by his execution or
performance of this Agreement, including, but not limited to, any non-
competition agreement presently in effect, and (iii) the Executive is not
subject to any pending or, to the Executive's knowledge, threatened claim,
action, judgment, order, or investigation that could adversely affect his
ability to perform his obligations under this Agreement or the business
reputation of the Company.
6. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS
------------------------------------------
Sections 1.7, 2 and 3 above shall survive any termination of this
---------------------
Agreement and continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of each party. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of Sections 2 and 3
---------- -
above.
7. MISCELLANEOUS
-------------
7.1 Notices. All notices, requests, and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or
9
<PAGE>
by facsimile transmission with answer back confirmation or mailed (postage
prepaid by certified or registered mail, return receipt requested) or by
overnight courier to the parties at the following addresses or facsimile
numbers:
If to the Executive, to:
Raymond Butkus
18 Pine Terrace, East
Shore Hills, New Jersey 07078
If to the Company, to:
Chairman, Board of Directors
Naviant Technology Solutions, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 7.1, be deemed given upon
-----------
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 7.1, be deemed given upon receipt, and (iii) if
-----------
delivered by mail in the manner described above to the address as provided in
this Section 7.1, be deemed given upon receipt (in each case regardless of
-----------
whether such notice, request, or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number, or other information for the purpose of notices to
that parry by giving written notice specifying such change to the other parties
hereto.
7.2 Obligations Contingent on Performance. The obligations of the
-------------------------------------
Company hereunder, including its obligation to pay the compensation provided for
herein, are contingent upon the Employee's performance of his obligations
hereunder.
7.3 Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements among the parties with respect to the subject matter
hereof and contain the sole and entire agreement between the parties hereto with
respect thereto.
7.4 Waiver. Any term or condition of this Agreement may be waived at
------
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party hereto of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by law or otherwise afforded, will be cumulative
and not alternative.
7.5 Amendment. This Agreement may be amended, supplemented, or
---------
modified only by a written instrument duly executed by or on behalf of each
party hereto.
7.6 No Third Party Beneficiary. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto and the
Company's successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person.
10
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7.7 No Assignment; Binding Effect. This Agreement shall inure to the
-----------------------------
benefit of any successors or assigns of the Company. The Executive shall not be
entitled to assign his obligations under this Agreement.
7.8 Headings. The headings used in this Agreement have been inserted
--------
for convenience of reference only and do not define or limit the provisions
hereof.
7.9 Severability. The Company and the Executive intend all
------------
provisions of this Agreement to be enforced to the fullest extent permitted by
law. Accordingly, if a court of competent jurisdiction determines that the scope
and/or operation of any provision of this Agreement is too broad to be enforced
as written, the Company and the Executive intend that the court should reform
such provision to such narrower scope and/or operation as it determines to be
enforceable. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, and not subject to
reformation, then (i) such provision shall be fully severable, (ii) this
Agreement shall be construed and enforced as if such provision was never a part
of this Agreement, and (iii) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by illegal, invalid,
or unenforceable provisions or by their severance.
7.10 Binding Arbitration. Subject to the exceptions set forth below,
-------------------
the Executive and the Company agree that any and all claims or disputes between
them, or between Executive and any of the Company's employees, which arise out
of Executive's employment or under the terms of Executive's employment, shall be
resolved through final and binding arbitration, as specified herein. This shall
include, without limitation, disputes relating to this Agreement, Executive's
employment by the Company or the termination thereof, claims for breach of
contract or breach of the covenant of good faith and fair dealing, and any
claims of discrimination or other claims under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Pennsylvania Human Relations Act, the Employee Retirement
Income Securities Act, the Racketeer Influenced and Corrupt Organizations Act,
or any other federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of Executive's employment with the Company or its termination. The only
claims or disputes not covered by this paragraph are disputes related to (i)
claims for benefits under the unemployment insurance or workers' compensation
laws, and (ii) issues affecting the validity, infringement or enforceability of
any trade secret or patent rights held or sought by the Company or which the
Company could otherwise seek; in both of the foregoing cases such claims or
disputes shall not be subject to arbitration and will be resolved pursuant to
applicable law. Binding arbitration will be conducted in accordance with the
rules and regulations of the American Arbitration Association (AAA). Each party
will split the cost of the arbitration filing and hearing fees, and the cost of
the arbitrator; each side will bear its own attorneys' fees; that is, the
arbitrator will not have authority to award attorneys' fees unless a statutory
------
section at issue in the dispute authorizes the award of attorneys' fees to the
prevailing party, in which case the arbitrator has authority to make such award
as permitted by the statute in question. Executive and the Company understand
and agree that the arbitration shall be instead of any jury trial and that the
arbitrator's decision shall be final and binding to the fullest extent permitted
by law and enforceable by any court having jurisdiction thereof.
7.11 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts executed and performed in such Commonwealth without giving effect to
conflicts of laws principles.
11
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7.12 Jurisdiction. With respect to any suit, action, or other
------------
proceeding arising from (or relating to) this Agreement and which is not subject
to the provisions of Section 7.10 herein, the Company and the Executive hereby
------------
irrevocably agree to the non-exclusive personal jurisdiction and venue of the
United States District Court for the Eastern District of Pennsylvania (and any
Pennsylvania State Court within Delaware County, Pennsylvania).
7.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date first written above.
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
Date:_____________________________
EXECUTIVE
__________________________________
Raymond Butkus
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<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of September 15, 1999, by and between Naviant Technology Solutions, Inc., a
Delaware corporation (the "Company"), and James Flynn, an individual (the
"Executive").
RECITALS
--------
WHEREAS, the Company desires to hire the Executive and the Executive
desires to become employed by the Company; and
WHEREAS, the Company and the Executive have determined that it is in
their respective best interest to enter into this Agreement on the terms and
conditions as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT TERMS AND DUTIES
---------------------------
1.1 Employment. The Company hereby employs the Executive, and the
----------
Executive hereby accepts employment by the Company, upon the terms and
conditions set forth in this Agreement.
1.2 Duties. The Executive shall serve as Senior Vice President,
------
overseeing Operations for the Company. The Executive shall perform all
reasonable duties assigned by the President of the Company. The Company agrees
to provide Executive with Proprietary Information and specialized training
necessary to assist Executive in performing his duties under this Agreement.
During the term of his employment hereunder, the Executive shall devote his full
working time and efforts to the performance of his duties and the furtherance of
the interests of the Company and shall not be otherwise employed.
Notwithstanding the above, Executive may serve as a director or trustee of other
organizations, or engage in charitable, civic, and/or governmental activities
provided that such service and activities do not prevent Executive from
performing his duties under this Agreement and further provided that Executive
obtains written consent for all such activities from a designated committee of
the Company. As of the date of this Agreement, all such approved activities are
set forth on Exhibit 1 to this Agreement. Executive may also engage in personal
activities, including, without limitation, personal investments (subject to
Section 3.1.1), provided that such activities do not interfere with his
performance of duties hereunder.
1.3 Term. Subject to the provisions of Section 1.5 below, the
---- -----------
initial term of employment of the Executive under this Agreement shall commence
on the closing date of the Company's acquisition of IQ2.net (the "Hire Date")
and shall continue for a period of twenty-four (24) months (the "Initial Term").
This Agreement will automatically be renewed by mutual agreement of the parties
for an additional one (1) year period, unless notice of non-renewal is given to
Executive in writing by the Company at least six months prior to the expiration
of the Initial Term. (When used herein, the phrase "Employment Term" shall refer
to the Initial Term and any subsequent renewal period under this Agreement).
1.4 Compensation and Benefits.
-------------------------
1.4.1 Base Salary. In consideration of the services rendered to
-----------
the Company hereunder by the Executive and the Executive's covenants hereunder,
the Company shall, during the
1
<PAGE>
Employment Term, pay the Executive a salary at the annual rate of Two Hundred
Thousand Dollars ($200,000.00) (the "Base Salary"), less statutory deductions
and withholdings, payable in accordance with the Company's regular payroll
practices. The Base Salary shall be subject to review and modification, but any
modification will only be binding and effective if it is contained in a written
agreement, duly executed by Executive and by the designated representative of
the Company's Board of Directors.
1.4.2 Incentive Compensation. In addition to the Base Salary,
----------------------
Executive shall also be entitled to receive annual Incentive Compensation in the
event, and only in the event, the Company achieves target financial objectives
("Target") as set forth in the annual financial plan approved by the Company's
Board of Directors. Executive shall be entitled to Incentive Compensation in
accordance with the following provisions:
(i) At the conclusion of the time period from the commencement of
this Agreement until December 31, 1999, Executive shall be entitled to receive
Incentive Compensation in an amount to be determined by the Board of Directors,
in their sole discretion.
(ii) At the conclusion of the calendar year 2000, Executive shall
be entitled to receive Incentive Compensation of Eighty Thousand Dollars
($80,000.00) in the event that the Company achieves its Target for revenue
and/or pretax objectives for calendar year 2000 as those objectives are set
forth and approved by the Board of Directors. In the event that the Company
exceeds its Target financial objectives, Executive shall be eligible to receive
additional Incentive Compensation of up to Twenty Thousand Dollars ($20,000.00)
at a rate determined by the Board of Directors. Provided, however, that in no
-----------------------------
event shall Executive be entitled to total combined Incentive Compensation for
- ------------------------------------------------------------------------------
his calendar year 2000 in excess of One Hundred Thousand Dollars ($100,000.00).
- ------------------------------------------------------------------------------
The actual Incentive Compensation amount shall be calculated based upon separate
weightings attributed to revenue objectives and pre-tax income objectives as set
forth and approved by the Board of Directors of the Company in the Company's
annual operating plan.
(iii) At the conclusion of the calendar year 2001, Executive
shall be entitled to receive Incentive Compensation of Eighty Thousand Dollars
($80,000.00) in the event that the Company achieves its Target for revenue
and/or pretax objectives for calendar year 2001 as those objectives are set
forth and approved by the Board of Directors. In the event that the Company
exceeds its Target financial objectives, Executive shall be eligible to receive
additional Incentive Compensation of up to Twenty Thousand Dollars ($20,000.00)
at a rate determined by the Board of Directors. Provided, however, that in no
-----------------------------
event shall Executive be entitled to total combined Incentive Compensation for
- ------------------------------------------------------------------------------
his calendar year 2001 in excess of One Hundred Thousand Dollars ($100,000.00).
- ------------------------------------------------------------------------------
The actual Incentive Compensation amount shall be calculated based upon separate
weightings attributed to revenue objectives and pre-tax income objectives as set
forth and approved by the Board of Directors of the Company in the Company's
annual operating plan.
1.4.3 Benefits Package. In addition to the Base Salary, during
----------------
the Employment Term, the Executive shall be entitled to receive such employee
benefits and holidays as may be in effect from time to time as are afforded to
other executives of the Company
1.4.4 Vacation. The Executive shall be entitled to four (4)
--------
weeks' vacation each year of employment.
1.4.5 Expenses. The Company shall, upon receipt from the Executive of
--------
supporting receipts to the extent required by applicable income tax regulations
and the Company's
2
<PAGE>
reimbursement policies, reimburse the Executive for all out-of-pocket business
expenses reasonably incurred by the Executive in connection with his employment
hereunder.
1.4.6 Stock Option. The Executive will be entitled to participate
------------
in the Company's Stock Option Plan at the discretion of the Company's Board of
Directors upon the terms and conditions set forth in the stock option agreement
to be executed separately from this Agreement.
1.5 Termination. The Executive's employment and this Agreement (except as
-----------
otherwise provided hereunder) shall terminate upon the occurrence of any of the
following, at the time set forth therefor (the "Termination Date"):
1.5.1 Death or Disability. Immediately upon the death of the
-------------------
Executive or the determination by the Company that the Executive has ceased to
be able to perform the essential functions of his duties, with or without
reasonable accommodation, for a period of not less than ninety (90) days, due to
a mental or physical illness or incapacity ("Disability") (termination pursuant
to this Section 1.5.1 being referred to herein as termination for "Death or
-------------
Disability"); or
1.5.2 Voluntary Termination. Thirty (30) days following the
---------------------
Executive's written notice to the Company of termination of employment;
provided, however, that the Company may waive all or a portion of the thirty
- --------- -------
(30) days' notice and accelerate the effective date of such termination (and the
Termination Date) (termination pursuant to this Section 1.5.2 being referred to
-------------
herein as "Voluntary" termination); or
1.5.3 Termination For Cause. Immediately following notice of
---------------------
termination for "Cause" (as defined below), specifying such Cause, given by the
Company (termination pursuant to this Section 1.5.3 being referred to herein as
-------------
termination for "Cause"). As used herein, "Cause" means termination based on
(i) the Executive's material breach of this Agreement after receiving written
notification from the Company and following a reasonable cure period, (ii) the
Executive's conviction or plea of "guilty" or "no contest" to (x) any crime
constituting a felony in the jurisdiction in which committed, (y) any crime
involving moral turpitude (whether or not a felony), or (z) any other violation
of criminal law involving dishonesty or willful misconduct that materially
injures the Company (whether or not a felony), (iii) substance abuse by the
Executive that in any manner materially interferes with the performance of his
duties under this Agreement, (iv) the failure or refusal of the Executive to
follow the lawful and proper directives of the Company that are within the scope
of thc Executive's duties set forth in Section 1.2 above and that is not
-----------
corrected within fifteen (15) days after written notice from the Company to the
Executive identifying such failure or refusal, (v) willful malfeasance or gross
misconduct by the Executive that discredits or damages the Company including,
without limitation, any breach of his obligations under Section 2 or Section 3
--------- ---------
below, (vi) indictment of the Executive for a felony violation of the federal
securities laws, (vii) the Executive's chronic absence from work for reasons
other than illness, or (viii) material sub-par performance (as determined by the
Board of Directors of the Company) by Executive of Executive's duties (provided
that, under this part (viii), Executive shall be entitled to a one-time ninety
--------
(90) day period in which to improve his material sub-par performance; in the
event that the Company chooses not to terminate Executive's employment after
such 90-day period, the Company may elect at any time in the future to terminate
the Executive's employment in accordance with this provision without further
notice to Executive or grant of time to improve his performance); or
1.5.4 Termination Without Cause. Thirty (30) days following
-------------------------
notice of termination without Cause given by the Company; provided, however,
--------- -------
that during any such thirty (30) day notice period, the Company may suspend,
with no reduction in pay or benefits, the Executive from his duties as set forth
herein (including, without limitation, the Executive's position as a
representative
3
<PAGE>
and agent of the Company) (termination pursuant to this Section 1.5.4 being
-------------
referred to herein as termination "Without Cause").
1.5.5 Other Remedies. Termination pursuant to Section 1.5.3 above
-------------- -------------
shall be in addition to and without prejudice to any other right or remedy to
which the Company may be entitled at law, in equity, or under this Agreement.
1.6 Severance and Termination.
-------------------------
1.6.1 Voluntary Termination, Termination for Cause, Termination for
-------------------------------------------------------------
Death or Disability. In the case of a termination of Executive's employment
- -------------------
hereunder for Death or Disability in accordance with Section 1.5.1 above, or
-------------
Executive's Voluntary termination of employment hereunder in accordance with
Section 1.5.2 above, or a termination of the Executive's employment hereunder
- -------------
for Cause in accordance with Section 1.5.3 above, (i) the Executive shall not be
-------------
entitled to receive payment of, and the Company shall have no obligation to pay,
any severance or similar compensation attributable to such termination, other
than Base Salary earned but unpaid, accrued but unused vacation to the extent
allowed by the Company's policies, vested benefits under any employee benefit
plan, and any unreimbursed expenses pursuant to Section 1.4.5 hereof incurred by
-------------
the Executive as of the termination date, and (ii) the Company's obligations
under this Agreement shall immediately cease.
1.6.2 Termination Without Cause. In the case of a termination of
-------------------------
the Executive's employment hereunder Without Cause in accordance with Section
-------
1.5.4 above, the Company shall pay the Executive Twelve (12) months' salary
- -----
(hereinafter the "Severance Payment"), payable at the times and subject to the
tax withholding specified in Section 1.4.1 above. The Company's obligation to
-------------
pay and the Executive's right to receive the Severance Payment shall cease in
the event of the Executive's breach of his obligations under Section 2 or
---------
Section 3 below. It is expressly acknowledged that the provisions of this
- ---------
Section 1.6.2 have the effect, in some or all cases of termination of the
- -------------
Executive's employment, of eliminating or reducing compensation (salary,
bonuses, and/or benefits) which would have been paid or available had
Executive's employment not been terminated.
1.7 Offset Against Severance. During the period in which the Executive is
------------------------
receiving Severance Payments from the Company (the "Severance Period"), such
Severance Payments to be provided to the Executive shall be reduced on a dollar-
for-dollar basis by any wages actually received by the Executive during the
Severance Period for full-time employment. The Executive promises and agrees to
promptly advise the Company of the amount and source of any wages received by
him.
2. CONFIDENTIAL INFORMATION - NON-DISCLOSURE
-----------------------------------------
2.1 Recognition of the Company's Rights: Nondisclosure. Executive
--------------------------------------------------
understands that the Company possesses Proprietary Information, which the
Company agrees to disclose to Executive for the purpose of performing his duties
under this Agreement.
2.1.1 "Proprietary Information" shall mean Information (as defined
below) of value to the Company that is created, invented, developed, prepared,
conceived, reduced to practice, made, suggested, discovered, received, or
learned by the Company including, for example, but not limited to, any trade
secret, know-how, show-how and other proprietary information, irrespective of
(a) whether in tangible or non-tangible form, (b) whether patentable or
copyrighted or subject to confidentiality, (c) its media, (d) whether solely or
jointly created, invented, developed, prepared, conceived, reduced to practice,
made, suggested, discovered, received, or learned by Executive and/or one or
more other persons, or (e) whether created, invented, developed, prepared,
conceived, reduced to practice, made,
4
<PAGE>
suggested, discovered, received, or learned before, during, or after the term of
this Agreement. Proprietary Information does not include Information (as defined
below) that Executive develops entirely on his own time without using the
Company's equipment, supplies, facilities, Proprietary Information, or trade
secret information except for such Information that either relates at the time
of conception or reduction to practice of the Information to the Company's
business, or actual or demonstrably anticipated research or development of the
Company, or results from any work performed by the Executive for the Company.
2.1.2 "Information" shall mean any list, schematic, diagram, circuitry,
technology, inventory, invention, idea, discovery, improvement, design, concept,
technique, algorithm, formula, method, process, configuration, tooling,
mechanism, manufacture, assembly, installation, model, apparatus, product,
device, system, network, data, plan, library, work of authorship, file, media,
record, report, copy, pictorial work, graphic work, audiovisual work, hardware,
firmware, computer interface (including for example but not limited to
programming interfaces), computer language, computer protocol, computer software
program or application (irrespective of whether source code or object code),
flow chart, blueprint, drawing, photograph, chart, graph, notebook, book,
computer disk, tape, storage media, printout, sound recording, note, memorandum,
specification, paper, document (irrespective of whether printed, typewritten,
handwritten or otherwise), information, material, account, business plan,
business operation, business method, business practice, business strategy,
research, development, marketing, revenue, sale, forecast, budget, finance,
license, price, cost, salary, compensation, knowledge about suppliers, knowledge
about available skills, and knowledge about actual and/or prospective employees,
clients, and/or customers (including for example but not limited to their names,
addresses, and telephone numbers).
2.1.3 "Non-party Information" shall mean Information discovered,
received, or learned by the Company from non-parties with respect to which the
Company is subject to a duty to maintain confidentiality or to use only for
certain limited purposes.
2.2 The Executive Covenant. In consideration of the Company's
----------------------
entering into this Agreement, providing Executive with Proprietary Information,
and providing the Base Salary, opportunities for Incentive Compensation, Stock
Options, and other benefits to the Executive, the receipt and sufficiency of
which are hereby acknowledged by the Executive, the Executive covenants as
follows:
2.2.1 Non-Disclosure of Proprietary Information and Non-Party
-------------------------------------------------------
Information. At all times during the term of this Agreement and thereafter,
- -----------
Executive shall hold all Proprietary Information and Non-party Information in
strictest trust and confidence and shall neither disclose (to anyone other than
the Company personnel having a need to know such Information in connection with
their activities for the Company) nor use (except insofar as required by
Executive's activities for the Company under this Agreement) any Proprietary
Information or any Non-party Information, unless: (a) Executive is expressly
authorized in writing to the contrary by a duly authorized officer of the
Company; (b) absent breach or violation of this Agreement, such Information is
or becomes generally known to the public or available to the public, as
evidenced by a printed publication or other equally conclusive evidence; (c)
absent breach or violation of this Agreement, such Information is rightfully
received absent any confidentiality obligation by Executive from a non-party
outside of the Company, as evidenced by a dated and witnessed writing prepared
in the normal course of business or other equally conclusive evidence; or (d) is
required to be disclosed pursuant to a valid order by a court or other
governmental body or otherwise required by law, provided that Executive informs
the Company immediately upon Executive's receipt of notice, in any form, that
disclosure pursuant to this section may be required so that the Company may
oppose any compelled disclosure of its Proprietary Information. Executive
further agrees not to disclose any Proprietary Information pursuant to this
section unless and
5
<PAGE>
until he is informed that the Company will not oppose such disclosure or that
the Company's attempt to oppose such disclosure has been denied.
2.2.2 Trade Secrets. All trade secrets of the Company will be
-------------
entitled to all of the protection and benefits under all applicable federal and
state trade secrets law. If any information that the Company deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless, be
considered Proprietary Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Company submit proof of the
economic value of any trade secret or post a bond or other security.
2.3 Assignment of Inventions.
------------------------
2.3.1 Definitions.
-----------
(i) "Moral Rights" shall mean (a) any right of paternity or
integrity, (b) any right to claim authorship or require authorship
identification, (c) any right to object to distortion, mutilation, or other
modification of, or other derogatory action in relation to, a work of
authorship, and (d) any similar right existing under judicial or statutory law
of any country or under any treaty, irrespective of whether such right is
generally referred to as a "moral right."
(ii) "Proprietary Right" shall mean any patent, trade secret,
confidentiality protection, know-how right, show-how right, mask work right,
copyright (e.g., including but not limited to any Moral Right), and any other
intellectual property protection and intangible interests and legal rights of
exclusion, of any and all countries, including for example but not limited to
(a) any person's publicity or privacy right, (b) any utility model or
application therefor, (c) any industrial model or application therefor, (d) any
certificate of invention or application therefor, (e) any application for
patent, including, for example, but not limited to, any provisional, divisional,
reissue, reexamination or continuation application, (f) any substitute, renewal
or extension of any such application, and (g) any right of priority resulting
from the filing of any such application.
(iii) "The Company Inventions" shall mean (a) any and all
Proprietary Information that is created, invented, developed, prepared,
conceived, reduced to practice, made, suggested, discovered, received, or
learned by Executive, either alone or jointly with one or more other persons,
during the term of this Agreement, and (b) any and all Proprietary Rights that
may be available in such Proprietary Information or result therefrom.
(iv) Executive may develop and/or review business plans,
provided (a) he does so entirely on his own time and without using the Company's
equipment, supplies, facilities, Proprietary Information, or trade secret
information, and (b) that any such business plans do not conflict with any of
Executive's obligations under Section 3. Business plans developed or reviewed by
Executive in a manner consistent with this Section shall be excluded from the
definition of Company Inventions.
2.3.2 Executive's Covenant. Executive does hereby, without
--------------------
reservation, irrevocably:
(i) sell, assign, grant, transfer, and convey to the Company
(and the Company's successors and assigns): Executive's entire right, title, and
interest (present and future and throughout the world) in and to all Company
Inventions; provided however that, to the extent that any one or more of the
Company Inventions includes a work of authorship created by Executive (solely or
jointly with others), each such work of authorship shall automatically be deemed
to be created as a "work made
6
<PAGE>
for hire" (as that term is defined in the United States Copyright Act (17 U.S.C.
Section (S) 101)) that is owned solely by the Company (as between Executive and
the Company);
(ii) acknowledge and agree that, as between the Company and
Executive, (i) all the Company Inventions shall be the sole and exclusive
property of the Company, its successors and assigns, and (ii) the Company, its
successors and assigns shall be the sole and exclusive owner of all the Company
Inventions throughout the world;
(iii) waive and quitclaim to the Company any and all claims, of
any nature whatsoever, that Executive has now or may hereafter have for
infringement or violation of any one or more of the Company Inventions;
(iv) consent to any and all use of names, likenesses, voices,
and similar aspects of all the Company Inventions or related to or associated
with all the Company Inventions;
(v) authorize the Company (and its successors, assigns,
nominees, representatives, and designees) to apply (in the Company's own name)
for any and all patents (and similar non-U.S. rights) that may be available in
(or result from) all the Company Inventions, and to claim any and all rights of
priority without further authorization from Executive so that such patents issue
in the name of the Company (or its successors or assigns);
(vi) represent, warrant, and covenant that Executive shall
never assert any Moral Right in any one or more of the Company Inventions;
(vii) forever waive all Moral Rights in the Company Inventions;
(viii) represent, warrant, and covenant that Executive shall
disclose and deliver, fully and in writing, to the Company, each and every
Company Invention promptly after such Company Invention is created, invented,
developed, prepared, conceived, reduced to practice, made, suggested,
discovered, received, or learned by Executive; and
(ix) represent, warrant, and covenant that Executive shall (at
the request of the Company, or any of its successors, assigns, nominees,
representatives, or designees) in every proper way cooperate and do everything
(at the Company's sole expense for Executive's reasonable actual costs, but
without additional charge to the Company) that the Company (or any one or more
of its successors, assigns, nominees, representatives, or designees) may
reasonably consider necessary or appropriate to assist the Company (and its
successors, assigns, nominees, representatives, and designees) to prepare and
make filings in any and all countries to apply for, prosecute, register,
evidence, defend, obtain, hold, secure, vest title to, protect, perfect,
maintain, uphold, and enforce any and all Proprietary Rights that may be
available in (or result from) the Company Inventions, including for example but
not limited to: communicating to the Company (and its successors, assigns,
nominees, representatives, and designees) any Information relating to conception
or reduction to practice or prosecution of any one or more of such Proprietary
Rights; testifying and rendering prompt assistance and cooperation in any and
all legal proceedings (e.g., including but not limited to any opposition,
cancellation proceeding, interference proceeding, priority contest, public use
proceeding, reexamination proceeding, and court proceeding) involving any one or
more of such Proprietary Rights; and executing, verifying and delivering any and
all assignments, oaths, declarations, powers of attorney, and other instruments
and documents. If Executive fails or refuses to execute any such assignment,
oath, declaration, power of attorney, instrument, or document, Executive hereby
designates and appoints the Company (and its successors and assigns) as
Executive's true and lawful agent and attorney-in-fact (such agency and power of
attorney being irrevocable by Executive and coupled with an interest in favor of
the Company and its
7
<PAGE>
successors and assigns), with full power of substitution, to act for Executive
and in Executive's behalf to do any lawfully permitted act in furtherance of the
purposes of the immediately preceding sentence (e.g., including but not limited
to executing, verifying, and filing such assignments, oaths, declarations,
powers of attorney, and other instruments and documents) in Executive's name and
stead and on behalf of and for the benefit of the Company and its successors and
assigns, with the same legal force and effect as if Executive performed such
act, irrespective of whether in Executive's name or the Company's name or
otherwise.
3. NON-COMPETITION AND NON-INTERFERENCE
------------------------------------
3.1 Covenant of the Executive. In consideration of the Company's
-------------------------
entering into this Agreement, providing Executive with Proprietary Information
and specialized training, providing the Base Salary, opportunities for Incentive
Compensation, the Option, and other benefits to the Executive, the receipt and
sufficiency of which are hereby acknowledged by Executive, the Executive
covenants as follows:
3.1.1 Non-Competition. Executive hereby agrees that during the
---------------
Employment Term and for a period of one (1) year following the Termination Date,
for any reason, Executive will not, directly or indirectly (i) engage in
Restricted Activities in the Commonwealth of Pennsylvania or in any other State
of the United States, or in any other country in the world, where the Company
engages in business, or proposes to engage in business on the Termination Date,
or (ii) participate in the ownership, management, operation, financing, or
control of, or be employed by or consult for or otherwise render services to, a
Restricted Business located in the Commonwealth of Pennsylvania or in any other
State of the United States or in any other country in the world, where the
Company conducts or proposes to conduct business on the Termination Date.
Notwithstanding the foregoing, Executive is permitted to own up to 5% of any
class of securities of any corporation which is traded on a national securities
exchange or through Nasdaq.
(i) Restricted Activities shall mean shall mean (A) the
Company's business as of the date of termination and/or (B) designing,
developing, manufacturing, marketing, or selling products or services which
directly compete with business, products and/or services of the Company and/or
its subsidiaries as of the Termination Date. Provided, however, that restricted
Activities shall not include any activities for which Executive has obtained
prior written approval from the Company to engage in.
(ii) Restricted Business shall mean any person,
corporation, firm, company (or a division or group thereof), partnership,
proprietorship, or other business entity which engages in Restricted Activities.
3.1.2 No Diversion of Others. During the Employment Term and
----------------------
for a period of one (1) year following the Termination Date, for any reason, the
Executive shall not, either for himself or for any other person, firm,
corporation, or other entity, directly or indirectly, or by action in concert
with others:
(i) individually or on behalf of any other person,
corporation, firm, or other entity, solicit or encourage any employee of the
Company or any subsidiary or affiliate of the Company to terminate his or her
employment with the Company or such subsidiary or affiliate, without the express
prior written consent of the Company;
(ii) take away or attempt to take away, or solicit or
attempt to solicit, any existing or Potential Customer (defined below) of the
Company (whether or not such customer is
8
<PAGE>
actually a customer of the Company as of the date hereof, including without
limitation any customer solicited by the Executive or which became known by the
Executive prior to the date hereof) with the purpose of obtaining such person as
an employee or customer for a business competitive with the Company's business.
For purposes of this Section, Potential Customer means any company or entity
actually solicited by the Company as of the Termination Date.
For purposes of this Agreement, "affiliate" shall mean a
corporation or other legal entity in common control with the Company.
3.1.3 Organizing Competitive Business. Without limiting any of
-------------------------------
the other provisions contained in this Section 3, during the Employment Term
---------
and any period during which Executive receives any Severance Payment, the
Executive shall not undertake planning for or organization of any business
activity competitive with the business of the Company, or conspire with agents,
employees, consultants, or other representatives of the Company for the purpose
of organizing any such competitive business activity.
4. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
---------------------------------------
The Executive acknowledges and agrees that any breach of the terms of
Sections 2 or 3 above would result in irreparable injury and damage to the
- ---------- -
Company for which the Company would have no adequate remedy at law; the
Executive therefore also acknowledges and agrees that in the event of such
breach or any threat of breach, the Company shall be entitled to an immediate
injunction and restraining order to prevent such breach and/or threatened breach
and/or continued breach by the Executive and/or any and all persons and/or
entities acting for and/or with the Executive, without having to prove damages,
in addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Executive.
5. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE
----------------------------------------------
The Executive represents and warrants to the Company that (i) this
Agreement is valid and binding upon and enforceable against him in accordance
with its terms, (ii) the Executive is not bound by or subject to any contractual
or other obligation that would be violated by his execution or performance of
this Agreement, including, but not limited to, any non-competition agreement
presently in effect, and (iii) the Executive is not subject to any pending or,
to the Executive's knowledge, threatened claim, action, judgment, order, or
investigation that could adversely affect his ability to perform his obligations
under this Agreement or the business reputation of the Company.
6. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS
------------------------------------------
Sections 1.7, 2 and 3 above shall survive any termination of this
---------------------
Agreement and continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of each party. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of Sections 2 and 3
---------- -
above.
7. MISCELLANEOUS
-------------
7.1 Notices. All notices, requests, and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or
9
<PAGE>
by facsimile transmission with answer back confirmation or mailed (postage
prepaid by certified or registered mail, return receipt requested) or by
overnight courier to the parties at the following addresses or facsimile
numbers:
If to the Executive, to:
James M. Flynn
336 Echo Valley Lane
Newtown Square, Pennsylvania 19073
If to the Company, to:
Chairman, Board of Directors
Naviant Technology Solutions, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 7.1, be deemed given upon
-----------
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 7.1, be deemed given upon receipt, and (iii) if
-----------
delivered by mail in the manner described above to the address as provided in
this Section 7.1, be deemed given upon receipt (in each case regardless of
-----------
whether such notice, request, or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number, or other information for the purpose of notices to
that parry by giving written notice specifying such change to the other parties
hereto.
7.2 Obligations Contingent on Performance. The obligations of the
-------------------------------------
Company hereunder, including its obligation to pay the compensation provided for
herein, are contingent upon the Employee's performance of his obligations
hereunder.
7.3 Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements among the parties with respect to the subject matter
hereof and contain the sole and entire agreement between the parties hereto with
respect thereto.
7.4 Waiver. Any term or condition of this Agreement may be waived at
------
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party hereto of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by law or otherwise afforded, will be cumulative
and not alternative.
7.5 Amendment. This Agreement may be amended, supplemented, or
---------
modified only by a written instrument duly executed by or on behalf of each
party hereto.
7.6 No Third Party Beneficiary. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto and the
Company's successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person.
10
<PAGE>
7.7 No Assignment; Binding Effect. This Agreement shall inure to the
-----------------------------
benefit of any successors or assigns of the Company. The Executive shall not be
entitled to assign his obligations under this Agreement.
7.8 Headings. The headings used in this Agreement have been inserted
--------
for convenience of reference only and do not define or limit the provisions
hereof.
7.9 Severability. The Company and the Executive intend all
------------
provisions of this Agreement to be enforced to the fullest extent permitted by
law. Accordingly, if a court of competent jurisdiction determines that the scope
and/or operation of any provision of this Agreement is too broad to be enforced
as written, the Company and the Executive intend that the court should reform
such provision to such narrower scope and/or operation as it determines to be
enforceable. If, however, any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future law, and not subject
to reformation, then (i) such provision shall be fully severable, (ii) this
Agreement shall be construed and enforced as if such provision was never a part
of this Agreement, and (iii) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by illegal, invalid,
or unenforceable provisions or by their severance.
7.10 Binding Arbitration. Subject to the exceptions set forth below,
-------------------
the Executive and the Company agree that any and all claims or disputes between
them, or between Executive and any of the Company's employees, which arise out
of Executive's employment or under the terms of Executive's employment, shall be
resolved through final and binding arbitration, as specified herein. This shall
include, without limitation, disputes relating to this Agreement, Executive's
employment by the Company or the termination thereof, claims for breach of
contract or breach of the covenant of good faith and fair dealing, and any
claims of discrimination or other claims under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Pennsylvania Human Relations Act, the Employee Retirement
Income Securities Act, the Racketeer Influenced and Corrupt Organizations Act,
or any other federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of Executive's employment with the Company or its termination. The only
claims or disputes not covered by this paragraph are disputes related to (i)
claims for benefits under the unemployment insurance or workers' compensation
laws, and (ii) issues affecting the validity, infringement or enforceability of
any trade secret or patent rights held or sought by the Company or which the
Company could otherwise seek; in both of the foregoing cases such claims or
disputes shall not be subject to arbitration and will be resolved pursuant to
applicable law. Binding arbitration will be conducted in accordance with the
rules and regulations of the American Arbitration Association (AAA). Each party
will split the cost of the arbitration filing and hearing fees, and the cost of
the arbitrator; each side will bear its own attorneys' fees; that is, the
arbitrator will not have authority to award attorneys' fees unless a statutory
------
section at issue in the dispute authorizes the award of attorneys' fees to the
prevailing party, in which case the arbitrator has authority to make such award
as permitted by the statute in question. Executive and the Company understand
and agree that the arbitration shall be instead of any jury trial and that the
arbitrator's decision shall be final and binding to the fullest extent permitted
by law and enforceable by any court having jurisdiction thereof.
7.11 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Pennsylvania applicable to contracts
executed and performed in such State without giving effect to conflicts of laws
principles.
11
<PAGE>
7.12 Jurisdiction. With respect to any suit, action, or other
------------
proceeding arising from (or relating to) this Agreement and which is not
subject to the provisions of Section 7.10 herein, the Company and the Executive
------------
hereby irrevocably agree to the non-exclusive personal jurisdiction and venue of
the United States District Court for the Eastern District of Pennsylvania (and
any Pennsylvania State Court within Delaware County, Pennsylvania).
7.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date first written above.
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:_____________________________
Name:___________________________
Title:__________________________
Date:____________________________
EXECUTIVE
_________________________________
James Flynn
12
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of September 15, 1999, by and between Naviant Technology Solutions, Inc., a
Delaware corporation (the "Company"), and William J. Tobia, an individual (the
"Executive").
RECITALS
--------
WHEREAS, the Company desires to hire the Executive and the Executive
desires to become employed by the Company; and
WHEREAS, the Company and the Executive have determined that it is in
their respective best interest to enter into this Agreement on the terms and
conditions as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT TERMS AND DUTIES
---------------------------
1.1 Employment. The Company hereby employs the Executive, and the
----------
Executive hereby accepts employment by the Company, upon the terms and
conditions set forth in this Agreement.
1.2 Duties. The Executive shall serve as Senior Vice President and
------
Chief Financial Officer for the Company. The Executive shall perform all
reasonable duties assigned by the President of the Company. The Company agrees
to provide Executive with Proprietary Information and specialized training
necessary to assist Executive in performing his duties under this Agreement.
During the term of his employment hereunder, the Executive shall devote his full
working time and efforts to the performance of his duties and the furtherance of
the interests of the Company and shall not be otherwise employed.
Notwithstanding the above, Executive may serve as a director or trustee of other
organizations, or engage in charitable, civic, and/or governmental activities
provided that such service and activities do not prevent Executive from
performing his duties under this Agreement and further provided that Executive
obtains written consent for all such activities from a designated committee of
the Company. As of the date of this Agreement, all such approved activities are
set forth on Exhibit 1 to this Agreement. Executive may also engage in personal
activities, including, without limitation, personal investments (subject to
Section 3.1.1), provided that such activities do not interfere with his
performance of duties hereunder.
1.3 Term. Subject to the provisions of Section 1.5 below, the
---- -----------
initial term of employment of the Executive under this Agreement shall commence
on the closing date of the Company's acquisition of IQ2.net (the "Hire Date")
and shall continue for a period of twenty-four (24) months (the "Initial Term").
This Agreement will automatically be renewed by mutual agreement of the parties
for an additional one (1) year period, unless notice of non-renewal is given to
Executive in writing by the Company at least six months prior to the expiration
of the Initial Term. (When used herein, the phrase "Employment Term" shall refer
to the Initial Term and any subsequent renewal period under this Agreement).
1.4 Compensation and Benefits.
-------------------------
1.4.1 Base Salary. In consideration of the services rendered to
-----------
the Company hereunder by the Executive and the Executive's covenants hereunder,
the Company shall, during the
1
<PAGE>
Employment Term, pay the Executive a salary at the annual rate of Two Hundred
Thousand Dollars ($200,000.00) (the "Base Salary"), less statutory deductions
and withholdings, payable in accordance with the Company's regular payroll
practices. The Base Salary shall be subject to review and modification, but any
modification will only be binding and effective if it is contained in a written
agreement, duly executed by Executive and by the designated representative of
the Company's Board of Directors.
1.4.2 Incentive Compensation. In addition to the Base Salary,
----------------------
Executive shall also be entitled to receive annual Incentive Compensation in the
event, and only in the event, the Company achieves target financial objectives
("Target") as set forth in the annual financial plan approved by the Company's
Board of Directors. Executive shall be entitled to Incentive Compensation in
accordance with the following provisions:
(i) At the conclusion of the time period from the
commencement of this Agreement until December 31, 1999, Executive shall be
entitled to receive Incentive Compensation in an amount to be determined by the
Board of Directors, in their sole discretion.
(ii) At the conclusion of the calendar year 2000,
Executive shall be entitled to receive Incentive Compensation of Eighty Thousand
Dollars ($80,000.00) in the event that the Company achieves its Target for
revenue and/or pretax objectives for calendar year 2000 as those objectives are
set forth and approved by the Board of Directors. In the event that the Company
exceeds its Target financial objectives, Executive shall be eligible to receive
additional Incentive Compensation of up to Twenty Thousand Dollars ($20,000.00)
at a rate determined by the Board of Directors. Provided, however, that in no
-----------------------------
event shall Executive be entitled to total combined Incentive Compensation for
- ------------------------------------------------------------------------------
his calendar year 2000 in excess of One Hundred Thousand Dollars ($100,000.00).
- ------------------------------------------------------------------------------
The actual Incentive Compensation amount shall be calculated based upon separate
weightings attributed to revenue objectives and pre-tax income objectives as set
forth and approved by the Board of Directors of the Company in the Company's
annual operating plan.
(iii) At the conclusion of the calendar year 2001,
Executive shall be entitled to receive Incentive Compensation of Eighty Thousand
Dollars ($80,000.00) in the event that the Company achieves its Target for
revenue and/or pretax objectives for calendar year 2001 as those objectives are
set forth and approved by the Board of Directors. In the event that the Company
exceeds its Target financial objectives, Executive shall be eligible to receive
additional Incentive Compensation of up to Twenty Thousand Dollars ($20,000.00)
at a rate determined by the Board of Directors. Provided, however, that in no
-----------------------------
event shall Executive be entitled to total combined Incentive Compensation for
- ------------------------------------------------------------------------------
his calendar year 2001 in excess of One Hundred Thousand Dollars ($100,000.00).
- ------------------------------------------------------------------------------
The actual Incentive Compensation amount shall be calculated based upon separate
weightings attributed to revenue objectives and pre-tax income objectives as set
forth and approved by the Board of Directors of the Company in the Company's
annual operating plan.
1.4.3 Benefits Package. In addition to the Base Salary, during
----------------
the Employment Term, the Executive shall be entitled to receive such employee
benefits and holidays as may be in effect from time to time as are afforded to
other executives of the Company.
1.4.4 Vacation. The Executive shall be entitled to four (4)
--------
weeks' vacation each year of employment.
1.4.5 Expenses. The Company shall, upon receipt from the
--------
Executive of supporting receipts to the extent required by applicable income tax
regulations and the Company's
2
<PAGE>
reimbursement policies, reimburse the Executive for all out-of-pocket business
expenses reasonably incurred by the Executive in connection with his employment
hereunder.
1.4.6 Stock Option. The Executive will be entitled to
------------
participate in the Company's Stock Option Plan at the discretion of the
Company's Board of Directors upon the terms and conditions set forth in the
stock option agreement to be executed separately from this Agreement.
1.5 Termination. The Executive's employment and this Agreement
-----------
(except as otherwise provided hereunder) shall terminate upon the occurrence of
any of the following, at the time set forth therefor (the "Termination Date"):
1.5.1 Death or Disability. Immediately upon the death of the
-------------------
Executive or the determination by the Company that the Executive has ceased to
be able to perform the essential functions of his duties, with or without
reasonable accommodation, for a period of not less than ninety (90) days, due to
a mental or physical illness or incapacity ("Disability") (termination pursuant
to this Section 1.5.1 being referred to herein as termination for "Death or
-------------
Disability"); or
1.5.2 Voluntary Termination. Thirty (30) days following the
---------------------
Executive's written notice to the Company of termination of employment;
provided, however, that the Company may waive all or a portion of the thirty
- --------- -------
(30) days' notice and accelerate the effective date of such termination (and the
Termination Date) (termination pursuant to this Section 1.5.2 being referred to
-------------
herein as "Voluntary" termination); or
1.5.3 Termination For Cause. Immediately following notice of
---------------------
termination for "Cause" (as defined below), specifying such Cause, given by the
Company (termination pursuant to this Section 1.5.3 being referred to herein as
-------------
termination for "Cause"). As used herein, "Cause" means termination based on
(i) the Executive's material breach of this Agreement after receiving written
notification from the Company and following a reasonable cure period, (ii) the
Executive's conviction or plea of "guilty" or "no contest" to (x) any crime
constituting a felony in the jurisdiction in which committed, (y) any crime
involving moral turpitude (whether or not a felony), or (z) any other violation
of criminal law involving dishonesty or willful misconduct that materially
injures the Company (whether or not a felony), (iii) substance abuse by the
Executive that in any manner materially interferes with the performance of his
duties under this Agreement, (iv) the failure or refusal of the Executive to
follow the lawful and proper directives of the Company that are within the scope
of the Executive's duties set forth in Section 1.2 above and that is not
-----------
corrected within fifteen (15) days after written notice from the Company to the
Executive identifying such failure or refusal, (v) willful malfeasance or gross
misconduct by the Executive that discredits or damages the Company including,
without limitation, any breach of his obligations under Section 2 or Section 3
--------- ---------
below, (vi) indictment of the Executive for a felony violation of the federal
securities laws, (vii) the Executive's chronic absence from work for reasons
other than illness, or (viii) material sub-par performance (as determined by the
Board of Directors of the Company) by Executive of Executive's duties (provided
that, under this part (viii), Executive shall be entitled to a one-time ninety
--------
(90) day period in which to improve his material sub-par performance; in the
event that the Company chooses not to terminate Executive's employment after
such 90-day period, the Company may elect at any time in the future to terminate
the Executive's employment in accordance with this provision without further
notice to Executive or grant of time to improve his performance); or
1.5.4 Termination Without Cause. Thirty (30) days following
-------------------------
notice of termination without Cause given by the Company; provided, however,
--------- -------
that during any such thirty (30) day notice period, the Company may suspend,
with no reduction in pay or benefits, the Executive from his duties as set forth
herein (including, without limitation, the Executive's position as a
representative
3
<PAGE>
and agent of the Company) (termination pursuant to this Section 1.5.4 being
-------------
referred to herein as termination "Without Cause").
1.5.5 Other Remedies. Termination pursuant to Section 1.5.3
-------------- -------------
above shall be in addition to and without prejudice to any other right or remedy
to which the Company may be entitled at law, in equity, or under this Agreement.
1.6 Severance and Termination.
-------------------------
1.6.1 Voluntary Termination, Termination for Cause, Termination
---------------------------------------------------------
for Death or Disability. In the case of a termination of Executive's employment
- -----------------------
hereunder for Death or Disability in accordance with Section 1.5.1 above, or
-------------
Executive's Voluntary termination of employment hereunder in accordance with
Section 1.5.2 above, or a termination of the Executive's employment hereunder
- -------------
for Cause in accordance with Section 1.5.3 above, (i) the Executive shall not be
--------------------
entitled to receive payment of, and the Company shall have no obligation to pay,
any severance or similar compensation attributable to such termination, other
than Base Salary earned but unpaid, accrued but unused vacation to the extent
allowed by the Company's policies, vested benefits under any employee benefit
plan, and any unreimbursed expenses pursuant to Section 1.4.5 hereof incurred by
-------------
the Executive as of the termination date, and (ii) the Company's obligations
under this Agreement shall immediately cease.
1.6.2 Termination Without Cause. In the case of a termination of
-------------------------
the Executive's employment hereunder Without Cause in accordance with Section
-------
1.5.4 above, the Company shall pay the Executive Twelve (12) months' salary
- -----
(hereinafter the "Severance Payment"), payable at the times and subject to the
tax withholding specified in Section 1.4.1 above. The Company's obligation to
-------------
pay and the Executive's right to receive the Severance Payment shall cease in
the event of the Executive's breach of his obligations under Section 2 or
---------
Section 3 below. It is expressly acknowledged that the provisions of this
- ---------
Section 1.6.2 have the effect, in some or all cases of termination of the
- -------------
Executive's employment, of eliminating or reducing compensation (salary,
bonuses, and/or benefits) which would have been paid or available had
Executive's employment not been terminated.
1.7 Offset Against Severance. During the period in which the
------------------------
Executive is receiving Severance Payments from the Company (the "Severance
Period"), such Severance Payments to be provided to the Executive shall be
reduced on a dollar-for-dollar basis by any wages actually received by the
Executive during the Severance Period for full-time employment. The Executive
promises and agrees to promptly advise the Company of the amount and source of
any wages received by him.
2. CONFIDENTIAL INFORMATION - NON-DISCLOSURE
2.1 Recognition of the Company's Rights: Nondisclosure. Executive
--------------------------------------------------
understands that the Company possesses Proprietary Information, which the
Company agrees to disclose to Executive for the purpose of performing his duties
under this Agreement.
2.1.1 "Proprietary Information" shall mean Information (as
defined below) of value to the Company that is created, invented, developed,
prepared, conceived, reduced to practice, made, suggested, discovered, received,
or learned by the Company including, for example, but not limited to, any trade
secret, know-how, show-how and other proprietary information, irrespective of
(a) whether in tangible or non-tangible form, (b) whether patentable or
copyrighted or subject to confidentiality, (c) its media, (d) whether solely or
jointly created, invented, developed, prepared, conceived, reduced to practice,
made, suggested, discovered, received, or learned by Executive and/or one or
more other persons, or (e) whether created, invented, developed, prepared,
conceived, reduced to practice, made,
4
<PAGE>
suggested, discovered, received, or learned before, during, or after the term of
this Agreement. Proprietary Information does not include Information (as defined
below) that Executive develops entirely on his own time without using the
Company's equipment, supplies, facilities, Proprietary Information, or trade
secret information except for such Information that either relates at the time
of conception or reduction to practice of the Information to the Company's
business, or actual or demonstrably anticipated research or development of the
Company, or results from any work performed by the Executive for the Company.
2.1.2 "Information" shall mean any list, schematic, diagram,
circuitry, technology, inventory, invention, idea, discovery, improvement,
design, concept, technique, algorithm, formula, method, process, configuration,
tooling, mechanism, manufacture, assembly, installation, model, apparatus,
product, device, system, network, data, plan, library, work of authorship, file,
media, record, report, copy, pictorial work, graphic work, audiovisual work,
hardware, firmware, computer interface (including for example but not limited to
programming interfaces), computer language, computer protocol, computer software
program or application (irrespective of whether source code or object code),
flow chart, blueprint, drawing, photograph, chart, graph, notebook, book,
computer disk, tape, storage media, printout, sound recording, note, memorandum,
specification, paper, document (irrespective of whether printed, typewritten,
handwritten or otherwise), information, material, account, business plan,
business operation, business method, business practice, business strategy,
research, development, marketing, revenue, sale, forecast, budget, finance,
license, price, cost, salary, compensation, knowledge about suppliers, knowledge
about available skills, and knowledge about actual and/or prospective employees,
clients, and/or customers (including for example but not limited to their names,
addresses, and telephone numbers).
2.1.3 "Non-party Information" shall mean Information discovered,
received, or learned by the Company from non-parties with respect to which the
Company is subject to a duty to maintain confidentiality or to use only for
certain limited purposes.
2.2 The Executive Covenant. In consideration of the Company's
----------------------
entering into this Agreement, providing Executive with Proprietary Information,
and providing the Base Salary, opportunities for Incentive Compensation, Stock
Options, and other benefits to the Executive, the receipt and sufficiency of
which are hereby acknowledged by the Executive, the Executive covenants as
follows:
2.2.1 Non-Disclosure of Proprietary Information and Non-Party
-------------------------------------------------------
Information. At all times during the term of this Agreement and thereafter,
- -----------
Executive shall hold all Proprietary Information and Non-party Information in
strictest trust and confidence and shall neither disclose (to anyone other than
the Company personnel having a need to know such Information in connection with
their activities for the Company) nor use (except insofar as required by
Executive's activities for the Company under this Agreement) any Proprietary
Information or any Non-party Information, unless: (a) Executive is expressly
authorized in writing to the contrary by a duly authorized officer of the
Company; (b) absent breach or violation of this Agreement, such Information is
or becomes generally known to the public or available to the public, as
evidenced by a printed publication or other equally conclusive evidence; (c)
absent breach or violation of this Agreement, such Information is rightfully
received absent any confidentiality obligation by Executive from a non-party
outside of the Company, as evidenced by a dated and witnessed writing prepared
in the normal course of business or other equally conclusive evidence; or (d) is
required to be disclosed pursuant to a valid order by a court or other
governmental body or otherwise required by law, provided that Executive informs
the Company immediately upon Executive's receipt of notice, in any form, that
disclosure pursuant to this section may be required so that the Company may
oppose any compelled disclosure of its Proprietary Information. Executive
further agrees not to disclose any Proprietary Information pursuant to this
section unless and
5
<PAGE>
until he is informed that the Company will not oppose such disclosure or that
the Company's attempt to oppose such disclosure has been denied.
2.2.2 Trade Secrets. All trade secrets of the Company will be
-------------
entitled to all of the protection and benefits under all applicable federal and
state trade secrets law. If any information that the Company deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless, be
considered Proprietary Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Company submit proof of the
economic value of any trade secret or post a bond or other security.
2.3 Assignment of Inventions.
------------------------
2.3.1 Definitions.
-----------
(i) "Moral Rights" shall mean (a) any right of paternity
or integrity, (b) any right to claim authorship or require authorship
identification, (c) any right to object to distortion, mutilation, or other
modification of, or other derogatory action in relation to, a work of
authorship, and (d) any similar right existing under judicial or statutory law
of any country or under any treaty, irrespective of whether such right is
generally referred to as a "moral right."
(ii) "Proprietary Right" shall mean any patent, trade
secret, confidentiality protection, know-how right, show-how right, mask work
right, copyright (e.g., including but not limited to any Moral Right), and any
other intellectual property protection and intangible interests and legal rights
of exclusion, of any and all countries, including for example but not limited to
(a) any person's publicity or privacy right, (b) any utility model or
application therefor, (c) any industrial model or application therefor, (d) any
certificate of invention or application therefor, (e) any application for
patent, including, for example, but not limited to, any provisional, divisional,
reissue, reexamination or continuation application, (f) any substitute, renewal
or extension of any such application, and (g) any right of priority resulting
from the filing of any such application.
(iii) "The Company Inventions" shall mean (a) any and all
Proprietary Information that is created, invented, developed, prepared,
conceived, reduced to practice, made, suggested, discovered, received, or
learned by Executive, either alone or jointly with one or more other persons,
during the term of this Agreement, and (b) any and all Proprietary Rights that
may be available in such Proprietary Information or result therefrom.
(iv) Executive may develop and/or review business plans,
provided (a) he does so entirely on his own time and without using the Company's
equipment, supplies, facilities, Proprietary Information, or trade secret
information, and (b) that any such business plans do not conflict with any of
Executive's obligations under Section 3. Business plans developed or reviewed by
Executive in a manner consistent with this Section shall be excluded from the
definition of Company Inventions.
2.3.2 Executive's Covenant. Executive does hereby, without
--------------------
reservation, irrevocably:
(i) sell, assign, grant, transfer, and convey to the
Company (and the Company's successors and assigns): Executive's entire right,
title, and interest (present and future and throughout the world) in and to all
Company Inventions; provided however that, to the extent that any one or more of
the Company Inventions includes a work of authorship created by Executive
(solely or jointly with others), each such work of authorship shall
automatically be deemed to be created as a "work made
6
<PAGE>
for hire" (as that term is defined in the United States Copyright Act (17 U.S.C.
Section (S) 101)) that is owned solely by the Company (as between Executive and
the Company);
(ii) acknowledge and agree that, as between the Company and
Executive, (i) all the Company Inventions shall be the sole and exclusive
property of the Company, its successors and assigns, and (ii) the Company, its
successors and assigns shall be the sole and exclusive owner of all the Company
Inventions throughout the world;
(iii) waive and quitclaim to the Company any and all claims, of any
nature whatsoever, that Executive has now or may hereafter have for infringement
or violation of any one or more of the Company Inventions;
(iv) consent to any and all use of names, likenesses, voices, and
similar aspects of all the Company Inventions or related to or associated with
all the Company Inventions;
(v) authorize the Company (and its successors, assigns, nominees,
representatives, and designees) to apply (in the Company's own name) for any and
all patents (and similar non-U.S. rights) that may be available in (or result
from) all the Company Inventions, and to claim any and all rights of priority
without further authorization from Executive so that such patents issue in the
name of the Company (or its successors or assigns);
(vi) represent, warrant, and covenant that Executive shall never
assert any Moral Right in any one or more of the Company Inventions;
(vii) forever waive all Moral Rights in the Company Inventions;
(viii) represent, warrant, and covenant that Executive shall disclose
and deliver, fully and in writing, to the Company, each and every Company
Invention promptly after such Company Invention is created, invented, developed,
prepared, conceived, reduced to practice, made, suggested, discovered, received,
or learned by Executive; and
(ix) represent, warrant, and covenant that Executive shall (at the
request of the Company, or any of its successors, assigns, nominees,
representatives, or designees) in every proper way cooperate and do everything
(at the Company's sole expense for Executive's reasonable actual costs, but
without additional charge to the Company) that the Company (or any one or more
of its successors, assigns, nominees, representatives, or designees) may
reasonably consider necessary or appropriate to assist the Company (and its
successors, assigns, nominees, representatives, and designees) to prepare and
make filings in any and all countries to apply for, prosecute, register,
evidence, defend, obtain, hold, secure, vest title to, protect, perfect,
maintain, uphold, and enforce any and all Proprietary Rights that may be
available in (or result from) the Company Inventions, including for example but
not limited to: communicating to the Company (and its successors, assigns,
nominees, representatives, and designees) any Information relating to conception
or reduction to practice or prosecution of any one or more of such Proprietary
Rights; testifying and rendering prompt assistance and cooperation in any and
all legal proceedings (e.g., including but not limited to any opposition,
cancellation proceeding, interference proceeding, priority contest, public use
proceeding, reexamination proceeding, and court proceeding) involving any one or
more of such Proprietary Rights; and executing, verifying and delivering any and
all assignments, oaths, declarations, powers of attorney, and other instruments
and documents. If Executive fails or refuses to execute any such assignment,
oath, declaration, power of attorney, instrument, or document, Executive hereby
designates and appoints the Company (and its successors and assigns) as
Executive's true and lawful agent and attorney-in-fact (such agency and power of
attorney being irrevocable by Executive and coupled with an interest in favor of
the Company and its
7
<PAGE>
successors and assigns), with full power of substitution, to act for Executive
and in Executive's behalf to do any lawfully permitted act in furtherance of the
purposes of the immediately preceding sentence (e.g., including but not limited
to executing, verifying, and filing such assignments, oaths, declarations,
powers of attorney, and other instruments and documents) in Executive's name and
stead and on behalf of and for the benefit of the Company and its successors and
assigns, with the same legal force and effect as if Executive performed such
act, irrespective of whether in Executive's name or the Company's name or
otherwise.
3. NON-COMPETITION AND NON-INTERFERENCE
------------------------------------
3.1 Covenant of the Executive. In consideration of the Company's
-------------------------
entering into this Agreement, providing Executive with Proprietary Information
and specialized training, providing the Base Salary, opportunities for Incentive
Compensation, the Option, and other benefits to the Executive, the receipt and
sufficiency of which are hereby acknowledged by Executive, the Executive
covenants as follows:
3.1.1 Non-Competition. Executive hereby agrees that during the
---------------
Employment Term and for a period of one (1) year following the Termination Date,
for any reason, Executive will not, directly or indirectly (i) engage in
Restricted Activities in the Commonwealth of Pennsylvania or in any other State
of the United States, or in any other country in the world, where the Company
engages in business, or proposes to engage in business on the Termination Date,
or (ii) participate in the ownership, management, operation, financing, or
control of, or be employed by or consult for or otherwise render services to, a
Restricted Business located in the Commonwealth of Pennsylvania or in any other
State of the United States or in any other country in the world, where the
Company conducts or proposes to conduct business on the Termination Date.
Notwithstanding the foregoing, Executive is permitted to own up to 5% of any
class of securities of any corporation which is traded on a national securities
exchange or through Nasdaq.
(i) Restricted Activities shall mean shall mean (A) the
Company's business as of the date of termination and/or (B) designing,
developing, manufacturing, marketing, or selling products or services which
directly compete with business, products and/or services of the Company and/or
its subsidiaries as of the Termination Date. Provided, however, that restricted
Activities shall not include any activities for which Executive has obtained
prior written approval from the Company to engage in.
(ii) Restricted Business shall mean any person,
corporation, firm, company (or a division or group thereof), partnership,
proprietorship, or other business entity which engages in Restricted Activities.
3.1.2 No Diversion of Others. During the Employment Term and
----------------------
for a period of one (1) year following the Termination Date, for any reason, the
Executive shall not, either for himself or for any other person, firm,
corporation, or other entity, directly or indirectly, or by action in concert
with others:
(i) individually or on behalf of any other person,
corporation, firm, or other entity, solicit or encourage any employee of the
Company or any subsidiary or affiliate of the Company to terminate his or her
employment with the Company or such subsidiary or affiliate, without the express
prior written consent of the Company;
(ii) take away or attempt to take away, or solicit or
attempt to solicit, any existing or Potential Customer (defined below) of the
Company (whether or not such customer is
8
<PAGE>
actually a customer of the Company as of the date hereof, including without
limitation any customer solicited by the Executive or which became known by the
Executive prior to the date hereof) with the purpose of obtaining such person as
an employee or customer for a business competitive with the Company's business.
For purposes of this Section, Potential Customer means any company or entity
actually solicited by the Company as of the Termination Date.
For purposes of this Agreement, "affiliate" shall mean a
corporation or other legal entity in common control with the Company.
3.1.3 Organizing Competitive Business. Without limiting any of
-------------------------------
the other provisions contained in this Section 3, during the Employment Term and
---------
any period during which Executive receives any Severance Payment, the Executive
shall not undertake planning for or organization of any business activity
competitive with the business of the Company, or conspire with agents,
employees, consultants, or other representatives of the Company for the purpose
of organizing any such competitive business activity.
4. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
---------------------------------------
The Executive acknowledges and agrees that any breach of the
terms of Sections 2 or 3 above would result in irreparable injury and damage to
---------- -
the Company for which the Company would have no adequate remedy at law; the
Executive therefore also acknowledges and agrees that in the event of such
breach or any threat of breach, the Company shall be entitled to an immediate
injunction and restraining order to prevent such breach and/or threatened breach
and/or continued breach by the Executive and/or any and all persons and/or
entities acting for and/or with the Executive, without having to prove damages,
in addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Executive.
5. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE
----------------------------------------------
The Executive represents and warrants to the Company that (i)
this Agreement is valid and binding upon and enforceable against him in
accordance with its terms, (ii) the Executive is not bound by or subject to any
contractual or other obligation that would be violated by his execution or
performance of this Agreement, including, but not limited to, any non-
competition agreement presently in effect, and (iii) the Executive is not
subject to any pending or, to the Executive's knowledge, threatened claim,
action, judgment, order, or investigation that could adversely affect his
ability to perform his obligations under this Agreement or the business
reputation of the Company.
6. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS
------------------------------------------
Sections 1.7, 2 and 3 above shall survive any termination of this
---------------------
Agreement and continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of each party. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of Sections 2 and 3
---------- -
above.
7. MISCELLANEOUS
-------------
7.1 Notices. All notices, requests, and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or
9
<PAGE>
by facsimile transmission with answer back confirmation or mailed (postage
prepaid by certified or registered mail, return receipt requested) or by
overnight courier to the parties at the following addresses or facsimile
numbers:
If to the Executive, to:
William J. Tobia
1324 Fieldpoint Drive
West Chester, Pennsylvania 19382
If to the Company, to:
Chairman, Board of Directors
Naviant Technology Solutions, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 7.1, be deemed given upon
-----------
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 7.1, be deemed given upon receipt, and (iii) if
-----------
delivered by mail in the manner described above to the address as provided in
this Section 7.1, be deemed given upon receipt (in each case regardless of
-----------
whether such notice, request, or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number, or other information for the purpose of notices to
that parry by giving written notice specifying such change to the other parties
hereto.
7.2 Obligations Contingent on Performance. The obligations of the
-------------------------------------
Company hereunder, including its obligation to pay the compensation provided for
herein, are contingent upon the Employee's performance of his obligations
hereunder.
7.3 Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements among the parties with respect to the subject matter
hereof and contain the sole and entire agreement between the parties hereto with
respect thereto.
7.4 Waiver. Any term or condition of this Agreement may be waived at
------
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party hereto of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by law or otherwise afforded, will be cumulative
and not alternative.
7.5 Amendment. This Agreement may be amended, supplemented, or
---------
modified only by a written instrument duly executed by or on behalf of each
party hereto.
7.6 No Third Party Beneficiary. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto and the
Company's successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person.
10
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7.7 No Assignment; Binding Effect. This Agreement shall inure to the
-----------------------------
benefit of any successors or assigns of the Company. The Executive shall not be
entitled to assign his obligations under this Agreement.
7.8 Headings. The headings used in this Agreement have been inserted
--------
for convenience of reference only and do not define or limit the provisions
hereof.
7.9 Severability. The Company and the Executive intend all
------------
provisions of this Agreement to be enforced to the fullest extent permitted by
law. Accordingly, if a court of competent jurisdiction determines that the scope
and/or operation of any provision of this Agreement is too broad to be enforced
as written, the Company and the Executive intend that the court should reform
such provision to such narrower scope and/or operation as it determines to be
enforceable. If, however, any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future law, and not subject
to reformation, then (i) such provision shall be fully severable, (ii) this
Agreement shall be construed and enforced as if such provision was never a part
of this Agreement, and (iii) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by illegal, invalid,
or unenforceable provisions or by their severance.
7.10 Binding Arbitration. Subject to the exceptions set forth below,
-------------------
the Executive and the Company agree that any and all claims or disputes between
them, or between Executive and any of the Company's employees, which arise out
of Executive's employment or under the terms of Executive's employment, shall be
resolved through final and binding arbitration, as specified herein. This shall
include, without limitation, disputes relating to this Agreement, Executive's
employment by the Company or the termination thereof, claims for breach of
contract or breach of the covenant of good faith and fair dealing, and any
claims of discrimination or other claims under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Pennsylvania Human Relations Act, the Employee Retirement
Income Securities Act, the Racketeer Influenced and Corrupt Organizations Act,
or any other federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of Executive's employment with the Company or its termination. The only
claims or disputes not covered by this paragraph are disputes related to (i)
claims for benefits under the unemployment insurance or workers' compensation
laws, and (ii) issues affecting the validity, infringement or enforceability of
any trade secret or patent rights held or sought by the Company or which the
Company could otherwise seek; in both of the foregoing cases such claims or
disputes shall not be subject to arbitration and will be resolved pursuant to
applicable law. Binding arbitration will be conducted in accordance with the
rules and regulations of the American Arbitration Association (AAA). Each party
will split the cost of the arbitration filing and hearing fees, and the cost of
the arbitrator; each side will bear its own attorneys' fees; that is, the
arbitrator will not have authority to award attorneys' fees unless a statutory
------
section at issue in the dispute authorizes the award of attorneys' fees to the
prevailing party, in which case the arbitrator has authority to make such award
as permitted by the statute in question. Executive and the Company understand
and agree that the arbitration shall be instead of any jury trial and that the
arbitrator's decision shall be final and binding to the fullest extent permitted
by law and enforceable by any court having jurisdiction thereof.
7.11 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Pennsylvania applicable to contracts
executed and performed in such State without giving effect to conflicts of laws
principles.
11
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7.12 Jurisdiction. With respect to any suit, action, or other
------------
proceeding arising from (or relating to) this Agreement and which is not subject
to the provisions of Section 7.10 herein, the Company and the Executive hereby
------------
irrevocably agree to the non-exclusive personal jurisdiction and venue of the
United States District Court for the Eastern District of Pennsylvania (and any
Pennsylvania State Court within Delaware County, Pennsylvania).
7.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date first written above.
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:___________________________
Name:_________________________
Title:________________________
Date:_________________________
EXECUTIVE
______________________________
William J. Tobia
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<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of September 15, 1999, by and between Naviant Technology Solutions, Inc., a
Delaware corporation (the "Company"), and Charles W. Stryker, an individual (the
"Executive").
RECITALS
--------
WHEREAS, the Company desires to hire the Executive and the Executive
desires to become employed by the Company; and
WHEREAS, the Company and the Executive have determined that it is in
their respective best interest to enter into this Agreement on the terms and
conditions as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT TERMS AND DUTIES
---------------------------
1.1 Employment. The Company hereby employs the Executive, and the
----------
Executive hereby accepts employment by the Company, upon the terms and
conditions set forth in this Agreement.
1.2 Duties. The Executive shall serve as Chairman of the Board of
------
Directors and Chief Executive Officer of the Company and shall perform all
reasonable duties assigned by the Board of Directors of the Company. The
Executive's principal place of employment shall be at the Company's headquarters
located in Newtown Square, Pennsylvania. The Company agrees to provide
Executive with Proprietary Information and specialized training necessary to
assist Executive in performing his duties under this Agreement. During the term
of his employment hereunder, the Executive shall devote his full working time
and efforts to the performance of his duties and the furtherance of the
interests of the Company and shall not be otherwise employed. Notwithstanding
the above, Executive may serve as a director, trustee, or advisor of other
organizations, or engage in charitable, civic, and/or governmental activities
provided that such service and activities do not interfere with Executive
performing his duties under this Agreement and further provided that Executive
obtains written consent for all such activities from a designated committee of
the Company's Board of Directors. As of the date of this Agreement, all such
approved activities are set forth on Exhibit 1 to this Agreement. Executive may
also engage in personal activities, including, without limitation, personal
investments (subject to Section 3.1.1), provided that such activities do not
interfere or conflict with his performance of duties hereunder.
1.3 Term. Subject to the provisions of Section 1.5 below, the
---- -----------
initial term of employment of the Executive under this Agreement shall commence
on the closing date of the Company's acquisition of IQ2.net (the "Hire Date")
and shall continue for a period of twenty-four (24) months (the "Initial Term").
This Agreement will automatically be renewed by mutual agreement of the parties
for an additional one (1) year period, unless notice of non-renewal is given to
Executive in writing by the Company at least six months prior to the expiration
of the Initial Term. (When used herein, the phrase "Employment Term" shall
refer to the Initial Term and any subsequent renewal period under this
Agreement)
1.4 Compensation and Benefits.
-------------------------
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1.4.1 Base Salary. In consideration of the services rendered to
-----------
the Company hereunder by the Executive and the Executive's covenants hereunder,
the Company shall, during the Employment Term, pay the Executive an initial
salary at the annual rate of Two Hundred Fifty Thousand Dollars ($250,000.00)
(the "Base Salary"), less statutory deductions and withholdings, payable in
accordance with the Company's regular payroll practices. The Base Salary shall
be subject to review and modification, but any modification will only be binding
and effective if it is contained in a written agreement, duly executed by
Executive and by the designated representative of the Company's Board of
Directors.
1.4.2 Incentive Compensation. In addition to the Base Salary,
----------------------
Executive shall also be entitled to receive annual Incentive Compensation in the
event, and only in the event, the Company achieves target financial objectives
("Target") as set forth in the annual financial plan approved by the Company's
Board of Directors. Executive shall be entitled to Incentive Compensation in
accordance with the following provisions:
(i) At the conclusion of the time period from the
commencement of this Agreement until December 31, 1999, Executive shall be
entitled to receive Incentive Compensation in an amount to be determined by the
Board of Directors, in their sole discretion.
(ii) At the conclusion of calendar year 2000, Executive
shall be entitled to receive Incentive Compensation up to a maximum of One
Hundred Thousand Dollars ($100,000.00) in the event that the Company achieves
its Target for revenue objectives and/or for pre-tax income objectives for
calendar year 2000 as those objectives are set forth and approved by the Board
of Directors of the Company in the Company's annual operating plan. The actual
Incentive Compensation amount shall be calculated based upon separate weightings
attributed to revenue objectives and pre-tax income objectives as set forth and
approved by the Board of Directors of the Company in the Company's annual
operating plan.
(iii) At the conclusion of calendar year 2001, Executive
shall be entitled to receive Incentive Compensation up to a maximum of One
Hundred Thousand Dollars ($100,000.00) in the event that the Company achieves
its Target for revenue objectives and/or for pre-tax income objectives for
calendar year 2001 as those objectives are set forth and approved by the Board
of Directors of the Company in the Company's annual operating plan. The actual
Incentive Compensation amount shall be calculated based upon separate weightings
attributed to revenue objectives and pre-tax income objectives as set forth and
approved by the Board of Directors of the Company in the Company's annual
operating plan.
1.4.3 Benefits Package. In addition to the Base Salary, during
----------------
the Employment Term, the Executive shall be entitled to receive such employee
benefits and holidays as may be in effect from time to time as are afforded to
other executives of the Company.
1.4.4 Relocation Allowance. In addition to the other
--------------------
compensation provided to Executive under this Agreement, the Company shall pay
Executive the sum of Seventy-Five Thousand Dollars ($75,000.00) in a lump sum,
one-time payment as a relocation allowance (the "Relocation Allowance"). In the
event that Executive voluntarily terminates his employment with the Company
prior to the expiration of the Initial Term, Executive agrees to repay to the
Company a pro rata portion of the Relocation Allowance in a lump sum payment
equal to Three Thousand Dollars ($3,000.00) for every month remaining before the
expiration of the Initial Term. For example, if Executive voluntarily terminates
his employment with the Company in the 13th month of this Agreement, leaving 11
months remaining in the Initial Term, Executive would be required to repay to
the Company the amount of Thirty-Three Thousand Dollars ($33,000.00).
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<PAGE>
1.4.5 Vacation. The Executive shall be entitled to four (4)
--------
weeks' vacation each year of employment.
1.4.6 Expenses. The Company shall, upon receipt from the
--------
Executive of supporting receipts to the extent required by applicable income tax
regulations and the Company's reimbursement policies, reimburse the Executive
for all out-of-pocket business expenses reasonably incurred by the Executive in
connection with his employment hereunder. Provided, however, that Executive
shall not be entitled to reimbursement of any expenses associated with commuting
---
from Executive's residence to his principal place of employment at the Company's
headquarters in Newtown Square, Pennsylvania.
1.4.7 Stock Option. The Executive will be entitled to
------------
participate in the Company's Stock Option Plan at the discretion of the
Company's Board of Directors upon the terms and conditions set forth in the
stock option agreement to be executed separately from this Agreement.
1.5 Termination. The Executive's employment and this Agreement
-----------
(except as otherwise provided hereunder) shall terminate upon the occurrence of
any of the following, at the time set forth therefor (the "Termination Date"):
1.5.1 Death or Disability. Immediately upon the death of the
-------------------
Executive or the determination by the Company that the Executive has ceased to
be able to perform the essential functions of his duties, with or without
reasonable accommodation, for a period of not less than ninety (90) days, due to
a mental or physical illness or incapacity ("Disability") (termination pursuant
to this Section 1.5.1 being referred to herein as termination for "Death or
-------------
Disability"); or
1.5.2 Voluntary Termination. Thirty (30) days following the
---------------------
Executive's written notice to the Company of termination of employment;
provided, however, that the Company may waive all or a portion of the thirty
- --------- -------
(30) days' notice and accelerate the effective date of such termination (and the
Termination Date) (termination pursuant to this Section 1.5.2 being referred to
-------------
herein as "Voluntary" termination); or
1.5.3 Termination For Cause. Immediately following notice of
---------------------
termination for "Cause" (as defined below), specifying such Cause, given by the
Company (termination pursuant to this Section 1.5.3 being referred to herein as
-------------
termination for "Cause"). As used herein, "Cause" means termination based on
(i) the Executive's material breach of this Agreement after receiving written
notification from the Company and following a reasonable cure period, (ii) the
Executive's conviction or plea of "guilty" or "no contest" to (x) any crime
constituting a felony in the jurisdiction in which committed, (y) any crime
involving moral turpitude (whether or not a felony), or (z) any other violation
of criminal law involving dishonesty or willful misconduct that materially
injures the Company (whether or not a felony), (iii) substance abuse by the
Executive that in any manner materially interferes with the performance of his
duties under this Agreement, (iv) the failure or refusal of the Executive to
follow the lawful and proper directives of the Company that are within the scope
of the Executive's duties set forth in Section 1.2 above and that is not
-----------
corrected within fifteen (15) days after written notice from the Company to the
Executive identifying such failure or refusal, (v) willful malfeasance or gross
misconduct by the Executive that discredits or damages the Company including,
without limitation, any breach of his obligations under Section 2 or Section 3
--------- ---------
below, (vi) indictment of the Executive for a felony violation of the federal
securities laws, (vii) the Executive's chronic absence from work for reasons
other than illness, or (viii) material sub-par performance (as determined by the
Board of Directors of the Company) by Executive of Executive's duties (provided
that, under this part (viii), Executive shall be entitled to a one-time ninety
--------
(90) day period in which to improve his material sub-par performance; in the
event that the Company chooses not to terminate Executive's employment after
such 90-day period, the Company may
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<PAGE>
elect at any time in the future to terminate the Executive's employment in
accordance with this provision without further notice to Executive or grant of
time to improve his performance); or
1.5.4 Termination Without Cause. Thirty (30) days following
-------------------------
notice of termination without Cause given by the Company; provided, however,
--------- -------
that during any such thirty (30) day notice period, the Company may suspend,
with no reduction in pay or benefits, the Executive from his duties as set forth
herein (including, without limitation, the Executive's position as a
representative and agent of the Company) (termination pursuant to this Section
-------
1.5.4 being referred to herein as termination "Without Cause").
- -----
1.5.5 Other Remedies. Termination pursuant to Section 1.5.3
-------------- -------------
above shall be in addition to and without prejudice to any other right or remedy
to which the Company may be entitled at law, in equity, or under this Agreement.
1.6 Severance and Termination.
-------------------------
1.6.1 Voluntary Termination, Termination for Cause,
---------------------------------------------
Termination for Death or Disability. In the case of a termination of
- -----------------------------------
Executive's employment hereunder for Death or Disability in accordance with
Section 1.5.1 above, or Executive's Voluntary termination of employment
- -------------
hereunder in accordance with Section 1.5.2 above, or a termination of the
-------------
Executive's employment hereunder for Cause in accordance with Section 1.5.3
-------------
above, (i) the Executive shall not be entitled to receive payment of, and the
Company shall have no obligation to pay, any severance or similar compensation
attributable to such termination, other than Base Salary earned but unpaid,
accrued but unused vacation to the extent allowed by the Company's policies,
vested benefits under any employee benefit plan, and any unreimbursed expenses
pursuant to Section 1.4.5 hereof incurred by the Executive as of the termination
-------------
date, and (ii) the Company's obligations under this Agreement shall immediately
cease.
1.6.2 Termination Without Cause. In the case of a termination of
-------------------------
the Executive's employment hereunder Without Cause in accordance with Section
-------
1.5.4 above, the Company shall pay the Executive Twelve (12) months' salary
- -----
(hereinafter the "Severance Payment"), payable at the times and subject to the
tax withholding specified in Section 1.4.1 above. The Company's obligation to
-------------
pay and the Executive's right to receive the Severance Payment shall cease in
the event of the Executive's breach of his obligations under Section 2 or
---------
Section 3 below. It is expressly acknowledged that the provisions of this
- ---------
Section 1.6.2 have the effect, in some or all cases of termination of the
- -------------
Executive's employment, of eliminating or reducing compensation (salary,
bonuses, and/or benefits) which would have been paid or available had
Executive's employment not been terminated.
1.7 Offset Against Severance. During the period in which the
------------------------
Executive is receiving Severance Payments from the Company (the "Severance
Period"), such Severance Payments to be provided to the Executive shall be
reduced on a dollar-for-dollar basis by any wages actually received by the
Executive during the Severance Period for full-time employment. The Executive
promises and agrees to promptly advise the Company of the amount and source of
any wages received by him.
2. CONFIDENTIAL INFORMATION - NON-DISCLOSURE
-----------------------------------------
2.1 Recognition of the Company's Rights: Nondisclosure. Executive
--------------------------------------------------
understands that the Company possesses Proprietary Information, which the
Company agrees to disclose to Executive for the purpose of performing his duties
under this Agreement.
4
<PAGE>
2.1.1 "Proprietary Information" shall mean Information (as
defined below) of value to the Company that is created, invented, developed,
prepared, conceived, reduced to practice, made, suggested, discovered, received,
or learned by the Company including, for example, but not limited to, any trade
secret, know-how, show-how and other proprietary information, irrespective of
(a) whether in tangible or non-tangible form, (b) whether patentable or
copyrighted or subject to confidentiality, (c) its media, (d) whether solely or
jointly created, invented, developed, prepared, conceived, reduced to practice,
made, suggested, discovered, received, or learned by Executive and/or one or
more other persons, or (e) whether created, invented, developed, prepared,
conceived, reduced to practice, made, suggested, discovered, received, or
learned before, during, or after the term of this Agreement. Proprietary
Information does not include Information (as defined below) that Executive
develops entirely on his own time without using the Company's equipment,
supplies, facilities, Proprietary Information, or trade secret information
except for such Information that either relates at the time of conception or
reduction to practice of the Information to the Company's business, or actual or
demonstrably anticipated research or development of the Company, or results from
any work performed by the Executive for the Company.
2.1.2 "Information" shall mean any list, schematic, diagram,
circuitry, technology, inventory, invention, idea, discovery, improvement,
design, concept, technique, algorithm, formula, method, process, configuration,
tooling, mechanism, manufacture, assembly, installation, model, apparatus,
product, device, system, network, data, plan, library, work of authorship, file,
media, record, report, copy, pictorial work, graphic work, audiovisual work,
hardware, firmware, computer interface (including for example but not limited to
programming interfaces), computer language, computer protocol, computer software
program or application (irrespective of whether source code or object code),
flow chart, blueprint, drawing, photograph, chart, graph, notebook, book,
computer disk, tape, storage media, printout, sound recording, note, memorandum,
specification, paper, document (irrespective of whether printed, typewritten,
handwritten or otherwise), information, material, account, business plan,
business operation, business method, business practice, business strategy,
research, development, marketing, revenue, sale, forecast, budget, finance,
license, price, cost, salary, compensation, knowledge about suppliers, knowledge
about available skills, and knowledge about actual and/or prospective employees,
clients, and/or customers (including for example but not limited to their names,
addresses, and telephone numbers).
2.1.3 "Non-party Information" shall mean Information discovered,
received, or learned by the Company from non-parties with respect to which the
Company is subject to a duty to maintain confidentiality or to use only for
certain limited purposes.
2.2 The Executive Covenant. In consideration of the Company's
----------------------
entering into this Agreement, providing Executive with Proprietary Information,
and providing the Base Salary, opportunities for Incentive Compensation, Stock
Options, and other benefits to the Executive, the receipt and sufficiency of
which are hereby acknowledged by the Executive, the Executive covenants as
follows:
2.2.1 Non-Disclosure of Proprietary Information and Non-Party
-------------------------------------------------------
Information. At all times during the term of this Agreement and thereafter,
- -----------
Executive shall hold all Proprietary Information and Non-party Information in
strictest trust and confidence and shall neither disclose (to anyone other than
the Company personnel having a need to know such Information in connection with
their activities for the Company) nor use (except insofar as required by
Executive's activities for the Company under this Agreement) any Proprietary
Information or any Non-party Information, unless: (a) Executive is expressly
authorized in writing to the contrary by a duly authorized officer of the
Company; (b) absent breach or violation of this Agreement, such Information is
or becomes generally known to the public or available to the public, as
evidenced by a printed publication or other equally conclusive evidence; (c)
absent breach or violation of this Agreement, such Information is
5
<PAGE>
rightfully received absent any confidentiality obligation by Executive from a
non-party outside of the Company, as evidenced by a dated and witnessed writing
prepared in the normal course of business or other equally conclusive evidence;
or (d) is required to be disclosed pursuant to a valid order by a court or other
governmental body or otherwise required by law, provided that Executive informs
the Company immediately upon Executive's receipt of notice, in any form, that
disclosure pursuant to this section may be required so that the Company may
oppose any compelled disclosure of its Proprietary Information. Executive
further agrees not to disclose any Proprietary Information pursuant to this
section unless and until he is informed that the Company will not oppose such
disclosure or that the Company's attempt to oppose such disclosure has been
denied.
2.2.2 Trade Secrets. All trade secrets of the Company will be
-------------
entitled to all of the protection and benefits under all applicable federal and
state trade secrets law. If any information that the Company deems to be a trade
secret is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless, be
considered Proprietary Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Company submit proof of the
economic value of any trade secret or post a bond or other security.
2.3 Assignment of Inventions.
------------------------
2.3.1 Definitions.
-----------
(i) "Moral Rights" shall mean (a) any right of paternity
or integrity, (b) any right to claim authorship or require authorship
identification, (c) any right to object to distortion, mutilation, or other
modification of, or other derogatory action in relation to, a work of
authorship, and (d) any similar right existing under judicial or statutory law
of any country or under any treaty, irrespective of whether such right is
generally referred to as a "moral right."
(ii) "Proprietary Right" shall mean any patent, trade
secret, confidentiality protection, know-how right, show-how right, mask work
right, copyright (e.g., including but not limited to any Moral Right), and any
other intellectual property protection and intangible interests and legal rights
of exclusion, of any and all countries, including for example but not limited to
(a) any person's publicity or privacy right, (b) any utility model or
application therefor, (c) any industrial model or application therefor, (d) any
certificate of invention or application therefor, (e) any application for
patent, including, for example, but not limited to, any provisional, divisional,
reissue, reexamination or continuation application, (f) any substitute, renewal
or extension of any such application, and (g) any right of priority resulting
from the filing of any such application.
(iii) "The Company Inventions" shall mean (a) any and all
Proprietary Information that is created, invented, developed, prepared,
conceived, reduced to practice, made, suggested, discovered, received, or
learned by Executive, either alone or jointly with one or more other persons,
during the term of this Agreement, and (b) any and all Proprietary Rights that
may be available in such Proprietary Information or result therefrom.
(iv) Executive may develop and/or review business plans,
provided (a) he does so entirely on his own time and without using the Company's
equipment, supplies, facilities, Proprietary Information, or trade secret
information, and (b) that any such business plans do not conflict with any of
Executive's obligations under Section 3. Business plans developed or reviewed by
Executive in a manner consistent with this Section shall be excluded from the
definition of Company Inventions.
6
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2.3.2 Executive's Covenant. Executive does hereby, without
--------------------
reservation, irrevocably:
(i) sell, assign, grant, transfer, and convey to the
Company (and the Company's successors and assigns): Executive's entire right,
title, and interest (present and future and throughout the world) in and to all
Company Inventions; provided however that, to the extent that any one or more of
the Company Inventions includes a work of authorship created by Executive
(solely or jointly with others), each such work of authorship shall
automatically be deemed to be created as a "work made for hire" (as that term is
defined in the United States Copyright Act (17 U.S.C. Section (S) 101)) that is
owned solely by the Company (as between Executive and the Company);
(ii) acknowledge and agree that, as between the Company
and Executive, (i) all the Company Inventions shall be the sole and exclusive
property of the Company, its successors and assigns, and (ii) the Company, its
successors and assigns shall be the sole and exclusive owner of all the Company
Inventions throughout the world;
(iii) waive and quitclaim to the Company any and all
claims, of any nature whatsoever, that Executive has now or may hereafter have
for infringement or violation of any one or more of the Company Inventions;
(iv) consent to any and all use of names, likenesses,
voices, and similar aspects of all the Company Inventions or related to or
associated with all the Company Inventions;
(v) authorize the Company (and its successors, assigns,
nominees, representatives, and designees) to apply (in the Company's own name)
for any and all patents (and similar non-U.S. rights) that may be available in
(or result from) all the Company Inventions, and to claim any and all rights of
priority without further authorization from Executive so that such patents issue
in the name of the Company (or its successors or assigns);
(vi) represent, warrant, and covenant that Executive
shall never assert any Moral Right in any one or more of the Company Inventions;
(vii) forever waive all Moral Rights in the Company
Inventions;
(viii) represent, warrant, and covenant that Executive
shall disclose and deliver, fully and in writing, to the Company, each and every
Company Invention promptly after such Company Invention is created, invented,
developed, prepared, conceived, reduced to practice, made, suggested,
discovered, received, or learned by Executive; and
(ix) represent, warrant, and covenant that Executive
shall (at the request of the Company, or any of its successors, assigns,
nominees, representatives, or designees) in every proper way cooperate and do
everything (at the Company's sole expense for Executive's reasonable actual
costs, but without additional charge to the Company) that the Company (or any
one or more of its successors, assigns, nominees, representatives, or designees)
may reasonably consider necessary or appropriate to assist the Company (and its
successors, assigns, nominees, representatives, and designees) to prepare and
make filings in any and all countries to apply for, prosecute, register,
evidence, defend, obtain, hold, secure, vest title to, protect, perfect,
maintain, uphold, and enforce any and all Proprietary Rights that may be
available in (or result from) the Company Inventions, including for example but
not limited to: communicating to the Company (and its successors, assigns,
nominees, representatives, and designees) any Information relating to conception
or reduction to practice or prosecution of any one or more of such Proprietary
Rights; testifying and rendering prompt assistance and cooperation in any and
7
<PAGE>
all legal proceedings (e.g., including but not limited to any opposition,
cancellation proceeding, interference proceeding, priority contest, public use
proceeding, reexamination proceeding, and court proceeding) involving any one or
more of such Proprietary Rights; and executing, verifying and delivering any and
all assignments, oaths, declarations, powers of attorney, and other instruments
and documents. If Executive fails or refuses to execute any such assignment,
oath, declaration, power of attorney, instrument, or document, Executive hereby
designates and appoints the Company (and its successors and assigns) as
Executive's true and lawful agent and attorney-in-fact (such agency and power of
attorney being irrevocable by Executive and coupled with an interest in favor of
the Company and its successors and assigns), with full power of substitution, to
act for Executive and in Executive's behalf to do any lawfully permitted act in
furtherance of the purposes of the immediately preceding sentence (e.g.,
including but not limited to executing, verifying, and filing such assignments,
oaths, declarations, powers of attorney, and other instruments and documents) in
Executive's name and stead and on behalf of and for the benefit of the Company
and its successors and assigns, with the same legal force and effect as if
Executive performed such act, irrespective of whether in Executive's name or the
Company's name or otherwise.
3. NON-COMPETITION AND NON-INTERFERENCE
------------------------------------
3.1 Covenant of the Executive. In consideration of the Company's
-------------------------
entering into this Agreement, providing Executive with Proprietary Information
and specialized training, providing the Base Salary, opportunities for Incentive
Compensation, Stock Options, and other benefits to the Executive, the receipt
and sufficiency of which are hereby acknowledged by Executive, the Executive
covenants as follows:
3.1.1 Non-Competition. Executive hereby agrees that during the
---------------
Employment Term and for a period of one (1) year following the Termination Date,
for any reason, Executive will not, directly or indirectly (i) engage in
Restricted Activities in the Commonwealth of Pennsylvania or in any other State
of the United States, or in any other country in the world, where the Company
engages in business, or proposes to engage in business on the Termination Date,
or (ii) participate in the ownership, management, operation, financing, or
control of, or be employed by or consult for or otherwise render services to, a
Restricted Business located in the Commonwealth of Pennsylvania or in any other
State of the United States or in any other country in the world, where the
Company conducts or proposes to conduct business on the Termination Date.
Provided, however, that in the event that the Company gives notice of non-
renewal of this Agreement (as discussed in Section 1.3 herein) to Executive in
writing at least six months prior to the expiration of the Initial Term, the one
(1) year period of non-competition referenced in this paragraph shall begin to
run on the date that notice is given, and not on the actual Termination Date.
Notwithstanding anything else in this paragraph, Executive is permitted to own
up to 5% of any class of securities of any corporation which is traded on a
national securities exchange or through Nasdaq.
(i) Restricted Activities shall mean shall mean (A) the
Company's business as of the date of termination and/or (B) designing,
developing, manufacturing, marketing, or selling products or services which
directly compete with business, products and/or services of the Company and/or
its subsidiaries as of the Termination Date. Provided, however, that Restricted
Activities shall not include any activities for which Executive has obtained
prior written approval from the Company to engage in.
(ii) Restricted Business shall mean any person,
corporation, firm, company (or a division or group thereof), partnership,
proprietorship, or other business entity which engages in Restricted Activities.
8
<PAGE>
3.1.2 No Diversion of Others. During the Employment Term and for
----------------------
a period of one (1) year following the Termination Date, for any reason, the
Executive shall not, either for himself or for any other person, firm,
corporation, or other entity, directly or indirectly, or by action in concert
with others:
(i) individually or on behalf of any other person,
corporation, firm, or other entity, solicit or encourage any employee of the
Company or any subsidiary or affiliate of the Company to terminate his or her
employment with the Company or such subsidiary or affiliate, without the express
prior written consent of the Company. Provided, however, that Executive shall be
entitled to solicit and employ Marian Jones and such shall not be considered a
violation of this Agreement;
(ii) take away or attempt to take away, or solicit or
attempt to solicit, any existing or Potential Customer (defined below) of the
Company (whether or not such customer is actually a customer of the Company as
of the date hereof, including without limitation any customer solicited by the
Executive or which became known by the Executive prior to the date hereof) with
the purpose of obtaining such person as an employee or customer for a business
competitive with the Company's business. For purposes of this Section, Potential
Customer means any company or entity actually solicited by the Company as of the
Termination Date.
For purposes of this Agreement, "affiliate" shall mean a
corporation or other legal entity in common control with the Company.
3.1.3 Organizing Competitive Business. Without limiting any of
-------------------------------
the other provisions contained in this Section 3, during the Employment Term and
---------
any period during which Executive receives any Severance Payment, the Executive
shall not undertake planning for or organization of any business activity
competitive with the business of the Company, or conspire with agents,
employees, consultants, or other representatives of the Company for the purpose
of organizing any such competitive business activity.
4. INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
---------------------------------------
The Executive acknowledges and agrees that any breach of the
terms of Sections 2 or 3 above would result in irreparable injury and damage to
---------- -
the Company for which the Company would have no adequate remedy at law; the
Executive therefore also acknowledges and agrees that in the event of such
breach or any threat of breach, the Company shall be entitled to an immediate
injunction and restraining order to prevent such breach and/or threatened breach
and/or continued breach by the Executive and/or any and all persons and/or
entities acting for and/or with the Executive, without having to prove damages,
in addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Executive.
5. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE
----------------------------------------------
The Executive represents and warrants to the Company that (i)
this Agreement is valid and binding upon and enforceable against him in
accordance with its terms, (ii) the Executive is not bound by or subject to any
contractual or other obligation that would be violated by his execution or
performance of this Agreement, including, but not limited to, any non-
competition agreement presently in effect, and (iii) the Executive is not
subject to any pending or, to the Executive's knowledge, threatened claim,
action, judgment, order, or investigation that could adversely affect his
ability to perform his obligations under this Agreement or the business
reputation of the Company.
9
<PAGE>
6. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS
------------------------------------------
Sections 1.7, 2 and 3 above shall survive any termination of this
---------------------
Agreement and continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of each party. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of Sections 2 and 3
---------- -
above.
7. MISCELLANEOUS
-------------
7.1 Notices. All notices, requests, and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission with
answer back confirmation or mailed (postage prepaid by certified or registered
mail, return receipt requested) or by overnight courier to the parties at the
following addresses or facsimile numbers:
If to the Executive, to:
Dr. Charles W. Stryker
5 Apgar Way
Lebanon, New Jersey 08833
If to the Company, to:
Chairman, Board of Directors
Naviant Technology Solutions, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 7.1, be deemed given upon
-----------
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 7.1, be deemed given upon receipt, and (iii) if
-----------
delivered by mail in the manner described above to the address as provided in
this Section 7.1, be deemed given upon receipt (in each case regardless of
-----------
whether such notice, request, or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number, or other information for the purpose of notices to
that parry by giving written notice specifying such change to the other parties
hereto.
7.2 Obligations Contingent on Performance. The obligations of
-------------------------------------
the Company hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Employee's performance of his obligations
hereunder.
7.3 Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements among the parties with respect to the subject matter
hereof and contain the sole and entire agreement between the parties hereto with
respect thereto.
7.4 Waiver. Any term or condition of this Agreement may be
------
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
10
<PAGE>
by any party hereto of any term or condition of this Agreement, in any one or
more instances, shall be deemed to be or construed as a waiver of the same or
any other term or condition of this Agreement on any future occasion. All
remedies, either under this Agreement or by law or otherwise afforded, will be
cumulative and not alternative.
7.5 Amendment. This Agreement may be amended, supplemented, or
---------
modified only by a written instrument duly executed by or on behalf of each
party hereto.
7.6 No Third Party Beneficiary. The terms and provisions of
--------------------------
this Agreement are intended solely for the benefit of each party hereto and the
Company's successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person.
7.7 No Assignment; Binding Effect. This Agreement shall inure
-----------------------------
to the benefit of any successors or assigns of the Company. The Executive shall
not be entitled to assign his obligations under this Agreement.
7.8 Headings. The headings used in this Agreement have been
--------
inserted for convenience of reference only and do not define or limit the
provisions hereof.
7.9 Severability. The Company and the Executive intend all
------------
provisions of this Agreement to be enforced to the fullest extent permitted by
law. Accordingly, if a court of competent jurisdiction determines that the scope
and/or operation of any provision of this Agreement is too broad to be enforced
as written, the Company and the Executive intend that the court should reform
such provision to such narrower scope and/or operation as it determines to be
enforceable. If, however, any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future law, and not subject
to reformation, then (i) such provision shall be fully severable, (ii) this
Agreement shall be construed and enforced as if such provision was never a part
of this Agreement, and (iii) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by illegal, invalid,
or unenforceable provisions or by their severance.
7.10 Binding Arbitration. Subject to the exceptions set forth
-------------------
below, the Executive and the Company agree that any and all claims or disputes
between them, or between Executive and any of the Company's employees, which
arise out of Executive's employment or under the terms of Executive's
employment, shall be resolved through final and binding arbitration, as
specified herein. This shall include, without limitation, disputes relating to
this Agreement, Executive's employment by the Company or the termination
thereof, claims for breach of contract or breach of the covenant of good faith
and fair dealing, and any claims of discrimination or other claims under Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Americans with Disabilities Act, the Pennsylvania Human Relations Act, the
Employee Retirement Income Securities Act, the Racketeer Influenced and Corrupt
Organizations Act, or any other federal, state or local law or regulation now in
existence or hereinafter enacted and as amended from time to time concerning in
any way the subject of Executive's employment with the Company or its
termination. The only claims or disputes not covered by this paragraph are
disputes related to (i) claims for benefits under the unemployment insurance or
workers' compensation laws, and (ii) issues affecting the validity, infringement
or enforceability of any trade secret or patent rights held or sought by the
Company or which the Company could otherwise seek; in both of the foregoing
cases such claims or disputes shall not be subject to arbitration and will be
resolved pursuant to applicable law. Binding arbitration will be conducted in
accordance with the rules and regulations of the American Arbitration
Association (AAA). Each party will split the cost of the arbitration filing and
hearing fees, and the cost of the arbitrator. Executive and the Company
understand and agree that the arbitration shall be instead of any jury trial and
that the arbitrator's decision shall be
11
<PAGE>
final and binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction thereof.
7.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Pennsylvania applicable to
contracts executed and performed in such State without giving effect to
conflicts of laws principles.
7.12 Jurisdiction. With respect to any suit, action, or other
------------
proceeding arising from (or relating to) this Agreement and which is not subject
to the provisions of Section 7.10 herein, the Company and the Executive hereby
------------
irrevocably agree to the non-exclusive personal jurisdiction and venue of the
United States District Court for the Eastern District of Pennsylvania (and any
Pennsylvania State Court within Delaware County, Pennsylvania).
7.13 Recovery of Attorney's Fees. In the event of any
---------------------------
arbitration proceedings brought under Section 7.10 of this Agreement, or any
------------
litigation arising from or relating to this Agreement, the prevailing party in
such arbitration or litigation proceedings shall be entitled to recover, from
the non-prevailing party, the prevailing party's costs and reasonable attorney's
fees, in addition to all other legal or equitable remedies to which it may
otherwise be entitled.
7.14 Counterparts. This Agreement may be executed in any number
------------
of counterparts and by facsimile, each of which will be deemed an original, but
all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the date first written above.
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Date:_____________________________________
EXECUTIVE
__________________________________________
Charles W. Stryker
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
12
<PAGE>
EXHIBIT 10.20
NAVIANT, INC.
NOTE SECURED BY STOCK PLEDGE AGREEMENT
$_____________ January 25, 2000
Newtown Square, Pennsylvania
FOR VALUE RECEIVED, _________________ ("Maker") promises to pay to the
order of Naviant, Inc. (the "Corporation"), at its corporate offices at 14
Campus Boulevard, Suite 200, Newtown Square, Pennsylvania 19073, the principal
sum of $_________, together with all accrued interest thereon, upon the terms
and conditions specified below.
1. Interest. Interest shall accrue on the unpaid balance outstanding
--------
from time to time under this Note at the rate of 6.21% per annum, compounded
annually.
2. Principal. The entire principal balance of this Note, together with
---------
all accrued and unpaid interest, shall become due and payable in one lump sum on
January 24, 2004.
3. Payment. Payment shall be made in lawful tender of the United States
-------
and shall be applied first to the payment of all accrued and unpaid interest and
then to the payment of principal. Prepayment of the principal balance of this
Note, together with all accrued and unpaid interest, may be made in whole or in
part at any time without penalty.
4. Events of Acceleration. The entire unpaid principal balance of this
-----------------------
Note, together with all accrued and unpaid interest, shall become immediately
due and payable prior to the specified due date of this Note upon the occurrence
of one or more of the following events:
A. the failure of the Maker to pay when due the principal or the
accrued interest on this Note and the continuation of either such default for
more than 30 days; or
B. the expiration of the 30-day period following the date the Maker
ceases for any reason to remain in the Corporation's employ; or
C. an acquisition of the Corporation (whether by merger or
acquisition of all or substantially all of the Corporation's assets or
outstanding voting stock) for consideration payable in cash or freely-tradable
securities; provided, however, that if the Pooling of Interest Method, as
described in Accounting Principles Board Opinion No. 16, is used to account for
the acquisition for financial reporting purposes, acceleration shall not occur
prior to the end of the 60-day period immediately following the end of the
applicable restriction period required under Accounting Series Release Numbers
130 and 135; or
D. the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general assignment for
the benefit of creditors, the filing by or against the Maker of any petition in
bankruptcy or any petition for relief under the provisions of the Federal
Bankruptcy Act or any other state or federal law for the relief of
<PAGE>
debtors and the continuation of such petition without dismissal for a period of
30 days or more, the appointment of a receiver or trustee to take possession of
any property or assets of the Maker or the attachment of or execution against
any property or assets of the Maker; or
E. the occurrence of any event of default under the Stock Pledge
Agreement securing this Note or any obligation secured thereby.
5. Special Acceleration Event. In the event the Maker sells or otherwise
--------------------------
transfers for value one or more shares of the Corporation's common stock
purchased with the proceeds of this Note, then any unpaid portion of the
principal balance of this Note attributable to the purchase price of those
shares shall become immediately due and payable, together with all accrued and
unpaid interest on that principal portion.
6. Employment. For purposes of applying the provisions of this Note, the
----------
Maker shall be considered to remain in the Corporation's employ for so long as
the Maker renders services as a full-time employee of the Corporation, any
successor entity or one or more of the Corporation's 50%-or-more owned (directly
or indirectly) subsidiaries.
7. Security. The proceeds of the loan evidenced by this Note shall be
--------
applied solely to the payment of the purchase price of _________ shares of the
Corporation's common stock and payment of this Note shall be secured by a pledge
of those shares with the Corporation pursuant to the Stock Pledge Agreement to
be executed this date by the Maker. The Maker, however, shall remain personally
liable for payment of this Note and assets of the Maker, in addition to the
collateral under the Stock Pledge Agreement, may be applied to the satisfaction
of the Maker's obligations hereunder.
8. Collection. If action is instituted to collect this Note, the Maker
----------
promises to pay all costs and expenses (including reasonable attorneys' fees)
incurred in connection with such action.
9. Waiver. A waiver of any term of this Note, the Stock Pledge Agreement
------
or of any of the obligations secured thereby must be made in writing and signed
by a duly-authorized officer of the Corporation and any such waiver shall be
limited to its express terms. No delay by the Corporation in acting with respect
to the terms of this Note or the Stock Pledge Agreement shall constitute a
waiver of any breach, default or failure of a condition under this Note, the
Stock Pledge Agreement or the obligations secured thereby.
The Maker waives presentment, demand, notice of dishonor, notice of
default or delinquency, notice of acceleration, notice of protest and
nonpayment, notice of costs, expenses or losses and interest thereon, notice of
interest on interest and diligence in taking any action to collect any sums
owing under this Note or in proceeding against any of the rights or interests in
or to properties securing payment of this Note.
10. Conflicting Agreements. In the event of any inconsistencies between
-----------------------
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.
2
<PAGE>
11. Governing Law. This Note shall be construed in accordance with the
-------------
laws of the Commonwealth of Pennsylvania.
MAKER: ______________________
___________________
3
<PAGE>
EXHIBIT 10.21
NAVIANT, INC.
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement") made as of this 25th
day of January, 2000 by and between Naviant, Inc., a Delaware corporation (the
"Corporation") and ____________________ ("Pledgor").
RECITALS
A. In connection with the purchase of __________ shares of the
Corporation's Common Stock (the "Purchased Shares") on the date of this
Agreement from the Corporation, Pledgor has issued that certain promissory note
(the "Note") dated January 25, 2000 payable to the order of the Corporation in
the principal amount of $________________.
B. Such Note is secured by the Purchased Shares and other collateral
upon the terms set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Security Interest. Pledgor hereby grants the
--------------------------
Corporation a security interest in, and assigns, transfers to and pledges with
the Corporation, the following securities and other property (collectively, the
"Collateral"):
(i) the Purchased Shares delivered to and deposited with the
Corporation as collateral for the Note;
(ii) any and all new, additional or different securities or
other property subsequently distributed with respect to the Purchased Shares
which are to be delivered to and deposited with the Corporation pursuant to the
requirements of Paragraph 3 of this Agreement;
(iii) any and all other property and money which is delivered to
or comes into the possession of the Corporation pursuant to the terms of this
Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the
property and securities described in subparagraphs (i), (ii) or (iii) above.
2. Warranties. Pledgor hereby warrants that Pledgor is the owner of
----------
the Collateral and has the right to pledge the Collateral and that the
Collateral is free from all liens, adverse claims and other security interests
(other than those created hereby).
3. Duty to Deliver. Any new, additional or different securities or
---------------
other property (other than regular cash dividends) which may now or hereafter
become distributable with
<PAGE>
respect to the Collateral by reason of (i) any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Common Stock as a class without the Corporation's receipt of
consideration or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Corporation shall, upon receipt by
Pledgor be promptly delivered to and deposited with the Corporation as part of
the Collateral hereunder. Any such securities shall be accompanied by one or
more properly-endorsed stock power assignments.
4. Payment of Taxes and Other Charges. Pledgor shall pay, prior to
----------------------------------
the delinquency date, all taxes, liens, assessments and other charges against
the Collateral, and in the event of Pledgor's failure to do so, the Corporation
may at its election pay any or all of such taxes and other charges without
contesting the validity or legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and until paid shall bear interest at
the minimum per annum rate, compounded semi-annually, required to avoid the
imputation of interest income to the Corporation and compensation income to
Pledgor under the Federal tax laws.
5. Stockholder Rights. So long as there exists no event of default
------------------
under Paragraph 10 of this Agreement, Pledgor may exercise all stockholder
voting rights and be entitled to receive any and all regular cash dividends paid
on the Collateral and all proxy statements and other stockholder materials
pertaining to the Collateral.
6. Rights and Powers of Corporation. The Corporation may, without
--------------------------------
obligation to do so, exercise at any time and from time to time one or more of
the following rights and powers with respect to any or all of the Collateral:
(i) subject to the applicable limitations of Paragraph 9,
accept in its discretion other property of Pledgor in exchange for all or part
of the Collateral and release Collateral to Pledgor to the extent necessary to
effect such exchange, and in such event the other property received in the
exchange shall become part of the Collateral hereunder;
(ii) perform such acts as are necessary to preserve and protect
the Collateral and the rights, powers and remedies granted with respect to such
Collateral by this Agreement; and
(iii) transfer record ownership of the Collateral to the
Corporation or its nominee and receive, endorse and give receipt for, or collect
by legal proceedings or otherwise, dividends or other distributions made or paid
with respect to the Collateral, provided and only if there exists at the time an
outstanding event of default under Paragraph 10 of this Agreement. Any cash sums
which the Corporation may so receive shall be applied to the payment of the Note
and any other indebtedness secured hereunder, in such order of application as
the Corporation deems appropriate. Any remaining cash shall be paid over to
Pledgor.
Any action by the Corporation pursuant to the provisions of this
Paragraph may be taken without notice to Pledgor. Expenses reasonably incurred
in connection with such action
2
<PAGE>
shall be payable by Pledgor and form part of the indebtedness secured hereunder
as provided in Paragraph 12.
7. Care of Collateral. The Corporation shall exercise reasonable
------------------
care in the custody and preservation of the Collateral. However, the Corporation
shall have no obligation to (i) initiate any action with respect to, or
otherwise inform Pledgor of, any conversion, call, exchange right, preemptive
right, subscription right, purchase offer or other right or privilege relating
to or affecting the Collateral, (ii) preserve the rights of Pledgor against
adverse claims or protect the Collateral against the possibility of a decline in
market value or (iii) take any action with respect to the Collateral requested
by Pledgor unless the request is made in writing and the Corporation determines
that the requested action will not unreasonably jeopardize the value of the
Collateral as security for the Note and other indebtedness secured hereunder.
Subject to the limitations of Paragraph 9, the Corporation may at any
time release and deliver all or part of the Collateral to Pledgor, and the
receipt thereof by Pledgor shall constitute a complete and full acquittance for
the Collateral so released and delivered. The Corporation shall accordingly be
discharged from any further liability or responsibility for the Collateral, and
the released Collateral shall no longer be subject to the provisions of this
Agreement.
8. Transfer of Collateral. In connection with the transfer or
----------------------
assignment of the Note (whether by negotiation, discount or otherwise), the
Corporation may transfer all or any part of the Collateral, and the transferee
shall thereupon succeed to all the rights, powers and remedies granted the
Corporation hereunder with respect to the Collateral so transferred. Upon such
transfer, the Corporation shall be fully discharged from all liability and
responsibility for the transferred Collateral.
9. Release of Collateral. Provided all indebtedness secured
---------------------
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full and there does not otherwise exist any event of
default under Paragraph 10, the Purchased Shares, together with any additional
Collateral which may hereafter be pledged and deposited hereunder, shall be
released from pledge and returned to Pledgor in accordance with the following
provisions:
(i) Upon payment or prepayment of principal under the Note,
together with payment of all accrued interest to date, one or more of the
Purchased Shares held as Collateral hereunder shall (subject to the applicable
limitations of Paragraphs 9(iii) and 9(v) below) be released to Pledgor within
30 days after such payment or prepayment. The number of the shares to be so
released shall be equal to the number obtained by multiplying (i) the total
number of Purchased Shares held under this Agreement at the time of the payment
or prepayment, by (ii) a fraction, the numerator of which shall be the amount of
the principal paid or prepaid and the denominator of which shall be the unpaid
principal balance of the Note immediately prior to such payment or prepayment.
In no event, however, shall any fractional shares be released.
(ii) Any additional Collateral which may hereafter be pledged and
deposited with the Corporation (pursuant to the requirements of Paragraph 3)
with respect to the Purchased Shares shall be released at the same time the
particular shares of Common Stock to which the
3
<PAGE>
additional Collateral relates are to be released in accordance with the
applicable provisions of Paragraph 9(i).
(iii) Under no circumstances, however, shall any Purchased
Shares or any other Collateral be released if previously applied to the payment
of any indebtedness secured hereunder. In addition, in no event shall any
Purchased Shares or other Collateral be released pursuant to the provisions of
Paragraph 9(i) or 9(ii) if, and to the extent, the fair market value of the
Common Stock and all other Collateral which would otherwise remain in pledge
hereunder after such release were effected would be less than the unpaid
principal and accrued interest under the Note.
(iv) For all valuation purposes under this Agreement, the fair
market value per share of Common Stock on any relevant date shall be determined
in accordance with the following provisions:
(A) If the Common Stock is at the time traded on the
Nasdaq National Market, the fair market value shall be the closing selling price
per share of Common Stock on the date in question, as such prices are reported
by the National Association of Securities Dealers on its Nasdaq system or any
successor system. If there is no reported closing selling price for the Common
Stock on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of fair
market value.
(B) If the Common Stock is at the time listed on the
American Stock Exchange or the New York Stock Exchange, then the fair market
value shall be the closing selling price per share of Common Stock on the date
in question on the securities exchange serving as the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(C) If the Common Stock is at the time neither listed on
any securities exchange nor traded on the Nasdaq National Market, the fair
market value shall be determined by the Corporation's Board of Directors after
taking into account such factors as the Board shall deem appropriate.
(v) In the event the Collateral becomes in whole or in part
comprised of "margin securities" within the meaning of Section 207.2(i) of
Regulation G of the Federal Reserve Board, then no Collateral shall thereafter
be substituted for any Collateral under the provisions of Paragraph 6(i) or be
released under Paragraph 9(i) or (ii), unless there is compliance with each of
the following additional requirements:
(A) The substitution or release must not increase the
amount by which the indebtedness secured hereunder at the time of such
substitution or release exceeds the maximum loan value (as defined below) of the
Collateral immediately prior to such substitution or release.
4
<PAGE>
(B) The substitution or release must not cause the amount of
indebtedness secured hereunder at the time of such substitution or release to
exceed the maximum loan value of the Collateral remaining after such
substitution or release is effected.
(C) For purposes of this Paragraph 9(v), the maximum loan value
of each item of Collateral shall be determined on the day the substitution or
release is to be effected and shall, in the case of the shares of Common Stock
and any additional Collateral (other than margin securities), equal the good
faith loan value thereof (as defined in Section 207.2(e)(1) of Regulation G) and
shall, in the case of all margin securities (other than the Common Stock), equal
50% of the current market value of such securities.
10. Events of Default. The occurrence of one or more of the
following events shall constitute an event of default under this Agreement:
(i) the failure of Pledgor to pay, when due under the Note,
any installment of principal or accrued interest after any grace period set
forth in the Note has expired, if any; or
(ii) the occurrence of any other acceleration event specified
in the Note; or
(iii) the failure of Pledgor to perform any obligation imposed
upon Pledgor by reason of this Agreement; or
(iv) the breach of any warranty of Pledgor contained in this
Agreement.
Upon the occurrence of any such event of default, the Corporation
may, at its election, declare the Note and all other indebtedness secured
hereunder to become immediately due and payable and may exercise any or all of
the rights and remedies granted to a secured party under the provisions of the
California Uniform Commercial Code (as now or hereafter in effect), including
(without limitation) the power to dispose of the Collateral by public or private
sale or to accept the Collateral in full payment of the Note and all other
indebtedness secured hereunder.
Any proceeds realized from the disposition of the Collateral
pursuant to the foregoing power of sale shall be applied first to the payment of
expenses incurred by the Corporation in connection with the disposition, then to
the payment of the Note and finally to any other indebtedness secured hereunder.
Any surplus proceeds shall be paid over to Pledgor. However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.
11. Other Remedies. The rights, powers and remedies granted to the
--------------
Corporation pursuant to the provisions of this Agreement shall be in addition to
all rights, powers and remedies granted to the Corporation under any statute or
rule of law. Any forbearance, failure or delay by the Corporation in exercising
any right, power or remedy under this Agreement shall not be deemed to be a
waiver of such right, power or remedy. Any single or partial exercise of any
right, power or remedy under this Agreement shall not preclude the further
exercise thereof, and every right, power and remedy of the Corporation under
this Agreement shall continue in
5
<PAGE>
full force and effect unless such right, power or remedy is specifically waived
by an instrument executed by the Corporation.
12. Costs and Expenses. All costs and expenses (including reasonable
------------------
attorneys fees) incurred by the Corporation in the exercise or enforcement of
any right, power or remedy granted it under this Agreement shall become part of
the indebtedness secured hereunder and shall constitute a personal liability of
Pledgor payable immediately upon demand and bearing interest until paid at the
minimum per annum rate, compounded semi-annually, required to avoid the
imputation of interest income to the Corporation and compensation income to
Pledgor under the Federal tax laws.
13. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the Commonwealth of Pennsylvania
without resort to that its conflict-of-laws rules.
14. Successors. This Agreement shall be binding upon the Corporation
----------
and its successors and assigns and upon Pledgor and the executors, heirs and
legatees of Pledgor's estate.
15. Severability. If any provision of this Agreement is held to be
------------
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provision nor
any other provisions of this Agreement shall be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by Pledgor and
the Corporation on this 25/th/ day of January, 2000.
NAVIANT, INC.
By: ___________________________
William J. Tobia
Senior Vice President and
Chief Financial Officer
PLEDGOR
_______________________________
_______________________________
Address: 14 Campus Boulevard, #200
Newtown Square, PA 19073
6
<PAGE>
EXHIBIT 10.22
$750,000.60 September 13, 1999
Newtown Square, Pennsylvania
Naviant Technology Solutions, Inc.
NOTE SECURED BY PLEDGE AGREEMENT
FOR VALUE RECEIVED, Charles W. Stryker ("Maker") promises to pay to
the order of Naviant Technology Solutions, Inc. (the "Corporation"), at its
corporate offices at 14 Campus Blvd., Suite 200, Newtown Square, Pennsylvania
19073 the principal sum of Seven Hundred Fifty Thousand Dollars and 60/100's
($750,000.60), together with all accrued interest thereon, upon the terms and
conditions specified below.
1. Principal. The principal balance of this Note shall become due
---------
and payable on September 13, 2001 subject to acceleration pursuant to paragraph
4 hereof.
2. Interest. Interest shall accrue on the unpaid balance
--------
outstanding from time to time under this Note at the rate of 5.42% per annum,
compounded annually. Accrued interest shall be payable on the principal due
date.
3. Payment. Payment shall be made in lawful tender of the United
-------
States and shall be applied first to the payment of all accrued and unpaid
interest and then to the payment of principal. Prepayment of the principal
balance of this Note, together with all accrued and unpaid interest, may be made
in whole or in part at any time without penalty.
4. Events of Acceleration. The entire unpaid principal balance of
----------------------
this Note, together with all accrued and unpaid interest, shall become
immediately due and payable prior to the specified due date of this Note upon
the occurrence of one or more of the following events:
A. the expiration of the 30-day period following the date the
Maker ceases for any reason to remain in the Corporation's employ; or
B. the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general assignment
for the benefit of creditors, the filing by or against the Maker of any
petition in bankruptcy or any petition for relief under the provisions of
any federal bankruptcy act or any other state or federal law for the relief
of debtors and the continuation of such petition without dismissal for a
period of 30 days or more, the appointment of a receiver or trustee to take
possession of any property or assets of the Maker or the attachment of or
execution against any property or assets of the Maker; or
C. the occurrence of any event of default under the Pledge
Agreement securing this Note or any obligation secured thereby.
5. Special Acceleration Events. In the event the Maker sells or
---------------------------
otherwise transfers for value one or more shares of the Corporation's Series C
Convertible Redeemable Preferred Stock or any or all of the Warrant to purchase
the Corporation's Common Stock (together, the "Securities") purchased with the
proceeds of this Note, then any unpaid portion of the principal balance of this
Note, up to the amount of value received for such Securities, shall
<PAGE>
$750,000.60 September 13, 1999
Newtown Square, Pennsylvania
become immediately due and payable, together with all accrued and unpaid
interest on that principal portion.
6. Employment. For purposes of applying the provisions of this Note,
----------
the Maker shall be considered to remain in the Corporation's employ for so long
as the Maker renders services as a full-time employee of the Corporation, any
successor entity or one or more of the Corporation's 50%-or-more owned
subsidiaries.
7. Security; Use of Proceeds. The proceeds of the loan evidenced by
-------------------------
this Note shall be applied solely to the payment of the purchase price of the
Securities, and payment of this Note shall be secured by a pledge of the
Securities, and other assets with the Corporation pursuant to the Pledge
Agreement to be executed this date by the Maker. The Maker, however, shall
remain personally liable for payment of this Note and assets of the Maker, in
addition to the collateral under the Pledge Agreement, may be applied to the
satisfaction of the Maker's obligations hereunder.
8. Collection. If action is instituted to collect this Note, the
----------
Maker promises to pay all costs and expenses (including reasonable attorney
fees) incurred in connection with such action.
9. Waiver. A waiver of any term of this Note, the Pledge Agreement
------
or of any of the obligations secured thereby must be made in writing and signed
by a duly-authorized officer of the Corporation and any such waiver shall be
limited to its express terms. No delay by the Corporation in acting with respect
to the terms of this Note or the Pledge Agreement shall constitute a waiver of
any breach, default, or failure of a condition under this Note, the Pledge
Agreement or the obligations secured thereby.
The Maker waives presentment, demand, notice of dishonor, notice of
default or delinquency, notice of acceleration, notice of protest and
nonpayment, notice of costs, expenses or losses and interest thereon, notice of
interest on interest and diligence in taking any action to collect any sums
owing under this Note or in proceeding against any of the rights or interests in
or to properties securing payment of this Note.
10. Conflicting Agreements. In the event of any inconsistencies
-----------------------
between the terms of this Note and the terms of any other document related to
the loan evidenced by the Note, the terms of this Note shall prevail.
11. Governing Law. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
-------------
THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT RESORT TO CONFLICT-OF-LAWS
RULES.
MAKER:
-----
/s/ Charles W. Stryker
----------------------------
Charles W. Stryker
2
<PAGE>
Naviant Technology Solutions, Inc.
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") made as of this 13th day of
September, 1999 by and between Naviant Technology Solutions, Inc., a Delaware
corporation (the "Corporation") and Charles W. Stryker ("Pledgor").
RECITALS
A. In connection with the purchase of 555,556 shares of the
Corporation's Series C Convertible Redeemable Preferred Stock and a warrant to
purchase certain shares of the Corporation's Common Stock (collectively, the
"Purchased Securities") on the date of this Agreement from the Corporation,
Pledgor has issued that certain promissory note (the "Note") dated September 13,
1999 payable to the order of the Corporation, in the principal amount of Seven
Hundred Fifty Thousand Dollars and 60/100's ($750,000.60). The Purchased
Securities and any Common Stock issued or issuable thereof or any shares given
in exchange therefor shall be, collectively, the "Securities."
B. The Note is secured by the Purchased Securities and other
collateral upon the terms set forth in this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Security Interest. Pledgor hereby grants the
--------------------------
Corporation a security interest in, and assigns, transfers to and pledges with
the Corporation, the following securities and other property (collectively, the
"Collateral"):
(i) the Purchased Securities delivered to and deposited
with the Corporation as collateral for the Note;
(ii) any and all new, additional or different securities
or other property subsequently distributed with respect to the Purchased
Securities which are to be delivered to and deposited with the Corporation
pursuant to the requirements of Paragraph 3 of this Agreement;
(iii) any and all other property and money which is
delivered to or comes into the possession of the Corporation pursuant to
the terms of this Agreement;
(iv) the proceeds of any sale, exchange or disposition of
the property and securities described in subparagraphs (i), (ii) or (iii)
above; and
(v) all of Pledgor's tangible and intangible personal
property, cash on hand and cash in and deposits with banks or other
financial institutions, whether now owned or hereafter acquired, and all
other real,
<PAGE>
personal and mixed (tangible and intangible) property of every character
and wherever situated, now owned and hereafter acquired by Pledgor.
2. Warranties. Pledgor hereby warrants that Pledgor is the
----------
owner of the Collateral and has the right to pledge the Collateral and that the
Collateral, other than Collateral described only by item (v) above, is free from
all liens, adverse claims and other security interests (other than those created
hereby).
3. Duty to Deliver. Any new, additional or different
---------------
securities or other property (other than regular cash dividends) which may now
or hereafter become distributable with respect to the Collateral specified in
Section 1(i) - 1(iv) above by reason of (i) any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Series C Convertible Redeemable Preferred Stock or Common Stock as
a class without the Corporation's receipt of consideration or (ii) any merger,
consolidation or other reorganization affecting the capital structure of the
Corporation shall, upon receipt by Pledgor be promptly delivered to and
deposited with the Corporation as part of the Collateral hereunder. Any such
securities shall be accompanied by one or more properly-endorsed stock power
assignments.
4. Payment of Taxes and Other Charges. Pledgor shall pay,
----------------------------------
prior to the delinquency date, all taxes, liens, assessments and other charges
against the Collateral, and in the event of Pledgor's failure to do so, the
Corporation may at its election pay any or all of such taxes and other charges
without contesting the validity or legality thereof. The payments so made shall
become part of the indebtedness secured hereunder and until paid shall bear
interest at the minimum per annum rate, compounded semi-annually, required to
avoid the imputation of interest income to the Corporation and compensation
income to Pledgor under the Federal tax laws.
5. Shareholder Rights. So long as there exists no event of
-------------------
default under Paragraph 10 of this Agreement, Pledgor may exercise all
shareholder voting rights and be entitled to receive any and all regular cash
dividends paid on the Collateral and all proxy statements and other shareholder
materials pertaining to the Collateral.
6. Rights and Powers of Corporation. The Corporation may,
--------------------------------
without obligation to do so, exercise at any time and from time to time one or
more of the following rights and powers with respect to any or all of the
Collateral specified in Section 1(i) - 1(iv) above
(i) subject to the applicable limitations of Paragraph 9,
accept in its discretion other property of Pledgor in exchange for all or
part of the Collateral and release Collateral to Pledgor to the extent
necessary to effect such exchange, and in such event the other property
received in the exchange shall become part of the Collateral hereunder;
(ii) perform such acts as are necessary to preserve and
protect the Collateral and the rights, powers and remedies granted with
respect to such Collateral by this Agreement; and
2
<PAGE>
(iii) transfer record ownership of the Collateral to the
Corporation or its nominee and receive, endorse and give receipt for, or
collect by legal proceedings or otherwise, dividends or other distributions
made or paid with respect to the Collateral, provided and only if there
-------- --- ---- --
exists at the time an outstanding event of default under Paragraph 10 of
this Agreement. Any cash sums which the Corporation may so receive shall be
applied to the payment of the Note and any other indebtedness secured
hereunder, in such order of application as the Corporation deems
appropriate. Any remaining cash shall be paid over to Pledgor.
Any action by the Corporation pursuant to the provisions of this
Paragraph 6 may be taken without notice to Pledgor. Expenses reasonably incurred
in connection with such action shall be payable by Pledgor and form part of the
indebtedness secured hereunder as provided in Paragraph 12.
7. Care of Collateral. The Corporation shall exercise
------------------
reasonable care in the custody and preservation of the Collateral. However, the
Corporation shall have no obligation to (i) initiate any action with respect to,
or otherwise inform Pledgor of, any conversion, call, exchange right, preemptive
right, subscription right, purchase offer or other right or privilege relating
to or affecting the Collateral, (ii) preserve the rights of Pledgor against
adverse claims or protect the Collateral against the possibility of a decline in
market value or (iii) take any action with respect to the Collateral requested
by Pledgor unless the request is made in writing and the Corporation determines
that the requested action will not unreasonably jeopardize the value of the
Collateral as security for the Note and other indebtedness secured hereunder.
Subject to the limitations of Paragraph 9, the Corporation may at any
time release and deliver all or part of the Collateral to Pledgor, and the
receipt thereof by Pledgor shall constitute a complete and full acquittance for
the Collateral so released and delivered. The Corporation shall accordingly be
discharged from any further liability or responsibility for the Collateral, and
the released Collateral shall no longer be subject to the provisions of this
Agreement.
8. Transfer of Collateral. In connection with the transfer or
----------------------
assignment of the Note (whether by negotiation, discount or otherwise), the
Corporation may transfer all or any part of the Collateral, and the transferee
shall thereupon succeed to all the rights, powers and remedies granted the
Corporation hereunder with respect to the Collateral so transferred. Upon such
transfer, the Corporation shall be fully discharged from all liability and
responsibility for the transferred Collateral.
9. Release of Collateral. Provided all indebtedness secured
---------------------
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full and there does not otherwise exist any event of
default under Paragraph 10, the Purchased Securities, together with any
additional Collateral which may hereafter be pledged and deposited hereunder,
shall be released from pledge and returned to Pledgor in accordance with the
following provisions:
3
<PAGE>
(i) Upon payment or prepayment of principal under the
Note, together with payment of all accrued interest to date, one or more of
the Purchased Securities held as Collateral hereunder shall (subject to the
applicable limitations of Paragraphs 9(iii) and 9(v) below) be released to
Pledgor within thirty (30) days after such payment or prepayment. The
number of the shares to be so released shall be equal to the number
obtained by multiplying (i) the total number of Purchased Securities held
under this Agreement at the time of the payment or prepayment, by (ii) a
fraction, the numerator of which shall be the amount of the principal paid
or prepaid and the denominator of which shall be the unpaid principal
balance of the Note immediately prior to such payment or prepayment. In no
event, however, shall any fractional shares be released.
(ii) Any additional Collateral which may hereafter be
pledged and deposited with the Corporation (pursuant to the requirements of
Paragraph 3) with respect to the Purchased Securities shall be released at
the same time the particular shares of Series C Convertible Redeemable
Preferred Stock to which the additional Collateral relates are to be
released in accordance with the applicable provisions of Paragraph 9(i).
(iii) Under no circumstances, however, shall any Purchased
Securities or any other Collateral be released if previously applied to the
payment of any indebtedness secured hereunder. In addition, in no event
shall any Purchased Securities or other Collateral be released pursuant to
the provisions of Paragraph 9(i) or 9(ii) if, and to the extent, the fair
market value of the Securities and all other Collateral which would
otherwise remain in pledge hereunder after such release were effected would
be less than the unpaid principal and accrued interest under the Note.
(iv) For all valuation purposes under this Agreement, the
fair market value per share of Securities on any relevant date shall be
determined in accordance with the following provisions:
(A) If the Securities are at the time traded on the
Nasdaq National Market, the fair market value shall be the closing
selling price per share of Securities on the date in question, as such
prices are reported by the National Association of Securities Dealers
on its Nasdaq system or any successor system. If there is no reported
closing selling price for the Securities on the date in question, then
the closing selling price on the last preceding date for which such
quotation exists shall be determinative of fair market value.
(B) If the Securities are at the time listed on the
American Stock Exchange or the New York Stock Exchange, then the fair
market value shall be the closing selling price per share of
Securities on the date in question on the securities exchange serving
as the primary market for the Securities, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no reported
4
<PAGE>
sale of Securities on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange
on the last preceding date for which such quotation exists.
(C) If the Securities are at the time neither
listed on any securities exchange nor traded on the Nasdaq National
Market, the fair market value shall be determined by the Corporation's
Board of Directors after taking into account such factors as the Board
shall deem appropriate.
(v) In the event the Collateral becomes in whole or in
part comprised of "margin securities" within the meaning of Section
207.2(i) of Regulation G of the Federal Reserve Board, then no Collateral
shall thereafter be substituted for any Collateral under the provisions of
Paragraph 6(i) or be released under Paragraph 9(i) or (ii), unless there is
compliance with each of the following additional requirements:
(A) The substitution or release must not increase
the amount by which the indebtedness secured hereunder at the time of
such substitution or release exceeds the maximum loan value (as
defined below) of the Collateral immediately prior to such
substitution or release.
(B) The substitution or release must not cause
the amount of indebtedness secured hereunder at the time of such
substitution or release to exceed the maximum loan value of the
Collateral remaining after such substitution or release is effected.
(C) For purposes of this Paragraph 9(v), the
maximum loan value of each item of Collateral shall be determined on
the day the substitution or release is to be effected and shall, in
the case of the shares of Securities and any additional Collateral
(other than margin securities), equal the good faith loan value
thereof (as defined in Section 207.2(e)(1) of Regulation G) and shall,
in the case of all margin securities (other than the Securities),
equal fifty percent (50%) of the current market value of such
Securities.
10. Events of Default. The occurrence of one or more of the
-----------------
following events shall constitute an event of default under this Agreement:
(i) the failure of Pledgor to pay, when due under the
Note, any installment of principal or accrued interest after any grace period
set forth in the Note has expired, if any; or
(ii) the occurrence of any other acceleration event
specified in the Note; or
(iii) the failure of Pledgor to perform any obligation
imposed upon Pledgor by reason of this Agreement; or
5
<PAGE>
(iv) the breach of any warranty of Pledgor contained in
this Agreement.
Upon the occurrence of any such event of default, the Corporation may,
at its election, declare the Note and all other indebtedness secured hereunder
to become immediately due and payable and may exercise any or all of the rights
and remedies granted to a secured party under the provisions of the Pennsylvania
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.
Any proceeds realized from the disposition of the Collateral pursuant
to the foregoing power of sale shall be applied first to the payment of expenses
incurred by the Corporation in connection with the disposition, then to the
payment of the Note and finally to any other indebtedness secured hereunder. Any
surplus proceeds shall be paid over to Pledgor. However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.
11. Other Remedies. The rights, powers and remedies granted to
--------------
the Corporation pursuant to the provisions of this Agreement shall be in
addition to all rights, powers and remedies granted to the Corporation under any
statute or rule of law. Any forbearance, failure or delay by the Corporation in
exercising any right, power or remedy under this Agreement shall not be deemed
to be a waiver of such right, power or remedy. Any single or partial exercise of
any right, power or remedy under this Agreement shall not preclude the further
exercise thereof, and every right, power and remedy of the Corporation under
this Agreement shall continue in full force and effect unless such right, power
or remedy is specifically waived by an instrument executed by the Corporation.
12. Costs and Expenses. All costs and expenses (including
------------------
reasonable attorneys fees) incurred by the Corporation in the exercise or
enforcement of any right, power or remedy granted it under this Agreement shall
become part of the indebtedness secured hereunder and shall constitute a
personal liability of Pledgor payable immediately upon demand and bearing
interest until paid at the minimum per annum rate, compounded semi-annually,
required to avoid the imputation of interest income to the Corporation and
compensation income to Pledgor under the federal tax laws.
13. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the Commonwealth of Pennsylvania
without resort to that its conflict-of-laws rules.
14. Successors. This Agreement shall be binding upon the
----------
Corporation and its successors and assigns and upon Pledgor and the executors,
heirs and legatees of Pledgor's estate.
15. Severability. If any provision of this Agreement is held to
------------
be invalid under applicable law, then such provision shall be ineffective only
to the extent of such
6
<PAGE>
invalidity, and neither the remainder of such provision nor any other provisions
of this Agreement shall be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by Pledgor and
the Corporation on this 13th day of September, 1999.
PLEDGOR:
--------
______________________________
Charles W. Stryker
CORPORATION:
------------
Naviant Technology Solutions, Inc.
By: ________________________
William Tobia
Chief Financial Officer
7
<PAGE>
EXHIBIT 10.24
PREFERRED STOCK PURCHASE AGREEMENT
among
NAVIANT TECHNOLOGY SOLUTIONS, INC.
TL VENTURES III L.P.
TL VENTURES III OFFSHORE L.P.
TL VENTURES III INTERFUND L.P.
TL VENTURES IV L.P.
TL VENTURES IV INTERFUND L.P.
GE CAPITAL EQUITY INVESTMENTS, INC.
FIRST UNION INVESTORS, INC.
AT HOME CORPORATION
24/7 MEDIA, INC.
BCI GROWTH V, LLC
BCI INVESTORS, LLC
XL VENTURES LLC
CATTERTON PARTNERS IV, L.P.
CATTERTON PARTNERS IV OFFSHORE, L.P.
CITICORP
AND
CHARLES STRYKER
Dated as of September 13, 1999
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT, dated as of September 13, 1999
(this "Agreement"), among NAVIANT TECHNOLOGY SOLUTIONS, INC., a Delaware
---------
corporation (the "Company"), TL VENTURES IV, L.P., a Delaware limited
-------
partnership and TL VENTURES IV INTERFUND L.P., a Delaware limited partnership
(collectively, "TL Ventures IV"), TL VENTURES III L.P., a Delaware limited
--------------
partnership, TL VENTURES III OFFSHORE L.P., a Cayman Islands limited
partnership, and TL VENTURES III INTERFUND L.P., a Delaware limited partnership
(collectively, "TL Ventures III," and together with TL Ventures IV, "TL
--------------- --
Ventures"), GE CAPITAL EQUITY INVESTMENTS, INC., a Delaware corporation ("GE
- -------- --
Equity"), FIRST UNION INVESTORS, INC., a North Carolina corporation ("First
- ------ -----
Union"), AT HOME CORPORATION, a Delaware corporation ("Excite"), 24/7 MEDIA,
- ----- ------
INC., a Delaware corporation ("24/7 Media"), BCI GROWTH V, LLC, a Delaware
----------
limited liability company ("BCI Growth"), BCI INVESTORS, LLC, a Delaware limited
----------
liability company (together with BCI Growth, "BCI"), XL VENTURES LLC ("XL"), a
--- --
Delaware limited liability company, CATTERTON PARTNERS IV, L.P. and CATTERTON
PARTNERS IV OFFSHORE, L.P., both Delaware limited partnerships, jointly
("Catterton"), CITICORP, a Delaware corporation ("Citicorp"), and CHARLES
--------- --------
STRYKER ("Stryker") (collectively with TL Ventures, GE Equity, First Union,
-------
Excite, 24/7 Media, BCI, XL, Catterton and Citicorp, the "Purchasers").
----------
WHEREAS, the Purchasers wish to purchase from the Company, and the Company
wishes to sell to the Purchasers, (i) shares of two new series of Preferred
Stock $0.01 par value per share of each series, of the Company (the "Preferred
---------
Stock"), to be designated "Series C Convertible Redeemable Preferred Stock" (the
- -----
"Series C Preferred Stock") and "Series D Non-Voting Convertible Preferred
------------------------
Stock", which non-voting securities shall be identical in all respects to the
Series C Redeemable Preferred Stock (or Common Stock issuable upon conversion
thereof), except that such securities shall be non-voting and shall be
convertible into securities identical in all respects to the Series C Preferred
Stock (or Common Stock issuable upon conversion thereof) other than voting
rights and voting terms requested by First Union in light of regulatory
considerations then prevailing but not any greater than the voting rights
relinquished (the "Series D Preferred Stock") and (ii) warrants ("Warrants") to
------------------------
purchase Common Stock; and
WHEREAS, the Purchasers and the Company desire to provide for such
purchase and sale and to establish various rights and obligations in connection
therewith.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
1. Purchase and Sale of Series C Preferred Stock and Series D Preferred
--------------------------------------------------------------------
Stock.
- -----
<PAGE>
1.1. Closing. Upon the terms and subject to the conditions
-------
set forth herein, the Company shall sell to each Purchaser and each Purchaser
shall purchase from the Company the number of shares of Series C Preferred Stock
and/or Series D Preferred Stock and a Warrant in the form attached as Exhibit A
hereto (each, a "Warrant" and, collectively, the "Warrants") as set forth
opposite the name of such Purchaser on Schedule 1.1, at a purchase price of
$1.35 per share. The closing of the transactions contemplated hereby (the
"Closing") will take place at the offices of Brobeck, Phleger & Harrison LLP,
-------
301 Congress Avenue, Suite 1200, Austin, Texas, at 10:00 a.m. on the date of
this Agreement concurrently with the execution and delivery hereof (the "Closing
-------
Date").
- ----
1.2 Deliveries at Closing. At the Closing:
---------------------
(i) Brobeck, Phleger & Harrison LLP, counsel to the Company,
shall deliver to each of the Purchasers an opinion dated as of the Closing
Date in the form set forth in Exhibit B hereto;
(ii) the Amended and Restated Certificate of Incorporation of
the Company (the "Certificate of Incorporation") shall have been amended
----------------------------
and restated in the form of the Second Amended and Restated Certificate of
Incorporation attached as Exhibit C hereto setting forth the rights and
preferences of the Series C Preferred Stock and the Series D Preferred
Stock and modifying the rights and preferences of the Series A Convertible
Redeemable Preferred Stock (as described in Section 2.7 hereof) and the
Series B Convertible Redeemable Preferred Stock (as described in Section
2.7 hereof) (the "New Certificate of Incorporation"), which shall have been
--------------------------------
filed with the Secretary of State of the State of Delaware in accordance
with the Delaware General Corporation Law (the "DGCL");
(iii) the Company shall deliver to each Purchaser stock
certificates registered in name of such Purchaser representing the number
of shares of Series C Preferred Stock, and/or Series D Preferred Stock and
a Warrant as set forth opposite the name of such Purchaser on Schedule 1.1;
(iv) each Purchaser shall pay to the Company the aggregate
purchase price for the shares of Series C Preferred Stock and/or Series D
Preferred Stock and the Warrant being purchased by it, by wire transfer of
immediately available funds pursuant to wiring instructions furnished by
the Company and attached to Schedule 1.1;
(v) the Company shall execute and deliver to each Purchaser a
registration rights agreement in the form attached as Exhibit D hereto (the
"Registration Rights Agreement");
-----------------------------
-2-
<PAGE>
(vi) the employment and non-compete agreements between the
Company and each of Charles Stryker, William J. Tobia, James Flynn and Ray
Butkus, in the forms attached as Exhibits E, F, G and H hereto, shall have
been executed and delivered by the parties thereto and shall be in full
force and effect;
(vii) the stockholders' agreement, dated as of the date hereof,
by and among the Company and the stockholders party thereto in the form
attached as Exhibit I hereto (the "Stockholders' Agreement"), shall be
-----------------------
executed and delivered concurrently with the Closing;
(viii) all conditions to the obligation of the Company to
consummate the transactions contemplated by the Asset Purchase Agreement,
dated as of July 22, 1999, between the Company and IntelliQuest Information
Group Inc., in the form attached as Exhibit J hereto (the "IQ2.net Purchase
Agreement"), shall have been satisfied and the closing of the transactions
contemplated by the IQ2.net Purchase Agreement shall take place immediately
following the Closing in accordance with the terms of the IQ2.net Purchase
Agreement without any amendment, modification or waiver of any provision
thereof; and
(ix) the Purchasers shall have received copies of all closing
documents in connection with the purchase and sale of IQ2.net and all such
documents shall be in form and substance reasonably satisfactory to the
Purchasers, including, without limitation, copies of all opinions of
counsel, which shall expressly permit the Purchasers to rely upon such
opinions in connection with the transactions contemplated hereby.
1.3. Definitions. Certain capitalized terms used in this
-----------
Agreement are defined in Section 5 hereof.
2. Representations and Warranties of the Company.
---------------------------------------------
Subject to and except as disclosed by the Company in the Disclosure
Schedule attached as Exhibit K hereto, the Company hereby represents and
warrants to each of the Purchasers as follows (it being understood that all
representations and warranties herein with respect to IQ2.net, except those
provided in Section 2.22, are made solely to the Company's knowledge after
reasonable inquiry):
2.1. Organization and Qualification. The Company and each of
------------------------------
its Subsidiaries is a corporation duly organized and existing in good standing
under the laws of its jurisdiction of organization and has the power to own its
property and to carry on its business as now being conducted.
-3-
<PAGE>
2.2. Due Authorization. The execution and delivery of this
-----------------
Agreement and the Related Documents by the Company and the issuance and sale of
the Series C Preferred Stock, Series D Preferred Stock and Warrants by the
Company and compliance by the Company with all the provisions of this Agreement
and the Related Documents (i) are within the corporate power and authority of
the Company, and (ii) have been duly authorized by all requisite corporate
proceedings on the part of the Company. This Agreement and the Related
Documents have been duly executed and delivered by the Company and constitute
the valid and binding agreements of the Company, enforceable in accordance with
their respective terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. The Company has furnished to each
Purchaser true and correct copies of the Company's Certificate of Incorporation
and By-Laws (or comparable governing instruments) of the Company and its
Subsidiaries as in effect on the date of this Agreement.
2.3. Subsidiaries. Schedule 2.3 sets forth the name,
------------
jurisdiction of formation, authorized capital stock and number of outstanding
shares of capital stock of each Subsidiary of the Company and the percentage
ownership interest in such Subsidiary owned by the Company. Except for the
Subsidiaries, the Company does not own, directly or indirectly, any ownership
interest in any Person.
2.4. Financial Statements. Schedule 2.4 sets forth true and
--------------------
complete copies of the following financial statements (including any related
schedules and notes): (i) the audited consolidated balance sheets of the
Company and the related audited consolidated statements of income, changes in
stockholders' equity and cash flows as of and for the three months ended August
1, 1997, and the fiscal year ended July 31, 1998, and the unaudited consolidated
balance sheet of the Company as of July 31, 1999 and the related unaudited
consolidated statements of income, changes in stockholders' equity and cash
flows for the fiscal year ended July 31, 1999, (ii) the unaudited balance sheets
and the related unaudited statements of income of IQ2.net as of and for each of
the two fiscal years ended December 31, 1997 and 1998 and six months ended June
30, 1999 and for the period commencing January 1, 1999 and ended on that date,
and (iii) the pro forma unaudited consolidated balance sheets of the Company as
its of June 30, 1999 and as of the date of this Agreement (giving effect to the
Acquisition as if consummated as of such date) and pro forma unaudited
consolidated statements of income of the Company for the fiscal year ended June
30, 1999 (giving effect to the Acquisition as if consummated as of July 1, 1998)
(the "Financial Statements"). The Financial Statements have been prepared in
--------------------
accordance with generally accepted accounting principles consistently followed,
except, in the case of interim financial statements, for the absence of
footnotes and subject to normal year-end adjustments, none
-4-
<PAGE>
of which will be material in amount, throughout the periods involved and fairly
present the financial condition, results of operations, cash flows and changes
in stockholders' equity, as applicable, of the Company, IQ2.net or the Company
giving effect to the Acquisition, as the case may be, as of their respective
dates. Except as disclosed in the Financial Statements or on Schedule 2.4, and
except for liabilities incurred in the ordinary course of business since July
30, 1999 which are not material in amount or effect, neither the Company nor
IQ2.net have any liabilities or obligations, whether accrued or unaccrued,
absolute or contingent, matured or unmatured. Since July 31, 1998, the
businesses of the Company and IQ2.net have been operated only in the ordinary
course and no event has occurred which has had or is reasonably likely to have a
Material Adverse Effect.
2.5. Litigation. There is no action, suit, investigation or
----------
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries or IQ2.net, their respective properties or
assets by or before any court, arbitrator or Governmental Authority.
2.6. Conflicting Agreements and Charter Provisions. The
---------------------------------------------
Company is not a party to or bound by any contract or agreement or subject to
any charter or bylaw provision or judgment or decree which has or is reasonably
likely to have a Material Adverse Effect. None of (i) the execution and delivery
of this Agreement and the Related Documents and the issuance of Series C
Preferred Stock and/or Series D Preferred Stock and (ii) the fulfillment of and
compliance with the terms and provisions hereof and thereof and of the Series C
Preferred Stock and Series D Preferred Stock will conflict with or result in a
breach of the terms, conditions or provisions of, or give rise to a right of
termination under, or constitute a default under, or result in any violation of,
the Certificate of Incorporation or By-laws of the Company or any mortgage,
agreement, instrument, order, judgment, decree, statute, law, rule or regulation
to which the Company or its properties is subject except any such default that
has not had and would not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries nor IQ2.net is in
default under any of its contracts or agreements, or under any instrument by
which it is bound except any such default that has not had and would not
reasonably be expected to have a Material Adverse Effect.
2.7. Capitalization. As of the date of this Agreement and
--------------
prior to the issuance of the Series C Preferred Stock and Series D Preferred
Stock and the filing of the New Certificate of Incorporation, the authorized
capital stock of the Company consists of (i) 20,000,000 shares of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), of which
10,125,000 shares are validly issued and outstanding, fully paid and
nonassessable, and (ii) 5,000,000 shares of "blank check" preferred stock, par
value of $0.01 per share, of which (A) 3,375,000 shares have been designated as
"Series A Convertible Preferred Stock", of which 3,375,000 shares are validly
issued and outstanding, fully paid and nonassessable and (B) 1,500,000 shares
-5-
<PAGE>
have been designated as "Series B Convertible Preferred Stock", of which
1,500,000 shares are validly issued and outstanding fully paid and
nonassessable. Except as set forth on Schedule 2.7 and except for the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock
identified above, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, shares of any class of capital stock of
the Company or any Subsidiary, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound
relating to the issuance or transfer of any shares of capital stock or options,
warrants or rights to purchase or acquire any shares of capital stock of the
Company or any Subsidiary or relating to the voting of any shares of capital
stock of the Company or any Subsidiary.
2.8. Status of Series C Preferred Stock and Series D Preferred
---------------------------------------------------------
Stock. The shares of Series C Preferred Stock and Series D Preferred Stock have
- -----
been duly authorized by all necessary corporate action on the part of the
Company and, upon payment therefor as provided in Article 1 hereof, the shares
of Series C Preferred Stock and Series D Preferred Stock, and the shares of
Common Stock issuable upon conversion of the Series C Preferred Stock and Series
D Preferred Stock or upon exercise of the Warrants, upon such conversion or
exercise, as the case may be, and issuance will be, validly issued and
outstanding, fully paid and nonassessable. The shares of Common Stock issuable
upon conversion of the shares of Series C Preferred Stock and Series D Preferred
Stock have been validly reserved for issuance.
2.9. Laws and Regulations. Each of the Company and its
--------------------
Subsidiaries and IQ2.net is in compliance with all applicable statutes, rules,
regulations and orders of all Governmental Authorities with respect to the
conduct of their respective businesses and the ownership of their respective
properties, including, without limitation, those relating to the environment and
human health, equal employment opportunity, employee safety, privacy, foreign
corrupt practices and ERISA except where the failure to be in compliance has not
had and would not be expected to have a Material Adverse Effect. There are no
claims, notices, civil, criminal or administrative hearings, investigations,
inquiries or proceedings pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries or IQ2.net alleging
any violation of law that has had or reasonably would be expected to have a
Material Adverse Effect.
2.10. Use of Proceeds. The proceeds of the sale of the Series C
---------------
Preferred Stock, Series D Preferred Stock and Warrants will first be used by the
Company to acquire IQ2.net, pursuant to the IQ2.net Purchase Agreement, and the
remaining proceeds will be used for working capital and for general corporate
purposes.
2.11. Title to Properties; Insurance. (a) Each of the Company
------------------------------
and its Subsidiaries and IQ2.net has good and valid title to, or, in the case of
property leased by it as lessee, a valid and subsisting leasehold interest in
its properties and assets, free of
-6-
<PAGE>
all liens and encumbrances other than those referred to in Schedule 2.11, except
for such defects in title and such other liens and encumbrances which are
disclosed in Schedule 2.11 or which do not, in the aggregate, materially detract
from the value to the Company and its Subsidiaries and IQ2.net of their
respective properties and assets.
(b) As of the date hereof, the Company and its Subsidiaries
carry liability, property and casualty, automobile, workers' compensation,
directors' and officers' and errors and omissions insurance, in scope, coverage
and amounts as set forth on Schedule 2.11. Schedule 2.11 indicates whether each
such insurance policy is a claims made or occurrence-based policy. Each of the
insurance policies is in full force and effect, and all premiums due and payable
have been paid. The Company and its Subsidiaries are in compliance in all
material respects with the terms and conditions of such insurance policies.
Neither the Company nor any of the Subsidiaries has received any notice of
cancellation of, or threatening to cancel, any such insurance policy.
2.12. Governmental Consents, etc. The Company is not required
---------------------------
to obtain any consent, approval or authorization of, or to make any declaration
or filing with, any Governmental Authority as a condition to or in connection
with the valid execution, delivery and performance of this Agreement and the
Related Documents and the valid offer, issue, sale or delivery of the Series C
Preferred Stock and Series D Preferred Stock, or the performance by the Company
of its obligations in respect thereof, except for any filings required to effect
any registration pursuant to the Registration Rights Agreement, filings required
by the DGCL, any filings required pursuant to state and federal securities laws
which will be timely made after the Closing hereunder and any such consents,
approvals, authorizations deliberations or filing that if not obtained or made
would not reasonably be expected to have a Material Adverse Effect.
2.13. Taxes. The Company and its Subsidiaries have filed or
-----
caused to be filed all material tax returns which are required to be filed and
have paid or caused to be paid all taxes as shown on said returns and on all
assessments received by it to the extent that such taxes have become due, except
taxes the validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside. The Company and its Subsidiaries have paid or caused to be paid, or
have established adequate reserves for all material federal income tax
liabilities and state income tax liabilities applicable to the Company or any of
its Subsidiaries. Additionally, no tax return of the Company or any of its
Subsidiaries is currently subject to an audit and neither the Company nor any of
its Subsidiaries has filed a request for an extension with respect to the filing
of any tax return.
2.14. Employee Benefits. (a) Except as provided on Schedule
-----------------
2.14 hereto, the Company and its Subsidiaries have no employee benefit plans,
pension, retirement, deferred compensation, profit sharing, bonus, incentive,
stock option, severance, health, life, disability, group insurance or other
plans, programs or arrangements.
-7-
<PAGE>
(b) No employee of the Company or any of its Subsidiaries will
become entitled to any bonus, retirement, severance or similar benefit or
enhanced benefit as a result of the transactions contemplated hereby.
(c) The Company is not aware that any management or other key
employee or consultant to the Company or any of its Subsidiaries has any plans
to terminate his or her relationship with the Company and its Subsidiaries. The
Company and its Subsidiaries have complied with all applicable laws relating to
the employment of labor, including laws relating to wages and hours, equal
opportunity and payment of social security and other taxes.
2.15. Possession of Franchises, Licenses, etc. Each of the
----------------------------------------
Company and its Subsidiaries and IQ2.net possesses all franchises, certificates,
licenses, permits and other authorizations from governmental or political
subdivisions or regulatory authorities and all patents, trademarks, service
marks, trade names, copyrights, licenses and other rights, free from burdensome
restrictions, that are necessary for the ownership, maintenance and operation by
the Company and its Subsidiaries of their respective properties and assets, and
neither the Company nor any Subsidiary is in violation of any thereof in any
material respect.
2.16. Proprietary Rights. Set forth on Schedule 2.16 is a true
------------------
and complete list of all patents, patent applications, trademarks, service
marks, trademark and service mark applications, trade names, copyrights,
licenses, internet domain names, domain name reservations or registrations,
source and object code, algorithms, architecture, structure, display screens,
layouts and other similar rights (including, without limitation, processes,
inventions, know-how, trade secrets, development tools and other confidential
information) presently used by the Company or any of its Subsidiaries or IQ2.net
or reasonably necessary for the conduct of the business of the Company and its
Subsidiaries and IQ2.net as presently conducted and as proposed to be conducted
(the "Proprietary Rights"). The Company and its Subsidiaries and IQ2.net own,
------------------
or have the lawful right to use under the agreements or upon the terms described
on Schedule 2.16, all of the Proprietary Rights. The Company and its
Subsidiaries and IQ2.net will use their best efforts to possess and maintain
material Proprietary Rights which are reasonably necessary to the conduct of
their businesses and own all right, title, and interest in and to, or have a
valid license or right for, all material Proprietary Rights used in the conduct
of their businesses. To the best of the Company's knowledge, the business
presently conducted or proposed to be conducted by the Company and its
Subsidiaries and IQ2.net does not infringe or violate any of the patents,
trademarks, service marks, trade names, copyrights, licenses, trade secrets or
other proprietary rights of any other person or entity. Except as set forth on
Schedule 2.16, no other Person has any right to or interest in any inventions,
improvements, discoveries or other confidential information utilized by the
Company or any of its Subsidiaries or IQ2.net. The Company and its Subsidiaries
and IQ2.net have entered into proprietary rights and invention assignment
agreements with all
-8-
<PAGE>
their current respective officers and consultants. Each of the Company and its
Subsidiaries has the ability to retain, on commercially reasonable terms, any
license of intellectual property that is reasonably necessary for the conduct of
its business as presently conducted and as proposed to be conducted.
2.17. Material Contracts and Obligations. Schedule 2.17 sets
----------------------------------
forth a list of the following agreements or commitments of any nature to which
the Company or any of its Subsidiaries or IQ2.net is a party or by which it is
bound: (a) any agreement relating to the Proprietary Rights, (b) all
interconnection, site listing and provider agreements, (c) all distributor and
sales representative agreements, (d) all agreements or commitments which
restrict the ability of the Company to engage in any business or line of
business in any location or require the Company to deal on exclusive basis with
any Person, (e) all agreements or commitments relating to indebtedness or
guarantees, (f) all manufacturing or supply agreements, (g) all marketing or
advertising services agreements which, in the aggregate, require future payments
of $50,000 or more, and (h) any other agreement or commitment which requires
future payments by or to the Company or any Subsidiary or IQ2.net in excess of
$50,000 or which is otherwise material to the Company and its Subsidiaries or
IQ2.net. The Company has delivered or made available to the Purchasers copies
of all of the foregoing agreements and commitments. All of such agreements and
commitments are valid, binding and in full force and effect, except that, with
respect to parties to such agreements and commitments other than the Company or
any Subsidiary or IQ2.net, this representation is made only to the best
knowledge of the Company.
2.18. Labor Matters. Neither the Company nor any Subsidiary is
-------------
a party to any collective bargaining agreement nor does any labor union or
collective bargaining agent represent any of the employees of the Company and
its Subsidiaries or IQ2.net. There is no labor strike, slow-down or stoppage
pending or, to the Company's knowledge, threatened by the employees of the
Company or any Subsidiary or IQ2.net.
2.19. Books and Records. All the books, records and accounts of
-----------------
the Company, its Subsidiaries and IQ2.net are in all material respects true and
complete, are maintained in accordance with good business practice and all laws
applicable to its business, and accurately present and reflect in all material
respects all of the transactions therein described. The Company has previously
delivered to the Purchasers true and complete texts of all of the minutes
relating to meetings of the stockholders, Board of Directors and committees of
the Board of Directors of the Company and its Subsidiaries since May 2, 1997.
2.20. Brokers. Except for fees payable to Bowles Hollowell
-------
Conner (a division of First Union Capital Markets Group), the Company has not
engaged any finder, broker or investment adviser, and has no obligation to pay
any fees, in connection with the transactions contemplated hereby and by the
IQ2.net Purchase Agreement.
-9-
<PAGE>
2.21. Holding Company Act and Investment Company Act. Neither
----------------------------------------------
the Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
2.22. IQ2.net Purchase Agreement. Each of the representations
--------------------------
and warranties of the Company and IntelliQuest Information Group, Inc. set forth
in the IQ2.net Purchase Agreement (together with any related schedules and
exhibits) is incorporated by reference herein as if fully set forth herein as a
representation and warranty by the Company.
2.23. Accuracy of Information. None of the representations and
-----------------------
warranties of the Company contained herein contains any material misstatement of
fact or omits any material fact required to be stated therein or necessary to
make the statements herein and therein not misleading. The information (other
than projections) which has been furnished in writing by the Company to the
Purchasers in connection with the transactions contemplated by this Agreement,
taken as a whole, did not, as of the date such information was furnished,
contain any material misstatement of fact, or omit any material fact required to
be stated therein or necessary to make the statements therein not misleading.
The projections listed on Schedule 2.23 (i) were prepared by management of the
Company after a careful analysis of all material data and (ii) based upon the
assumptions set forth in such projections, represent as of the date of this
Agreement the best estimate by management of the Company as to the financial
performance of the Company and its Subsidiaries for the periods indicated, but
do not represent any guarantee or assurance of future financial results. The
Company does not believe that such projections are inaccurate or misleading in
any material respect.
2.24. Year 2000.
---------
(i) (a) Company's Products and Services. All of the products
-------------------------------
and services of the Company, its Subsidiaries and IQ2.net are able to accurately
process, provide and receive date data, including but not limited to,
calculating, comparing and sequencing from, into and between the twentieth
century (through the year 1999), the year 2000 and the twenty-first century
including leap year calculations (hereinafter referred to as "Year 2000
---------
Compliant").
- ---------
(b) Internal MIS Systems. All of the Internal MIS Systems
--------------------
will be Year 2000 Compliant.
-10-
<PAGE>
(c) Suppliers. All material suppliers of products or services to
---------
the Company, and their respective products, services and operations, will be in
all material respects Year 2000 Compliant. To the knowledge of the Company after
a reasonably diligent investigation, each such material supplier will continue
to furnish its products or services to the Company, its Subsidiaries and IQ2.net
without interruption or material delay, on and after January 1, 2000.
(ii) The Company has furnished the Purchasers with true, correct and
complete copies of any customer agreements and other materials and
correspondence in which Company, any Subsidiary or IQ2.net has furnished (or
could be deemed to have furnished) assurances as to the performance and
functionality of the Company, any Subsidiary or IQ2.net's products or services
on or after January 1, 2000.
(iii) The Company has furnished the Purchasers with a true, correct
and complete copy of any internal investigations, memoranda, budget plans,
forecasts or reports concerning the Year 2000 Compliant status of the products,
services, operations, systems, supplies and facilities of the Company, its
Subsidiaries and IQ2.net and their respective vendors.
2.25. Directors, Officers and Employees. Schedule 2.25 lists all
---------------------------------
current directors and officers of the Company and its Subsidiaries and all
managers and consultants of the Company and its Subsidiaries who, individually,
receive or are entitled to receive annual compensation from the Company or any
Subsidiary in excess of $125,000, showing each such person's name, position, and
annual remuneration, bonuses and fringe benefits for the current fiscal year. To
the knowledge of the Company, during the past ten years, no such director or
officer has: (i) been arrested or convicted for any crime material to an
evaluation of such person's ability or integrity, including, without limitation,
any violation of any federal or state law which currently or has previously
regulated the types of business in which the Company or any Subsidiary is
currently or has previously been engaged; (ii) filed a petition under federal
bankruptcy or any state insolvency laws; or (iii) been a director or officer of
a business entity which during their employ has filed a petition under federal
bankruptcy or any state insolvency laws, or had a receiver or similar officer
appointed by a court to administer the business or property of such entity.
2.26. Transactions with Related Parties. Except for (a) transactions
---------------------------------
relating to purchases of shares of the Company's Common Stock, and (b) regular
salary and bonus payments and fringe benefits under an individual's compensation
package with the Company, none of the Related Parties are a party to any
transactions with the Company. There have been no assumptions or guarantees by
the Company of any obligations of any Related Party. Except as set forth on
Schedule 2.26, no Related Party is indebted to the Company nor is the Company
indebted to any of them.
-11-
<PAGE>
3. Representations and Warranties of each Purchaser. Each Purchaser
------------------------------------------------
severally and not jointly represents and warrants as follows:
3.1. Organization and Qualification. Such Purchaser is a
------------------------------
corporation, partnership or limited liability company duly organized and
existing in good standing under the laws of the jurisdiction of its formation
and has the power to own its property and to carry on its business as now being
conducted.
3.2. Due Authorization. Such Purchaser has all necessary right,
-----------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Related Documents by such Purchaser and the consummation by such
Purchaser of the transactions contemplated hereby have been duly authorized by
all necessary action on behalf of such Purchaser. This Agreement and the
Related Documents have been duly executed and delivered by such Purchaser and
constitute valid and binding agreements of such Purchaser enforceable in
accordance with their respective terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.3. Governmental Consents, etc. Except as obtained or made,
---------------------------
such Purchaser is not required to obtain any consent, approval or authorization
of, or to make any declaration or filing with, any Governmental Authority as a
condition to or in connection with the valid execution, delivery and performance
of this Agreement or the Related Documents and the valid offer, issue, sale or
delivery of the Series C Preferred Stock and Series D Preferred Stock, or the
performance by such Purchaser of its obligations in respect thereof.
3.4. Conflicting Agreements and Other Matters. Neither the
----------------------------------------
execution and delivery of this Agreement nor the performance by such Purchaser
of its obligations hereunder will conflict with, result in a breach of the
terms, conditions or provisions of, constitute a default under or require any
consent, approval or other action by or any notice to or filing with any court
or administrative or governmental body pursuant to, the organizational documents
of such Purchaser, or any mortgage, agreement, instrument, order, judgment,
decree, statute, law, rule or regulation to which such Purchaser or any of their
respective properties are subject.
3.5. Acquisition for Investment. Such Purchaser is acquiring
--------------------------
the Series C Preferred Stock and/or Series D Preferred Stock being purchased by
it for its own account for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof, and such Purchaser has no
present intention or plan to effect any distribution thereof. Such Purchaser
acknowledges that the shares of
-12-
<PAGE>
Series C Preferred Stock and/or Series D Preferred Stock and the shares of
Common Stock issuable upon conversion thereof have not been registered under the
Securities Act and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from such registration.
3.6. Accredited Investor. Such Purchaser is an "accredited
-------------------
investor" within the meaning of Rule 501 promulgated under the Securities Act.
3.7 Foreign Purchasers. If such Purchaser is not a United
------------------
States Person, such Purchaser hereby represents that it has satisfied itself as
to the full observance of the laws of its jurisdiction of incorporation in
connection with any invitation to subscribe for the Series C Preferred Stock
and/or Series D Preferred Stock or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for the purchase of the Series C
Preferred Stock and/or Series D Preferred Stock, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Series C Preferred Stock and/or Series D Preferred
Stock. Such Purchaser's subscription and payment for, and his continued
beneficial ownership of the Series C Preferred Stock and/or Series D Preferred
Stock, will not violate any applicable securities or other laws of its
jurisdiction of incorporation.
4. Certain Covenants.
-----------------
4.1. Compliance with Laws. The Company and its Subsidiaries will
--------------------
comply in all material respects with all applicable statutes, rules, regulations
and orders of all Governmental Authorities with respect to the conduct of their
respective businesses and the ownership of their respective properties,
including, without limitation, those relating to the environment and human
health, equal employment opportunity, employee safety, privacy, foreign corrupt
practices and ERISA.
4.2. Limitation on Agreements. The Company will not enter into
------------------------
any agreement, or any amendment, modification, extension or supplement to any
existing agreement, which contractually prohibits the payment of dividends on
the Series C Preferred Stock and/or Series D Preferred Stock or the redemption
or repurchase of the Series C Preferred Stock and/or Series D Preferred Stock in
accordance with the New Certificate of Incorporation.
4.3. Preservation of Franchises and Existence. The Company and
----------------------------------------
its Subsidiaries will maintain their corporate existence, and all material
rights and franchises, in full force and effect.
4.4. Insurance. The Company will, effective as of the Closing,
---------
maintain with insurers believed by the Company to be responsible, insurance
coverages in
-13-
<PAGE>
such amounts and of such types as are customarily carried under similar
circumstances by companies of similar size and engaged in the same or a similar
business or having similar properties similarly situated, including, without
limitation, directors' and officers' insurance and key-man life insurance
covering Charles Stryker and James Flynn and naming the Company as beneficiary,
and in any event not less than the coverage types and amounts set forth on
Schedule 4.4.
4.5. Payment of Taxes and Other Charges. The Company and its
----------------------------------
Subsidiaries will pay or discharge, before the same shall become delinquent, (i)
all taxes, assessments and other governmental charges or levies imposed upon it
or any of its properties or income and (ii) all claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like persons
which, in the case of either clause (i) or clause (ii), if unpaid, might result
in the creation of a material lien upon any of its properties, provided,
however, that the Company and its Subsidiaries shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
pursuant to appropriate proceedings.
4.6. ERISA and Employee Matters. Except as otherwise required by
--------------------------
law, the Company and its Subsidiaries shall not incur any material liability
with respect to retiree medical or death benefits or unfunded benefits payable
after termination of employment. All employee benefit plans and arrangements
maintained or contributed to by the Company or any Subsidiary shall be
maintained in material compliance with all applicable laws, including any
reporting requirements. With respect to any plan maintained by or contributed
to by the Company or any Subsidiary, the Company and its Subsidiaries will not
fail to make any contribution due under the terms of such plan or as required by
law. The Company and its Subsidiaries will not permit a pension plan to incur
an accumulated funding deficiency (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived, cause a lien or a
security interest to attach to any asset of the Company or any Subsidiary for
the benefit of any benefit plan, or incur any material liability under Title IV
of ERISA, including withdrawal liability (other than the payment of premiums,
none of which are overdue). Neither the Company nor any Subsidiary, nor any
other Person including any fiduciary, will engage in any transaction prohibited
by Section 406 of ERISA or Section 4975 of the Code which is reasonably likely
to subject the Company or any Subsidiary, or any entity that the Company or any
Subsidiary has an obligation to indemnify, to any tax or penalty imposed under
Section 4975 of the Code or Section 502 of ERISA. The Company and its
Subsidiaries will enter into proprietary rights and invention assignment
agreements with new officer-level employees and employees and consultants who
are involved in the design or development of Proprietary Rights of the Company
and its Subsidiaries containing terms and conditions customary in all material
respects for companies engaged in the same or similar business as the Company
and its Subsidiaries.
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<PAGE>
4.7. Financial Statements and Other Reports.
--------------------------------------
Prior to a Qualified IPO or the date on which the Company becomes
a reporting company pursuant to Section 12 or Section 15(c) of the Exchange Act,
so long as a Purchaser and its Affiliates and Associates beneficially own at
least 15% of the shares of Series C Preferred Stock and/or Series D Preferred
Stock originally purchased by such Purchaser hereunder (or the Common Stock or
Non-Voting Common Stock issuable upon conversion thereof) (subject to adjustment
for stock splits, stock dividends, recapitalizations and similar transactions):
(i) The Company will, as soon as practicable and in any event
within 30 days after the end of each month (other than the last month of any
quarterly period) in each fiscal year, furnish to each Purchaser unaudited
consolidated statements of net income, cash flows and changes in consolidated
stockholders' equity of the Company for the period from the beginning of the
then current fiscal year to the end of such month, and a consolidated balance
sheet of the Company as of the end of such month, setting forth in each case in
comparative form figures for the corresponding month or date in the preceding
fiscal year and a comparison of such data with the Company's budget for such
month, all in reasonable detail and certified by the Chief Financial Officer of
the Company, subject to changes resulting from year-end adjustments.
(ii) The Company will, as soon as practicable and in any event
within 30 days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, furnish to each Purchaser unaudited
consolidated statements of net income, cash flows and changes in stockholders'
equity of the Company for the period from the beginning of the then-current
fiscal year to the end of such quarterly period, and the consolidated balance
sheet of the Company as of the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding period or date in
the preceding fiscal year and a comparison of such data with the Company's
budget for such quarter, all in reasonable detail and certified by the Chief
Financial Officer of the Company, subject to changes resulting from year-end
adjustments.
(iii) The Company will, as soon as practicable and in any event
within 90 days after the end of each fiscal year, furnish to each Purchaser
audited consolidated statements of net income, cash flows and changes in
stockholders' equity of the Company for such year, and a consolidated balance
sheet of the Company as of the end of such year, setting forth in each case in
comparative form the corresponding figures from the preceding fiscal year and a
comparison of such data with the Company's budget for such year, all in
reasonable detail and examined and reported on by a "Big Five" firm of
independent public accountants selected by the Company.
(iv) The Company will, as soon as practicable and in any event
within 30 days, furnish to each Purchaser copies of all correspondence received
by the Company from, or sent by the Company to, its external auditors.
-15-
<PAGE>
(v) The Company will promptly furnish to each Purchaser copies
of any compliance certificates furnished to lenders or lessors of the Company
and its Subsidiaries.
(vi) The Company will prepare an annual capital and operating
budget for each calendar year which shall be submitted to and approved by the
Board of Directors of the Company not later than December 1 of the immediately
preceding calendar year.
(vii) The Company will, as soon as practicable and in any event
within 30 days of June 30 and December 31 of each year, provide Purchasers with
a management report reviewing the Company's performance with the Company's
business plan and expense budget for that period, a discussion of trends in the
Company's business and relevant industry developments, and management view
concerning the Company's outlook.
(viii) The Company will, with reasonable promptness, furnish to
each Purchaser such other financial and other data of the Company and its
Subsidiaries as such Purchaser may reasonably request.
4.8. Inspection of Property. The Company will permit
----------------------
representatives of each Purchaser to visit and inspect any of the properties of
the Company and its Subsidiaries, to examine the corporate books and make copies
or extracts therefrom and to discuss the affairs, finances and accounts of the
Company and its Subsidiaries with the principal officers of the Company, all at
such reasonable times, upon reasonable notice and as reasonably often as such
Purchaser may reasonably request.
4.9. Lost, Stolen, Damaged and Destroyed Stock Certificates.
------------------------------------------------------
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate for shares of Series C Preferred
Stock and/or Series D Preferred Stock and in the case of loss, theft or
destruction, upon delivery of an indemnity or bond satisfactory to the Company
(which may be an undertaking by a Purchaser so to indemnify the Company), or, in
the case of mutilation, upon surrender and cancellation thereof, the Company
will issue a new certificate of like tenor for a number of shares of Series C
Preferred Stock and/or Series D Preferred Stock equal to the number of shares of
such stock represented by the certificate lost, stolen, destroyed or mutilated.
4.10. Incentive Stock Option Plan. The Company will adopt an
---------------------------
employee incentive stock option plan substantially in the form attached as
Exhibit K hereto (the "New Option Plan", and together with the Company's 1997
Stock Option Plan, the "Option Plans"). Subject to the terms and conditions of
the Option Plans, options issued pursuant to the Option Plans shall be
exercisable for up to 14,829,000 shares of the outstanding Common Stock (subject
to adjustment for stock splits, stock
-16-
<PAGE>
dividends, recapitalizations and similar transactions) and, to the extent issued
under the New Option Plan, shall have exercise prices of $1.00 per share or
greater.
4.11. Stock Option Vesting. All Stock (or options therefor)
--------------------
granted by the Company under the New Option Plan shall vest as follows, unless
otherwise agreed by the Board of Directors: 10,423,200 shares shall vest ratably
25% per year of service measured from the vesting commencement date and
2,605,800 shares shall vest upon the closing of a Qualified IPO or any merger,
consolidation, liquidation or dissolution which results in gross proceeds in
cash or marketable securities of at least $4.05 per share. The terms of each
grant shall provide that upon termination of the employment of the holder, with
or without cause, the Company or its assignee (to the extent permissible under
applicable securities laws) retains the option to repurchase at cost any vested
share held by such holder.
4.12. Redemption Premium. The Company and the Purchasers
------------------
acknowledge that under the regulations of the United States Department of
Treasury, the issuance of the Series C Preferred Stock and Warrants for an
aggregate, combined purchase price will result in the creation of a "redemption
premium" on the Series C Preferred Stock equal to the value of the Warrants.
After taking into account all relevant factors (including the fact that no
public market for the Common Stock currently exists, the general condition of
the financial markets at this time, the liquidation preferences of senior
securities of the Company, the exercise price for shares of Common Stock
issuable upon exercise of the Warrants, the nature of the rights provided for in
the Warrants and all other matters concerning the transactions contemplated by
this Agreement), the Company and the Purchasers agree that the aggregate
redemption premium on the Series C Preferred Stock (i.e., the aggregate value of
the Warrants) shall be $50,000. The redemption premium will be allocated pro
rata among the shares of Series C Preferred Stock. Neither the Company nor any
Purchaser will take any position for United Stated Federal income tax purposes
that is inconsistent with the provisions of this Section 4.12.
5. Interpretation.
--------------
5.1. Definitions.
-----------
"Acquisition" shall mean the acquisition of IQ2.net contemplated
-----------
by the IQ2.net Purchase Agreement.
"Affiliate" and "Associate" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"beneficial owner" has the meaning given to such term in
----------------
Rule 13d-3 under the Exchange Act, and the terms "beneficially own" and
"beneficial ownership" shall have the correlative meanings.
-17-
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday
----------
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
----
and the rules and regulations thereunder.
"Commission" shall mean the Securities and Exchange Commission
----------
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Company" shall have the meaning specified in the first
-------
paragraph of this Agreement.
"Current Market Price" shall mean, in respect of any share of
------------------
Common Stock on any date herein specified, (a) if the shares of Common Stock are
publicly traded, the average of the daily closing prices of the Common Stock on
the principal securities exchange or market on which such shares are listed or
traded for the twenty consecutive trading days ending on such date, or (b) the
Fair Market Value per share of Common Stock as of such date.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any time.
Reference to a particular section of the Exchange Act shall include reference to
the comparable section, if any, of any such successor federal statute.
"Fair Market Value" of the Common Stock or any other property
-----------------
means the fair market value of such Common Stock or other property as determined
(unless expressly otherwise provided herein) by mutual agreement between the
Company and Stockholders owning a majority of the shares of Common Stock on an
as converted basis owned by the Stockholders as a group (the "Majority Holders")
----------------
or, if the parties are unable to agree, as determined by a nationally recognized
independent investment banking firm selected by mutual agreement between the
Company and the Majority Holders.
"Fully Diluted" shall mean, when used with reference to the
-------------
Common Stock, at any date as of which the number of shares thereof is to be
determined, (i) all shares of Common Stock outstanding at such date and (ii) all
shares of Common Stock issuable in respect of vested options or warrants to
purchase, or securities convertible into, exercisable for or exchangeable for,
shares of Common Stock
-18-
<PAGE>
outstanding on such date, the conversion, exercise or exchange price of which is
less than the Current Market Price.
"Governmental Authority" shall mean any federal, state, local or
----------------------
foreign court, administrative agency, commission or other governmental or
regulatory body, agency, instrumentality or authority or any department or
subdivision thereof.
"Internal MIS Systems" means any computer software and systems
--------------------
(including hardware, firmware, operating system software, utilities, and
applications software) used in the ordinary course of business by or on behalf
of the Company or its Subsidiaries or IQ2.net, including payroll, accounting,
billing/receivables, inventory, asset tracking, customer service, human
resources, and e-mail systems.
"IQ2.net" shall mean the business and assets of the IQ2.net
-------
division of IntelliQuest Information Group, Inc. being acquired in the
Acquisition.
"Material Adverse Effect" shall mean any event or events, taken
-----------------------
singly or in the aggregate, (a) as a result of which the Company and its
Subsidiaries, taken as a whole, or IQ2.net would be unable (i) to continue to
operate their respective businesses in a manner consistent with the manner of
operation of such businesses as of the date of this Agreement or (ii) to
effectuate their proposed business strategies, or (b) which would have a
material adverse effect on the assets, liabilities, business, results of
operations, financial condition or prospects of the Company and its
Subsidiaries, taken as a whole, or IQ2.net.
"Person" shall mean any individual, firm, corporation, business
------
trust, partnership or other entity, and shall include any successor (by merger
or otherwise) of such entity.
"Qualified IPO" shall mean an initial public offering of Common
-------------
Stock under the Securities Act at a minimum price per share to the public of at
least $4.05 (subject to appropriate adjustment for stock dividends, stock
splits, reclassifications and similar transactions), which is lead-underwritten
by a nationally recognized investment bank approved by the holders of a majority
of the outstanding shares of Series C Preferred Stock and Series D Preferred
Stock and yields gross underwriting proceeds of not less than $30,000,000.
"Related Documents" shall mean the New Certificate of
-----------------
Incorporation, the Registration Rights Agreement, the Stockholders' Agreement
and the Warrants.
"Related Party" shall mean any officer, director or owner of
-------------
more than 5% of the equity securities of the Company or any of its Subsidiaries,
any spouse,
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<PAGE>
parent, child or sibling of any such Person, and any Affiliate or Associate of
any of the foregoing Persons.
"Securities Act" shall mean the Securities Act of 1933, as
------------
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Subsidiary" of any Person means any corporation or other entity
---------
of which a majority of the voting power or the voting equity securities or
equity interests is owned, directly or indirectly, by such Person.
6. Miscellaneous.
-------------
6.1. Severability. If any term, provision, covenant or restriction
------------
of this Agreement or any exhibit hereto is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement and such exhibits shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
6.2. Specific Enforcement. Each of the parties hereto acknowledges
--------------------
and agrees that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to injunctive or other equitable relief to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
they may be entitled at law or equity.
6.3. Entire Agreement. This Agreement (including the Schedules and
----------------
documents set forth in the exhibits hereto) contains the entire understanding of
the parties with respect to the transactions contemplated hereby.
6.4. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
6.5. Notices and other Communications. All notices, consents,
--------------------------------
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be given in writing
and delivered personally,
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<PAGE>
by telecopy (with a confirmation copy to be sent by first class mail) or sent by
nationally recognized overnight courier service, to:
THE COMPANY:
Naviant Technology Solutions, Inc.
14 Campus Blvd., Suite 200
New Town Square, PA 19073
Attention: Chief Executive Officer
Telecopy No. (610) 355-2428
With a copy (which shall not constitute
notice) to:
Carmelo M. Gordian, Esq.
Brobeck, Phleger & Harrison
301 Congress Ave., Suite 1200
Austin, TX 78701
Telecopy No. (512) 477-5813
PURCHASERS:
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attention: Naviant Account Manager
Telecopy No. (203) 961-2088
-21-
<PAGE>
TL Ventures III L.P.
TL Ventures III Interfund L.P.
TL Ventures IV L.P.
TL Ventures IV Interfund L.P.
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer
Telecopier: (610) 975-9330
TL Ventures III Offshore L.P.
c/o Trident Trust Company (Cayman) Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands
with a copy to:
TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer
Telecopier: (610) 975-9330
First Union Investors, Inc.
301 South College Street, 5/th/ Floor
Charlotte, NC 28288-0732
Attention: Ted Gardner
Telecopy No. (704) 374-6711
At Home Corporation
450 Broadway Street
Redwood City, CA 94063
Attention: Ken Goldman, Chief Financial Officer
Telecopier: (650) 556-5549
24/7 Media, Inc.
1250 Broadway
New York, NY 10001
Attention: Andy Johns, President
Telecopier: (212) 760-2811
-22-
<PAGE>
BCI Growth V, LLC
BCI Investors, LLC
Glenpointe Centre West
Teaneck, NJ 07666
Attention: Lorelelt Koian, Chief Financial Office
Telecopier: (201) 836-6368
XL Ventures LLC
3 East 54/th/ Street, 17/th/ Floor
New York, NY 10022
Attention: Kristopher Wood, Managing Director
Telecopier: (212) 223-4074
Catterton Partners IV, L.P.
Catterton Partners IV Offshore, L.P.
9 Greenwich Office Park
Greenwich, CT 06830
Attention: Craig Sakin
Telecopier: (203) 629-4903
Citicorp
1 Tower Square
Hartford, CT 06183-2030
Attention: John Britt
Telecopier: (860) 954-3730
with a copy to:
Citicorp
399 Park Avenue
14/th/ Floor
New York, NY 10043
Attention: Dirk Hall
Telecopier: (212) 559-0036
Charles Stryker
c/o Naviant Technology Solutions, Inc.
14 Campus Blvd., Suite 200
New Town Square, PA 19073
Attention: Chief Executive Officer
Telecopy No. (610) 355-2428
With a copy (which shall not constitute notice) to:
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<PAGE>
Warren de Wied, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy No. (212) 859-4000
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
6.6. Amendments. The Company may take any action herein
----------
prohibited, or omit to perform any act required to be performed by it
(including, without limitation, under Article 4 of this Agreement), if the
Company shall obtain the written consent or waiver of the registered holders of
not less than two-thirds of the outstanding shares of Series C Preferred Stock
and Series D Preferred Stock. Any amendment to this Agreement shall require the
written consent of (i) the registered holders of not less than two-thirds of the
outstanding shares of Series C Preferred Stock and Series D Preferred Stock and
(ii) the Company.
6.7. Cooperation. Each of the parties hereto agrees to take, or
-----------
cause to be taken, all such further or other actions as shall reasonably be
necessary to make effective and consummate the transactions contemplated by this
Agreement.
6.8. Heirs, Successors and Assigns. Except as expressly provided
-----------------------------
otherwise in this Agreement, all covenants and agreements contained herein shall
bind and inure to the benefit of the parties hereto, their respective heirs,
successors and assigns, and to any transferee of any Series C Preferred Stock
and/or Series D Preferred Stock. There are no other intended third-party
beneficiaries to this Agreement.
6.9. Expenses and Remedies. (a) The Company agrees to pay or
---------------------
reimburse the Purchasers for (i) all reasonable legal counsel, accounting,
environmental consulting and other out-of-pocket fees and expenses incurred by
or on behalf of any Purchaser in connection with due diligence relating to, and
the preparation, negotiation and execution of, this Agreement and the Related
Documents and the consummation of all transactions contemplated hereby and
thereby, (ii) all costs, expenses and reasonable legal fees relating to any
future amendments or supplements to this Agreement or any Related Document or
the Series C Preferred Stock and/or Series D Preferred Stock (or any proposal by
the Company for such amendment or supplement) whether or not consummated or any
waiver or consent with respect thereto (or any proposal for such waiver or
consent) whether or not consummated and (iii) all costs, expenses and reasonable
legal fees of Purchasers relating to the enforcement against the Company of this
Agreement or the Related Documents.
(b) The Company agrees to indemnify and save harmless each
Purchaser and its officers, directors, partners, employees, trustees and agents,
and
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<PAGE>
each person who controls such Purchaser within the meaning of the Securities
Act or the Exchange Act, from and against any and all costs, expenses
(including, without limitation, reaso nable attorneys' fees, whether incurred in
connection with a claim against the Company or a third party claim), damages or
other liabilities (collectively, "Losses") resulting from any breach of any
------
representation, warranty, covenant or agreement set forth in this Agreement or
any Related Document by the Company or any legal, administrative or other
proceedings brought by any third party arising out of the transactions
contemplated hereby and thereby (other than Losses resulting, directly or
indirectly, (i) from the breach by such Purchaser of any of its agreements
contained in this Agreement or any Related Document or (ii) from the gross
negligence or willful misconduct of such Purchaser or any of its respective
officers, directors, partners, employees or agents, or any person who controls
such Purchaser within the meaning of the Securities Act or the Exchange Act);
provided, however, that, if and to the extent that such indemnification is
- -------- -------
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of such indemnified liability which shall be
permissible under applicable laws.
(c) Each party entitled to indemnification under this Section
6.9 (each, an "indemnified party") will, promptly after the receipt of notice of
-----------------
the commencement of any action against such indemnified party in respect of
which indemnity may be sought from a party (each, an "indemnifying party") on
------------------
account of an indemnity agreement contained in this Section 6.9, notify the
indemnifying party in writing of the commencement thereof. The omission of any
indemnified party so to notify the indemnifying party of any such action shall
not relieve the indemnifying party from any liability which the indemnifying
party may have to such indemnified party except to the extent the indemnifying
party shall have been materially prejudiced by the omission of such indemnified
party so to notify the indemnifying party pursuant to this Section 6.9. In case
any such action 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 the
indemnifying party may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6.9 for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense thereof nor
for any settlement thereof entered into without the consent of the indemnifying
party; provided, however, that (i) if the indemnifying party shall elect
-------- -------
not to assume the defense of such claim or action or (ii) if the indemnified
party reasonably determines (x) that there may be a conflict between the
positions of the indemnifying party and of the indemnified party in defending
such claim or action or (y) that there may be legal defenses available to such
indemnified party different from or in addition to those available to the
indemnifying party, then separate counsel for the indemnified party shall be
entitled to participate in and conduct the defense, in the case of (i) and
(ii)(x), or such different
-25-
<PAGE>
defenses, in the case of (ii)(y), and the indemnifying party shall be liable for
any reasonable legal or other expenses incurred by the indemnified party in
connection with the defense; provided that the Company shall not be obligated to
pay the reasonable legal expenses of more than one firm of counsel for all
indemnified parties in connection with any matter in respect of which indemnity
is sought hereunder, except to the extent any indemnified party or parties
reasonably shall have concluded that there may be a conflict of interest between
any indemnified parties or legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct.
6.10. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the issuance and delivery of the shares of Series C Preferred
Stock and Series D Preferred Stock.
6.11. Transfer of Securities. (a) Each Purchaser understands
----------------------
and agrees that the shares of Series C Preferred Stock and Series D Preferred
Stock (and the shares of Common Stock issuable upon conversion thereof) have not
been registered under the Securities Act or the securities laws of any state and
that they may be sold or otherwise disposed of only in one or more transactions
registered under the Securities Act and, where applicable, such laws or
transactions as to which an exemption from the registration requirements of the
Securities Act and, where applicable, such laws are available. Each Purchaser
acknowledges that, except as provided in the Registration Rights Agreement, such
Purchaser has no right to require the Company to register any of such shares.
Each Purchaser understands and agrees that each certificate representing any of
its shares shall bear the following legends:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED BY A PREFERRED STOCK
PURCHASE AGREEMENT DATED AS OF SEPTEMBER 13, 1999, A
COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
CORPORATION."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE
-26-
<PAGE>
SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT
OR SUCH LAWS AS CONFIRMED BY AN OPINION IN FORM AND
FROM COUNSEL ACCEPTABLE TO THE CORPORATION."
6.12. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT
--------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW. EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO
THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE STATE OF NEW YORK, FOR ANY
ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL
AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
----------
TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION
RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY
PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE
ADDRESS SET FORTH IN THIS AGREEMENT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR
ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF
VENUE OF ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES
OF AMERICA, IN EACH CASE LOCATED IN THE STATE OF NEW YORK, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO
TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.13. Term. Except as otherwise provided in this Agreement,
----
this Agreement shall terminate when none of the shares of Series C Preferred
Stock and Series D Preferred Stock remains outstanding, except that Section 6.9
shall survive the termination of this Agreement.
-27-
<PAGE>
6.14. Publicity. Each of the parties hereto agrees that it will
---------
make no statement regarding the transactions contemplated hereby which is
inconsistent with any press release agreed to by the parties hereto. In
addition, the Company will not,
(Remainder of page intentionally left blank)
-28-
<PAGE>
without the prior written consent of the relevant Purchaser, refer to such
Purchaser or any trademark or trade name of such Purchaser or any of its
affiliates in any corporate, marketing or promotional material or otherwise
identify any Purchaser as an investor in or business associate of the Company.
Notwithstanding the foregoing, each of the parties hereto may, in documents
required to be filed by it with any regulatory body, make such statements with
respect to the transactions contemplated hereby as each may be advised is
legally necessary upon advice of its counsel.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By: ________________________________
Name:
Title:
TL VENTURES III L.P.
By: TL Ventures III Management L.P.,
its general partner
By: TL Ventures III LLC,
its general partner
By: ________________________________
Name:
Title:
-29-
<PAGE>
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore Partners L.P.,
its general partner
By: TL Ventures III Offshore Ltd.,
its general partner
By: _______________________________________
Name:
Title:
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC,
its general partner
By: _______________________________________
Name:
Title:
TL VENTURES IV L.P.
By: TL Ventures IV Management L.P.,
its general partner
By: TL Ventures IV LLC,
its general partner
By: _______________________________________
Name:
Title:
-30-
<PAGE>
TL VENTURES IV INTERFUND L.P.
By: TL Ventures IV LLC,
its general partner
By: _______________________________________
Name:
Title:
GE CAPITAL EQUITY INVESTMENTS, INC.
By: _______________________________________
Name: George Hashbarger
Title: Senior Vice President
FIRST UNION INVESTORS, INC.
By: _______________________________________
Name:
Title:
AT HOME CORPORATION
By: _______________________________________
Name: Chris Caren
Title:
24/7 MEDIA, INC.
By: _______________________________________
Name:
Title:
-31-
<PAGE>
BCI GROWTH V, LLC
By: Glenpointe Associates, V LLC,
General Partner
By: _______________________________________
Name: Mark E. Hastings
Title: Managing Member
BCI INVESTORS, LLC
By: _______________________________________
Name: Mark E. Hastings
Title: Managing Member
CATTERTON PARTNERS IV, L.P.
CATTERTON PARTNERS IV OFFSHORE, L.P.
By: Catterton Managing Partner IV, L.L.C.,
their General Partner
By: _______________________________________
Name:
Title:
CITICORP
By: _______________________________________
Name:
Title:
____________________________________________
Charles Stryker
-32-
<PAGE>
XL VENTURES LLC
By: XL Ventures (Delaware), Inc.,
its Managing Member
By: _______________________________________
Name: Mark A. Angelson
Title: Deputy Chairman
-33-
<PAGE>
SCHEDULES
- ---------
Schedule 1.1 Purchase and Sale of Series C Preferred Stock and Series D
Preferred Stock
Schedule 2.3 Subsidiaries
Schedule 2.4 Financial Statements
Schedule 2.7 Capitalization
Schedule 2.11 Encumbrances on Properties; Insurance Policies
Schedule 2.14 Employee Benefits
Schedule 2.16 Proprietary Rights
Schedule 2.17 Material Contracts and Obligations
Schedule 2.23 Projections
Schedule 2.25 Directors, Officers and Employees
Schedule 2.26 Related Parties
Schedule 4.4 Insurance Requirements
-34-
<PAGE>
EXHIBIT 10.29
ASSET PURCHASE AGREEMENT
between
NAVIANT TECHNOLOGY SOLUTIONS, INC. (the "Purchaser")
and
INTELLIQUEST INFORMATION GROUP, INC. (the "Seller")
As of July 22, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I TRANSFER OF ASSETS AND LIABILITIES................................... 1
1.1 Transfer of Assets................................................. 1
1.2 Excluded Assets.................................................... 4
1.3 Assumption of Liabilities.......................................... 4
1.4 Excluded Liabilities............................................... 4
ARTICLE II CONSIDERATION....................................................... 5
2.1 Purchase Price..................................................... 5
2.2 Purchase Price Adjustments......................................... 5
2.3 Allocation of Purchase Price....................................... 7
ARTICLE III THE CLOSING........................................................ 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER............................ 8
4.1 Corporate Organization............................................. 8
4.2 Authority.......................................................... 8
4.3 No Violations; No Consents or Approvals Required................... 8
4.4 Capital Structure.................................................. 9
4.5 Financial Statements............................................... 9
4.6 Undisclosed Liabilities............................................ 10
4.7 Title to Property and Assets....................................... 10
4.8 Absence of Change; Payments and Obligations to Date of Agreement... 11
4.9 Intellectual Property Rights....................................... 12
4.10 Contracts.......................................................... 14
4.11 Litigation......................................................... 15
4.12 Taxes.............................................................. 15
4.13 Compliance with Applicable Law..................................... 17
4.14 Labor Relations and Employment; No Collective Bargaining........... 17
4.15 Brokers and Finders................................................ 17
4.16 Powers of Attorney................................................. 18
4.17 Employee Benefit Plans............................................. 18
4.18 Subsidiaries....................................................... 18
4.19 Directors and Officers............................................. 18
4.20 Accounts Receivable................................................ 19
4.21 Environmental Matters.............................................. 19
4.22 Asset Maintenance; Insurance; Sufficiency.......................... 19
4.23 Disclosure......................................................... 19
4.24 Disclaimer of Other Representations and Warranties................. 19
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................... 20
5.1 Corporate Organization............................................. 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.2 Authority.......................................................... 20
5.3 No Violations: No Consents or Approvals Required................... 20
5.4 Brokers and Finders................................................ 21
5.5 Disclosure......................................................... 21
5.6 Financing.......................................................... 21
5.7 Investment......................................................... 21
5.8 No Litigation...................................................... 22
ARTICLE VI COVENANTS........................................................... 22
6.1 Conduct of the Purchased Business Pending the Closing.............. 22
6.2 No Solicitation.................................................... 23
6.3 Delivery of Balance Sheet and Additional Payment Amount............ 24
6.4 Access to Information; Continued Assistance........................ 24
6.5 Commercially Reasonable Efforts.................................... 26
6.6 Public Announcements............................................... 26
6.7 Competition; Non-solicitation...................................... 26
6.8 Collection of Accounts............................................. 27
6.9 Offers of Employment............................................... 28
6.10 Seller 401(k) Plan................................................. 28
6.11 Vacation........................................................... 28
6.12 QMS Contract....................................................... 28
6.13 Accelerated Vesting of Employee Options............................ 29
6.14 Assumed Liabilities; Excluded Liabilities.......................... 29
6.15 Transition Services................................................ 29
ARTICLE VII CONDITIONS TO CLOSING.............................................. 29
7.1 General Conditions................................................. 29
7.2 Conditions to Obligations of Seller................................ 30
7.3 Conditions to Obligations of Purchaser............................. 31
ARTICLE VIII SURVIVAL OF REPRESENTATIONS....................................... 33
ARTICLE IX TERMINATION; AMENDMENT; WAIVER...................................... 34
9.1 Termination........................................................ 34
9.2 Effect of Termination.............................................. 35
9.3 Termination Fee.................................................... 35
9.4 Assignment......................................................... 35
9.5 Waiver............................................................. 36
9.6 Time of the Essence................................................ 36
ARTICLE X MISCELLANEOUS........................................................ 36
10.1 Confidentiality.................................................... 36
10.2 [Reserved]......................................................... 36
10.3 Title, Possession and Risk of Loss................................. 36
10.4 Entire Agreement; Amendments....................................... 37
10.5 Power of Attorney.................................................. 37
10.6 Certain Tax Matters................................................ 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
10.7 Further Assurances................................................. 39
10.8 Notices............................................................ 39
10.9 Expenses........................................................... 40
10.10 Dispute Resolution................................................. 40
10.11 Severability....................................................... 42
10.12 Governing Law...................................................... 42
10.13 Bulk Sales Laws.................................................... 42
10.14 Counterparts....................................................... 42
10.15 Headings; Interpretation; Disclosure Schedule...................... 42
10.16 Consent to Jurisdiction............................................ 43
10.17 Waiver of Jury Trial............................................... 43
10.18 Indemnification.................................................... 44
</TABLE>
iii
<PAGE>
DISCLOSURE SCHEDULES
Schedule 1.1 Permitted Encumbrances
Schedule 1.1(a)(i) Intellectual Property
Schedule 1.1(a)(ii) Leases, Licenses and other Agreements
Schedule 1.1(a)(iii) Contracts
Schedule 1.1(a)(iv) Tangible Personal Property
Schedule 1.1(a)(v) Common Stock
Schedule 1.1(a)(i)(ix) Governmental or Regulatory Operating Authorities
Schedule 2.2 Final Balance Sheet Preparation Procedures
Schedule 4.1 Organization, Good Standing and Qualification
Schedule 4.3 Violations, Consents, Approvals
Schedule 4.6 Undisclosed Liabilities
Schedule 4.7 Assets and Properties of IQ2.net
Schedule 4.8 Changes in Operations, etc.
Schedule 4.10(a) Other Contracts
Schedule 4.12 Tax Returns
Schedule 4.17 Employee Benefit Plans
Schedule 4.19 List of Officers and Directors
Schedule 6.9 Employees to Receive Offers
iv
<PAGE>
EXHIBITS
Exhibit A Assignment and Bill of Sale
Exhibit B Intellectual Property Assignment
Exhibit C Escrow Agreement
Exhibit D-1 Officer's Certificate of Purchaser
Exhibit D-2 Officer's Certificate of Seller
Exhibit E Form of Employment Agreement
Exhibit F [Reserved]
Exhibit G [Reserved]
Exhibit H Allocation of Purchase Price
Exhibit I Assumption Agreement
Exhibit J [Reserved]
Exhibit K License Agreement
Exhibit L Cooperation Agreement
v
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 22, 1999 (the "Agreement"),
---------
between IntelliQuest Information Group, Inc., a Delaware corporation ("Seller"),
------
and Naviant Technology Solutions, Inc., a Delaware corporation ("Purchaser").
---------
INTRODUCTION
WHEREAS, Seller, through its database division (which has operated under
the names IntelliQuest Communications, Inc., IQ2.net, Marketing Information
Solutions and MkIS), is in the business of (a) providing electronic consumer
registration services for computer software and hardware vendors and (b)
licensing data from various proprietary databases compiled from its electronic
consumer registration services and commercially available demographic data
licensed from third parties for use and resale (such business hereinafter
referred to as the "Purchased Business").
------------------
WHEREAS, Seller owns all of the issued and outstanding capital stock of
IQ2.net, Inc., a Delaware corporation ("IQ2.net"); and
-------
WHEREAS, the assets which comprise the Purchased Business are held by
Seller and IQ2.net; and
WHEREAS, the parties hereto desire that (a) Seller transfer, convey and
assign to Purchaser all of the capital stock of IQ2.net and substantially all of
the other assets, properties and rights of Seller primarily related to the
Purchased Business as a going concern and (b) Purchaser purchase and acquire the
same, subject to the payment of the Purchase Price and the assumption by
Purchaser of the liabilities and obligations of Seller relating primarily to the
Purchased Business, in each case, upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and for and in
consideration of the mutual promises contained in this Agreement and for such
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
---------
TRANSFER OF ASSETS AND LIABILITIES
----------------------------------
1.1 Transfer of Assets.
------------------
(a) Upon the terms and subject to the conditions of this Agreement,
at the Closing (as defined in Article III), Seller shall sell, transfer, convey,
assign and deliver to Purchaser, and Purchaser shall acquire from Seller, for
the consideration hereinafter described, all of Seller's right, title and
interest in and to all assets, properties and rights of every kind, nature and
description, real, personal or mixed, tangible or intangible, known or unknown,
<PAGE>
wherever located which are primarily related to or primarily used in the
Purchased Business, other than the "Excluded Assets" (as defined in Section 1.2
below), as the same shall exist on the Closing Date (as defined in Article III)
(the "Transferred Assets"), free and clear of any mortgage, security, interest,
------------------
pledge, lien, conditional sale agreement, charge or other encumbrance (each, an
"Encumbrance") other than any Encumbrance identified in Schedule 1.1(a) of the
----------- ---------------
disclosure schedules attached hereto (the "Disclosure Schedules") (the
--------------------
"Permitted Encumbrances"), including without limitation, all of Seller's right,
----------------------
title and interest in the following:
(i) all know-how, show-how, trade secrets, works of authorship,
ideas, procedures, processes, systems, methods, concepts, principles,
discoveries, inventions, art, machines, manufactures, compositions of matter,
materials, improvements, formulas, patterns, devices, compilations, information,
lists (including but not limited to customer and supplier lists), articles,
codes, matters, programs, techniques, apparatus, algorithms, designs, circuitry,
hardware, firmware, software (computer software programs and applications, in
both source code and object code form) except the Reply Quest software developed
by Seller, net lists, schematics, diagrams, technology, inventory, products,
networks, data, plans (including but not limited to financial, business,
marketing, technical and product plans), libraries, media, pictorial works,
graphic works, audiovisual works, computer interfaces (including but not limited
to programming interfaces), computer languages, computer protocols, development
tools, and tangible or intangible proprietary rights or information or material,
irrespective of whether patentable, that are used or are intended to be used
primarily in the Purchased Business as currently conducted, including but not
limited to those set forth in Schedule 1.1(a)(i) of the Disclosure Schedules
------------------
(collectively, the "Intellectual Property"), and all patents, trademarks, trade
---------------------
names, service marks, copyrights (including but not limited to moral rights),
and any applications therefor, and trade secrets and other proprietary rights
("Intellectual Property Rights") related to the Intellectual Property. Without
----------------------------
limiting the generality of the foregoing, Intellectual Property shall include
all of the foregoing with respect to (a) all versions and releases of the High
Tech Household Database (HTHHD) as used in the Purchased Business and all
Intellectual Property primarily related to or used primarily in connection with
the HTHHD in the Purchased Business except the Reply Quest software developed by
Seller; and (b) the names "IQ2.net", "Marketing Information Solutions", "MkIS",
and variations thereof and all other trade names relating primarily to or used
primarily in the Purchased Business;
(ii) all leases (including leases for real property), licenses,
purchase orders, sales orders, commitments and other agreements (including non-
competition agreements and invention assignment agreements and nondisclosure
agreements) of Seller relating primarily to the Purchased Business, including,
without limitation, those set forth in Schedule 1.1(a)(ii) of the Disclosure
-------------------
Schedules;
(iii) all contracts set forth on Schedule 1.1(a)(iii) of the
--------------------
Disclosure Schedules, including without limitation and subject to any required
consents, all contracts between Seller and First Data Solutions, Inc.
(collectively, the "Contracts").
---------
(iv) all personal property, machinery, equipment, vehicles,
furniture, fixtures, office equipment and supplies, brochures, catalogs,
artwork, photographs, advertising and marketing material and other items of
tangible personal property related to or used primarily
2
<PAGE>
in the operation of the Purchased Business, and all warranties relating thereto,
including, without limitation, the tangible personal property identified in
Schedule 1.1(a)(iv) of the Disclosure Schedules;
- -------------------
(v) all shares of the IQ2.net Common Stock (as defined in Section
4.4 hereof) and other securities of IQ2.net owned by Seller and identified in
Schedule 1.1 (a)(v) of the Disclosure Schedules;
- -------------------
(vi) all accounts and notes receivable arising from the operation of
the Purchased Business and all income (including payments in respect of
receivables received by Seller after the Closing), royalties, damages and
payments due or received at Closing or thereafter under any Contract or
otherwise primarily with respect to the Purchased Business (including, without
limitation, rights to damages and payments for past, present or future
infringements or misappropriations of any Intellectual Property) in all
countries;
(vii) all cash, bank deposits and cash equivalents relating primarily
to the Purchased Business, including for this purpose, all cash and cash
equivalents credited to Seller's bank accounts in the ordinary course of
business consistent with past business practices relating primarily to the
Purchased Business prior to the Closing Date and all cash in transit from banks
or credit card companies for purchases of the Transferred Assets shipped prior
to the Closing Date;
(viii) all causes of action, demands, judgments, claims (including
insurance claims), indemnity rights, rights to set-off against third parties or
other similar rights of Seller relating primarily to Purchased Business ;
(ix) all franchises, consents, licenses, marketing rights, permits,
authorizations, approvals and other operating authorities, to the extent
transferable, issued by governmental or regulatory bodies to Seller relating
primarily to or used primarily in the Purchased Business, including, without
limitation, those set forth in Schedule 1.1(a)(i)(ix) of the Disclosure
----------------------
Schedules;
(x) all records, files and invoices, including but not limited to,
all production data, equipment maintenance data, employee files, inventory
records, sales and sales promotional data, advertising and marketing materials,
customer lists, cost and pricing information, supplier lists, Intellectual
Property prosecution files, business plans, reference catalogs and any other
records and data, or exact duplicates thereof, used primarily in connection with
the Purchased Business and the Transferred Assets and located at any of the
offices of, or other location used by, Seller or IQ2.net;
(xi) all rights under express or implied warranties from suppliers
with respect to the Purchased Business or the Transferred Assets except to the
extent related primarily to Excluded Assets (as defined in Section 1.2 hereof);
and
(xii) all goodwill associated with the Purchased Business as a going
concern together with the right to represent to third parties that Purchaser is
the successor to the Purchased Business.
3
<PAGE>
1.2 Excluded Assets.
---------------
Notwithstanding the provisions of Section 1.1 above, the Transferred
Assets do not include, and Seller does not hereby convey or transfer to
Purchaser any asset not described in Section 1.1, including, without limitation,
the following assets (collectively, the "Excluded Assets"):
---------------
(a) all of Seller's right title and interest in and to all assets,
properties and rights of every kind, nature and description, real personal or
mixed, tangible or intangible, known or unknown, wherever located which are not
primarily related to or used primarily in the Purchased Business;
(b) the consideration delivered by Purchaser to the Seller pursuant
to this Agreement and all rights of Seller under this Agreement;
(c) any books, records or other information related solely and
exclusively to the Excluded Assets or the Excluded Liabilities (as defined in
Section 1.4 hereof).
(d) any accounts receivable, notes or other receivables owed to
Seller or IQ2.net by any officer, director, employee or affiliate of Seller or
IQ2.net;
(e) any personal property, machinery, equipment, vehicles, furniture,
fixtures, office equipment and supplies, brochures, catalogs, artwork,
photographs, advertising and marketing material and other items of tangible
property related to or used primarily in the operation of the Purchased
Business, and all warranties relating thereto, which is located at Seller's
facility in Austin, Texas as of the date hereof; and
(f) all tax and accounting records and books of account of Seller.
1.3 Assumption of Liabilities.
-------------------------
(a) Upon the terms and subject to the conditions of this Agreement,
at the Closing, Purchaser shall, pursuant to an Assumption Agreement
substantially in the form attached hereto as Exhibit I (the "Assumption
----------
Agreement"), assume the liabilities and obligations (and only the liabilities
- ---------
and obligations) of Seller primarily related to the Purchased Business (the
"Assumed Liabilities"); provided, however, that Purchaser shall not assume or
-------------------
otherwise be responsible for (a) any costs or expenses incurred by Seller or
I2Q.net in the preparation of this Agreement and the consummation of the sale of
the Purchased Business to Purchaser provided for in this Agreement, including,
without limitation, the costs and expenses required to be borne by Seller
pursuant to Section 4.15 and Section 10.9 hereof or (b) any liabilities or
obligations of Seller under any severance plans or arrangements with Ed Frazier
and Francis Webster.
1.4 Excluded Liabilities.
--------------------
Except as specified in Section 1.3, Purchaser shall not, by the
execution, delivery and performance of this Agreement or the Assumption
Agreement, or otherwise, assume or
4
<PAGE>
otherwise be responsible for any liability or obligation of any nature of
Seller, or claims of such liability or obligation, matured or unmatured,
liquidated or unliquidated, fixed or contingent, known or unknown, whether
arising out of acts or occurrences prior to, at or after the date hereof (the
"Excluded Liabilities").
--------------------
ARTICLE II
----------
CONSIDERATION
-------------
2.1 Purchase Price.
--------------
Upon the terms and subject to the conditions of this Agreement, in
full payment for the aforesaid sale, conveyance, assignment, transfer and
delivery of the Purchased Business and the Transferred Assets, Purchaser shall
assume the Assumed Liabilities pursuant to the Assumption Agreement and shall
deliver or cause to be delivered to Seller the aggregate amount of $46,500,000
to be paid as follows (collectively, the "Purchase Price"):
--------------
(i) immediately available funds (cash equivalent) in the amount
of $44,500,000 shall be paid to the Seller at the Closing; and
(ii) immediately available funds (cash equivalent) in the amount
of $2,000,000 (the "Balance Sheet Adjustment Escrow Amount") shall be delivered
--------------------------------------
to and held in escrow by an escrow agent appointed by Purchaser (the "Escrow
------
Agent") pursuant to an Escrow Agreement in substantially the form attached
hereto as Exhibit C (the "Escrow Agreement") and released to Seller or
--------- ----------------
Purchaser, as applicable, pursuant to Section 2.2 hereof upon the determination
of the "Net Asset Value" and "Adjustment Amount," if any, pursuant to Section
2.2 hereof.
2.2 Purchase Price Adjustments.
--------------------------
(a) As used herein, the term "Net Asset Value" shall mean the book
---------------
value of the Transferred Assets included in the Final Balance Sheet less the
book value of the Assumed Liabilities included in the Final Balance Sheet,
determined in accordance with this Section 2.2.
(b) Seller shall deliver to Purchaser the Final Balance Sheet in
accordance with Section 6.3 of this Agreement setting forth in reasonable detail
the book value of each Transferred Asset and Assumed Liability, including
without limitation and separately identifying the assets, liabilities and
stockholder's equity of IQ2.net, and showing the Net Asset Value of the
Purchased Business as of the Closing Date. Such Final Balance Sheet shall be
prepared by Seller's personnel in a manner consistent with the preparation of
the Financial Statements (as defined in Section 4.5) and utilizing the rules and
procedures outlined in Schedule 2.2 of the Disclosure Schedules and such other
------------
procedures as shall be mutually agreeable to Purchaser and Seller. Without
limiting the generality of the foregoing, any account receivable, note or other
receivable owed to IQ2.net by an officer, director, employee or affiliate of
Seller or IQ2.net shall not be assigned any value on the Final Balance Sheet.
Prior to or upon completion of such Final Balance Sheet, Purchaser and the
Philadelphia, Pennsylvania branch of PricewaterhouseCoopers
5
<PAGE>
LLP ("PwC PA") shall be provided with the working papers used by Seller to
-------
complete such Final Balance Sheet. The Austin, Texas branch of
PricewaterhouseCoopers LLP ("PwC Austin") will perform agreed upon procedures on
----------
the Final Balance Sheet prepared by the Seller. Such procedures will be mutually
agreed upon by the Purchaser and the Seller. Upon completion of such procedures,
Purchaser and PwC PA will be given access to the workpapers prepared by PwC
Austin in performance of the agreed upon procedures. Purchaser shall have a
period of ten days after access to workpapers prepared by the Seller in
preparation of such Final Balance Sheet and workpapers prepared by PwC Austin in
performance of the agreed upon procedures to review and accept or dispute such
Final Balance Sheet in accordance with this Section 2.2.
(c) In the event the Final Balance Sheet reflects a Net Asset Value
of the Purchased Business of less than $11,500,000, then Purchaser shall be
entitled to the difference obtained by subtracting the Net Asset Value set forth
on the Final Balance Sheet from $11,500,000 (the "Adjustment Amount"), up to a
-----------------
maximum of the Balance Sheet Adjustment Escrow Amount. In such event, Purchaser
and Seller shall cause the Escrow Agent to pay to the Seller pursuant to the
Escrow Agreement out of the Balance Sheet Adjustment Escrow Amount an amount
equal to the Balance Sheet Adjustment Escrow Amount less the Adjustment Amount.
Purchaser and Seller shall then cause the Escrow Agent to pay the balance of the
Balance Sheet Adjustment Escrow Amount to Purchaser pursuant to the Escrow
Agreement. The maximum amount that Purchaser is entitled to be paid pursuant to
this Section 2.2(c) shall be limited to $2,000,000. If the Net Asset Value set
forth on the Final Balance Sheet is greater than or equal to $11,500,000, then
Purchaser and Seller shall cause the Escrow Agent to pay to the Seller pursuant
to the Escrow Agreement out of the Balance Sheet Adjustment Escrow Amount an
amount equal to the Balance Sheet Adjustment Escrow Amount.
(d) In the event the Final Balance Sheet reflects a Net Asset Value
of greater than $13,000,000, Purchaser shall pay to Seller the amount of such
excess in cash (the "Additional Payment Amount").
-------------------------
(e) If Purchaser shall disagree with the Adjustment Amount (if any),
the Additional Payment Amount (if any) or the Net Asset Value set forth on the
Final Balance Sheet, Purchaser shall notify Seller of such disagreement within
ten days following Purchaser's receipt of the Final Balance Sheet as provided in
paragraph (b) above. To the extent that the Net Asset Value set forth on the
Final Balance Sheet or any portion of the Adjustment Amount (if any) or the
Additional Payment Amount (if any) is not in dispute, within ten days following
Purchaser's receipt of the Final Balance Sheet, (i) Purchaser and Seller shall
cause the Escrow Agent to pay to Purchaser pursuant to the Escrow Agreement out
of the Balance Sheet Adjustment Escrow Amount that portion of the Adjustment
Amount (if any) which is not in dispute in the manner set forth in Section
2.2(c), or (ii) Purchaser shall pay to Seller any amount not in dispute in the
manner set forth in Section 2.2(d), as the case may be.
(f) Purchaser and Seller shall use their best efforts for a period of
thirty (30) calendar days after Purchaser's delivery of any notice of
disagreement (or such longer period as Purchaser and Seller shall mutually agree
upon) to resolve any disagreements raised by Purchaser with respect to the Final
Balance Sheet and/or the calculation of the Adjustment Amount. If, at the end
of such period, Purchaser and Seller are unable to resolve such
6
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disagreements, Purchaser and Seller shall jointly select, or if Purchaser and
Seller shall be unable to agree, PwC Austin and PwC PA, independent auditors of
Seller and Purchaser shall jointly select, a third independent auditor of
recognized national standing to resolve any remaining disagreements. The
determination by such third independent auditor shall be final, binding and
conclusive on the parties. Purchaser and Seller shall use their best efforts to
cause such third independent auditor to make its determination within thirty
(30) calendar days of accepting its selection. Within ten (10) calendar days
after the date of determination of such third independent auditor, Purchaser and
Seller shall cause the Escrow Agent to pay pursuant to the Escrow Agreement out
of the Balance Sheet Adjustment Escrow Amount to Purchaser the Adjustment Amount
(if any), and to Seller the remainder (if any) in the manner set forth in
Section 2.2(c) and 2.2(d). The fees and expenses of such third independent
auditor shall be borne by Purchaser and Seller equally.
(g) All payments made by Purchaser pursuant to Section 2.2(d) or made
out of the Balance Sheet Adjustment Escrow Account pursuant to Section 2.2(c)
shall be made by wire transfer of immediately available funds to an account
designated by the payee.
2.3 Allocation of Purchase Price.
----------------------------
On or before the Closing Date, the Seller and the Purchaser will
prepare a schedule to be attached hereto as Exhibit H and titled "Allocation of
---------
the Purchase Price" setting forth the following items (which will have been
agreed to by the parties): (i) the consideration paid for the shares of IQ2.net
Common Stock pursuant to this Agreement, (ii) the liabilities of IQ2.net as of
the Closing Date and (iii) the actual values of the major categories (grouped by
physical location) of the assets of IQ2.net and the Transferred Assets other
than the IQ2.net Common Stock, each as of the Closing Date. The Seller and the
Purchaser agree that (i) the consideration paid for the shares of IQ2.net Common
Stock and the liabilities of IQ2.net (plus other relevant items) will be
allocated to the assets of IQ2.net for all purposes (including Tax) in a manner
consistent with the values set forth on Exhibit H, (ii) all Tax returns
(including Internal Revenue Service Form 8594 or any other similar statement)
will be filed in a manner consistent with such values, and (iii) no party will
assert in connection with any audit or other proceeding with respect to Taxes,
any values or other items inconsistent with the allocation set forth in Exhibit
H.
ARTICLE III
-----------
THE CLOSING
-----------
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at 9:00 a.m. Austin, Texas time at the offices of
-------
Brobeck, Phleger & Harrison LLP, counsel to Purchaser, as soon as is reasonably
practicable following the satisfaction of all conditions set forth in Article
VII hereof (but in any case no earlier than August 2, 1999) or at such other
time, at such other place or on such other date as the parties hereto may
mutually agree. At the Closing, the parties hereto will exchange certificates,
opinions and other documents as required hereby. Notwithstanding the foregoing,
the Closing shall be effective at 12:01 a.m. Austin,
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Texas time on the day of Closing. The date on which the Closing occurs is herein
referred to as the "Closing Date".
------------
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Purchaser as follows:
4.1 Corporate Organization.
----------------------
Except as set forth on Schedule 4.1 of the Disclosure Schedules, each
------------
of Seller and IQ2.net is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and is duly
qualified or licensed as a foreign corporation authorized to do business in and
is in good standing under the laws of each jurisdiction in which the character
of the properties and assets now owned or held by it or the nature of the
business now conducted by it requires it to be so licensed or qualified and
where the failure to be so licensed or qualified and in good standing would have
a material adverse effect on the business, financial condition, results of
operations or assets or properties (including, without limitation, the
Transferred Assets) of the Purchased Business and IQ2.net, taken as a whole
("Material Adverse Effect"). Each of Seller and IQ2.net has full corporate
-----------------------
power and authority to carry on the Purchased Business as now being conducted.
4.2 Authority.
---------
Seller has full corporate power and authority to execute, deliver and
perform this Agreement and, to the extent it is a party thereto, the documents
to be delivered at the Closing pursuant to Section 7.3(e) hereof (collectively,
the "Seller Agreements") and to consummate the transactions contemplated hereby
-----------------
and thereby. The execution and delivery of this Agreement and the Seller
Agreements by Seller and the consummation by Seller of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action, and no other corporate action or proceeding on the part of
Seller or IQ2.net is necessary to authorize the execution and delivery by Seller
of this Agreement or the Seller Agreements or the consummation by Seller of the
transactions contemplated hereby or thereby or the performance of Seller's
obligations hereunder and thereunder. This Agreement has been, and the Seller
Agreements on the Closing Date will be, duly executed and delivered by Seller
and this Agreement is, and on the Closing Date each of the Seller Agreements
will be, legal, valid and binding obligations of Seller, enforceable against it
in accordance with their terms, subject to applicable laws affecting creditors'
rights generally and, as to enforcement, to general principles of equity,
regardless of whether applied in a proceeding at law or in equity.
4.3 No Violations; No Consents or Approvals Required.
------------------------------------------------
Except as set forth in Schedule 4.3 of the Disclosure Schedules,
------------
neither the execution and delivery of this Agreement or the Seller Agreements
nor the consummation of the transactions contemplated hereby or thereby will (i)
conflict with or violate any provision of the
8
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certificate of incorporation or by-laws, each as amended, of Seller or IQ2.net,
(ii) conflict with or violate any law, rule, regulation, ordinance, order, writ,
injunction, judgment or decree applicable to Seller, IQ2.net or the Purchased
Business or by which Seller, IQ2.net or any of the Transferred Assets are bound
or affected or (iii) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination or cancellation of,
or accelerate the performance required by or maturity of, or result in the
creation of any security interest, lien, charge or encumbrance on any of the
Transferred Assets or any assets, properties or other rights of Seller or
IQ2.net pursuant to any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, permit, license, franchise, lease, contract, or other
instrument or obligation to which Seller or IQ2.net is a party, including,
without limitation, the Contracts and the IQ2.net Contracts (as defined in
Section 4.10 hereof), except, in the case of (ii) and (iii) above, for such
conflicts, violations, breaches, defaults, accelerations, terminations,
cancellations, encumbrances, security interests, liens, or charges which do not
and could not reasonably be expected to have a material adverse effect on the
ability of Seller to consummate the transactions contemplated by this Agreement
and the Seller Agreements or a Material Adverse Effect. Except for applicable
requirements, if any, of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), or as set forth in Schedule 4.3 of the
--- ------------
Disclosure Schedules, no notice, declaration, report or other filing or
registration with, and no waiver, consent, approval or authorization of, any
governmental or regulatory authority or instrumentality or any other person is
required to be submitted, made or obtained by Seller or IQ2.net in connection
with the execution, delivery or performance of this Agreement or the Seller
Agreements and the consummation of the transactions contemplated hereby or
thereby, except where the failure to give notice, declare, report, file, or
obtain any waiver, consent, approval or authorization does not and could not
reasonably be expected to have a material adverse effect on the ability of the
parties hereto to consummate the transactions contemplated by this Agreement or
a Material Adverse Effect.
4.4 Capital Structure.
-----------------
The total authorized capital stock of IQ2.net consists of 1,000 shares
of common stock, par value $0.0001 per share (the "IQ2.net Common Stock"), of
--------------------
which 1,000 shares are issued and outstanding. All outstanding shares of
IQ2.net Common Stock are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, IQ2.net's
Certificate of Incorporation or Bylaws or any agreement to which IQ2.net or
Seller is a party or by which IQ2.net or Seller is bound. All of the
outstanding shares of IQ2.net Common Stock are owned beneficially and held of
record by Seller, and Seller has good and marketable title thereto, free and
clear of all Encumbrances other than Permitted Encumbrances. There are no other
outstanding obligations, warrants, preemptive rights, or other agreements or
commitments to which IQ2.net or Seller is a party, or by which IQ2.net or Seller
is otherwise bound, providing for the issuance of any additional shares of
IQ2.net Common Stock, nor are there any other outstanding equity or nonequity
securities (e.g., debt securities) of IQ2.net.
4.5 Financial Statements.
--------------------
Seller has previously delivered to Purchaser unaudited financial
statements (including a balance sheet and income statement) for the Purchased
Business and IQ2.net for the
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calendar quarter ended March 31, 1999 and unaudited financial statements
(including a balance sheet and income statement) the Purchased Business and
IQ2.net for the calendar year ended December 31, 1998 (the "Financial
---------
Statements"). The Financial Statements fairly present, and the Final Balance
- ----------
Sheet will fairly present, in each case, in all material respects the financial
position of the Purchased Business and IQ2.net as of the respective dates set
forth therein and, with respect to the Financial Statements, the results of
operations of the Purchased Business and IQ2.net for the respective periods or
as of the respective dates set forth therein, but in each case do not or will
not, as applicable, include all information and notes required under generally
accepted accounting principles for complete financial statements but do or will,
as applicable, contain all accruals and adjustments of a normal recurring nature
necessary for a fair and consistent presentation of the financial position of
the Purchased Business for such periods.
4.6 Undisclosed Liabilities.
-----------------------
As of March 31, 1999, neither Seller (primarily with respect to the
Purchased Business) nor IQ2.net had incurred any material liabilities or
obligations of any nature whatsoever, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due which are not reflected on the March 31, 1999 balance sheets included in the
Financial Statements or described on Schedule 4.6 of the Disclosure Schedules.
------------
Since March 31, 1999, neither Seller (primarily with respect to the Purchased
Business) nor IQ2.net has incurred any material liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise and whether due
or to become due that are not reflected on the books and records of Seller and
IQ2.net other than those incurred in the ordinary course of business consistent
with their past practices or described on Schedule 4.6 of the Disclosure
------------
Schedules.
4.7 Title to Property and Assets.
----------------------------
Except for Third Party Intellectual Property Rights (as defined in
Section 4.9(b)), Seller owns (and has good and marketable title to) all of the
Transferred Assets and IQ2.net owns (and has good and marketable title to) all
of its assets and properties, in each case, free and clear of all Encumbrances
other than Permitted Encumbrances. With respect to Transferred Assets leased by
Seller, Seller is in compliance with such leases and holds valid leasehold
interests therein free and clear of all Encumbrances other than Permitted
Encumbrances. With respect to assets and properties leased by IQ2.net, IQ2.net
is in material compliance with the terms of such leases and holds valid
leasehold interests therein free and clear of all Encumbrances other than
Permitted Encumbrances. Seller does not own any real property used in or
relating to the conduct of the Purchased Business, and IQ2.net does not own any
real property. Schedule 4.7 of the Disclosure Schedules contains a list of all
------------
assets, properties and other rights other than Intellectual Property,
Intellectual Property Rights and the IQ2.net Contracts owned or held by IQ2.net,
including, without limitation, all personal property, machinery, equipment,
vehicles, furniture, fixtures, office equipment, bank accounts or similar
deposit arrangements, investment securities, franchises, consents, licenses,
marketing rights, permits, authorizations, approvals and other operating
authorities, and such list is complete and accurate in all material respects.
10
<PAGE>
4.8 Absence of Change; Payments and Obligations to Date of Agreement.
----------------------------------------------------------------
Except for transactions arising in the ordinary course of business or
as set forth on Schedule 4.8 of the Disclosure Schedules, since March 31, 1999,
------------
there has not been any change in the operations, properties, assets or
condition, financial or otherwise, of the Purchased Business or IQ2.net other
than changes affecting the data base research industry generally and other than
changes, none of which, individually or in the aggregate, have had or reasonably
could be expected to have a Material Adverse Effect. Since March 31, 1999,
Seller has conducted the Purchased Business and IQ2.net has conducted its
business, including, without limitation, the Purchased Business, only in the
ordinary course, consistent with past practices. Without limiting the
generality of the foregoing, since March 31, 1999, Seller (solely with respect
to the Purchased Business) and IQ2.net have not directly or indirectly:
(i) borrowed money or incurred any material obligation,
indebtedness or liability (absolute or contingent), except (a) under existing
lines of credit or other borrowing facilities in effect as of March 31, 1999 and
only in amounts and under circumstances consistent with past practices and in
the ordinary and usual course of business and (b) obligations and liabilities
incurred in connection with the transactions contemplated by this Agreement;
(ii) discharged or satisfied any lien or paid any material
obligation or liability (absolute or contingent) other than current liabilities
shown on the March 31, 1999 Balance Sheet, current liabilities incurred since
such date in the ordinary course of business, and obligations incurred under
Contracts entered into in the ordinary course of business;
(iii) mortgaged, pledged, hypothecated, assigned, or subjected
to any lien, any material portion of the Transferred Assets, except under
existing lines of credit or other borrowing facilities in effect as of March 31,
1999 and only in amounts and under circumstances consistent with past practices
and in the ordinary course of business;
(iv) suffered any extraordinary loss or waived any right of
material value;
(v) entered into any material transaction other than in the
ordinary course of business or made any waiver or abandonment of any property,
asset or rights of material value;
(vi) made any material change in its method of accounting;
(vii) paid or committed itself to pay to or for the benefit of
any of its current or former directors, officers, employees, or shareholders any
material compensation or any kind other than wages, bonuses, salaries,
insurance, pension or other benefit plan, payment or arrangement at rates then
in effect and permitted by law;
(viii) made any binding arrangement, understanding, contract or
arrangement between itself and any current or former director, officer or
employee or any lineal descendant of any of such persons pursuant to which any
benefit of such arrangement, understanding, contract or agreement has or will
hereafter accrue, directly or indirectly, to any such current or former
director, officer or employee or any lineal descendant of any of them or to
11
<PAGE>
any entity in which such director, officer or employee or lineal descendant has
any equity ownership, directly or indirectly;
(ix) made any purchase, sale or lease of any capital asset with
an original cost in excess of $25,000 for any single item other than in the
ordinary course of business consistent with past practice; or
(x) made any sale or lease of any capital asset with an
original cost in excess of $25,000 for any single item at less than full and
adequate consideration therefor.
4.9 Intellectual Property Rights.
----------------------------
(a) Seller or IQ2.net, as the case may be, owns or otherwise
possesses legally enforceable rights or licenses to or for the Intellectual
Property and Intellectual Property Rights.
(b) Schedule 1.1(a)(i) of the Disclosure Schedules lists: (i)
------------------
and patent applications, and all registered and unregistered trademarks, trade
names and service marks, and all registered copyrights and applications for
copyright registration, owned or claimed by Seller or IQ2.net and used primarily
by Seller or IQ2.net in connection with the Purchased Business, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, and including the date of filing or registration or issuance of such
applications and registrations, and including the registration number or serial
number of such applications and registrations; (ii) all licenses, sublicenses
and other agreements to which Seller or IQ2.net is a party and pursuant to which
any person is authorized to use any of Seller's or IQ2.net's Intellectual
Property; and (iii) all licenses, sublicenses and other agreements to which
Seller or IQ2.net is a party and pursuant to which Seller or IQ2.net is
authorized to use any Intellectual Property owned by any third party ("Third
-----
Party Intellectual Property Rights") that is necessary to or used primarily in
- ----------------------------------
the Purchased Business as currently conducted by Seller and IQ2.net (i.e.,
including but not limited to Third Party Intellectual Property Rights that are
incorporated in, are, or form (or in each of the foregoing instances which are
contemplated to be incorporated in, be, or form) a part of any Seller or IQ2.net
product, product under development, service or service under development
primarily with respect to the Purchased Business)), other than Seller's
internally-developed Reply Quest software; and (iv) all other Intellectual
Property and Intellectual Property Rights used primarily by Seller or IQ2.net in
connection with the Purchased Business or by IQ2.net.
(c) To Seller's knowledge, there is no (and there is no fact that
reasonably might be expected to form the basis for a claim of) unauthorized use,
disclosure, infringement, violation or misappropriation of Seller's or IQ2.net's
Intellectual Property, any trade secret material received by Seller or IQ2.net,
or any Third Party Intellectual Property Rights (to the extent licensed by or
through Seller or IQ2.net) by any third party, including any employee or former
employee of Seller or IQ2.net. Neither Seller nor IQ2.net has entered into any
agreement to indemnify (or hold harmless) any other person against any charge of
misuse, unauthorized disclosure, infringement, violation or misappropriation of
Seller's or IQ2.net's Intellectual Property, other than indemnification (or hold
harmless) provisions contained in the Contracts, the IQ2.net Contracts or
purchase orders arising in the ordinary course of business.
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<PAGE>
(d) Neither Seller nor IQ2.net is, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to Seller's or IQ2.net's Intellectual Property or Third Party
Intellectual Property Rights, and there is no fact that reasonably might be
expected to form the basis for a claim of such breach. To Seller's knowledge,
no third party is in breach of any license, sublicense or other agreement (as to
which Seller or IQ2.net is a party) relating to Seller's of IQ2.net's
Intellectual Property or Third Party Intellectual Property Rights, and to
Seller's knowledge there is no fact that reasonably might be expected to form
the basis for a claim of such breach.
(e) All patents and registered trademarks, trade names, service
marks, maskworks and copyrights owned by Seller and primarily relating to or
primarily used in the Purchased Business or IQ2.net are valid, subsisting, in
full force and effect, and not abandoned. Neither Seller nor IQ2.net (i) is a
party to any suit, action or proceeding, nor to Seller's knowledge is any such
suit, action or proceeding threatened, nor is there any fact that reasonably
might be expected to form the basis for any such suit, action or proceeding or
threat thereof, which involves a claim of misuse, unauthorized disclosure,
infringement, violation or misappropriation of any Third Party Intellectual
Property Right; (ii) has any knowledge nor any basis to conclude that the
development, manufacturing, use, marketing, distribution, licensing or sale of
its products and services misuses, discloses without authorization, infringes,
violates or misappropriates any Third Party Intellectual Property Right; and
(iii) has brought and or intends to bring, nor to Seller's knowledge is there
any fact that reasonably might be expected to form the basis for any such suit,
action or proceeding or threat thereof, any suit, action or proceeding for
misuse, unauthorized disclosure, infringement, violation or misappropriation of
Seller's or IQ2.net's Intellectual Property or breach of any license, sublicense
or agreement involving Seller's Intellectual Property against any third party.
(f) With regard to Seller's and IQ2.net's employees who contributed
to conception, reduction to practice, creation or development of Seller's and
IQ2.net's Intellectual Property in the course of providing services to Seller or
IQ2.net, Seller or IQ2.net, as the case may be, has secured valid written
assignments from all such employees of all rights to such Seller's or IQ2.net's
Intellectual Property to the extent that Seller or IQ2.net would not have
already owned such rights by operation of law. A true and correct copy of
seller's standard documentation effecting all such assignments have been
provided to Purchaser. Each current employee of Seller employed at the Purchased
Business and each current employee of IQ2.net has executed a proprietary
information and inventions agreement in the form previously delivered to
Purchaser, and all such assignments are substantially in such form. Each current
consultant of Seller employed at the Purchased Business and each current
consultant of IQ2.net has executed a proprietary information agreement in the
form previously delivered to Purchaser.
(g) "Confidential Information" shall mean Seller's or IQ2.net's
Intellectual Property not otherwise protected by patents, patent applications or
copyrights. With respect to Confidential Information owned by Seller or
IQ2.net, Seller or IQ2.net, as the case may be, has taken commercially
reasonable steps to protect and preserve the confidentiality of such
Confidential Information, and all accessibility, receipt, use, disclosure,
delivery, dissemination, reproduction or appropriation of such Confidential
Information by or to a third party has been pursuant to the terms of a written
agreement between Seller or IQ2.net and such third party.
13
<PAGE>
With respect to Confidential Information not owned by Seller or IQ2.net, all
accessibility, receipt, use, disclosure, delivery, dissemination, reproduction
or appropriation of such Confidential Information by Seller or IQ2.net has been
pursuant to the terms of a written agreement between Seller or IQ2.net and the
owner of such Confidential Information, or is otherwise lawful.
(h) Except with respect to Third Party Intellectual Property Rights,
no third party has claimed invalidity of, or superior rights to, any one or more
parts of Seller's or IQ2.net's Intellectual Property and, to Seller's knowledge,
there is no fact that reasonably might be expected to form the basis for any
such claim. Except with respect to Third Party Intellectual Property Rights,
Seller or IQ2.net, as the case may be, is the sole and exclusive owner of all
right, title and interest in and to Seller's or IQ2.net's Intellectual Property
free and clear of any Encumbrance other than Permitted Encumbrances. Each of
Seller and IQ2.net has full legal right and authority to license, sell, assign,
transfer and convey good, valid and marketable title to all Intellectual
Property owned by it, (i) free and clear of any and all ownership rights (and
ownership interests) assertable by any one or more third parties, (ii) free and
clear of any Encumbrances, (iii) without requiring any consent, authorization or
approval of any one or more third parties, and (iv) without violation of, breach
of, default under, conflict with, or acceleration of the performance required by
any agreement, obligation or legal restrictions (e.g. law, statute, regulation,
order, award, judgment, writ, injunction or decree), irrespective of whether
with or without notice, irrespective of whether with or without lapse of time,
and irrespective of whether judicial, administrative or arbitration.
(i) Seller and IQ2.net have provided Purchaser access to all existing
documentation and source code for all software included in the Intellectual
Property owned by Seller and IQ2.net. The condition of such documentation and
the source code has not had a material adverse effect on the ability of Seller
and IQ2.net to use such software for the purposes intended in the operation of
the Purchased Business, and such software operates without material operating
defects. Seller has disclosed to Purchaser a summary description of any
material problems experienced by Seller or IQ2.net in the past 12 months with
respect to such software and the provision of related services to Seller's and
IQ2.net's clients.
(j) Seller's and IQ2.net's software products, along with the
information technology systems (including but not limited to software) which are
used in the Purchased Business as currently conducted by Seller and IQ2.net, are
(or will be on the Closing Date) "year 2000 compliant" in that they are designed
to be used prior to, during and after the calendar year 2000 A.D.
4.10 Contracts.
---------
(a) There are no contracts or other agreements (written or oral)
binding upon Seller primarily with respect to the Purchased Business or the
Transferred Assets or IQ2.net except the Contracts set forth in Schedule
--------
1.1(a)(iii) of the Disclosure Schedules, contracts or agreements included
- ------------------
Disclosure Schedules, contracts or agreements included within the definition of
Excluded Assets or the contracts or agreements to which IQ2.net is a party or by
which it is bound and listed or described on Schedule 4.10(a) of the Disclosure
----------------
Schedules (the "IQ2.net Contracts"). Seller and IQ2.net have delivered to
Purchaser true and complete copies of all written Contracts and IQ2.net
Contracts and written
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summaries of all oral Contracts and IQ2.net Contracts and any amendments thereto
enumerated in Schedule 1.1(a)(iii) or Schedule 4.10(a) of the Disclosure
-------------------- ----------------
Schedules. IQ2.net has not entered into any product development or licensing
agreement with Qualitative Marketing Software, Inc. ("QMS") other than the
Letter of Agreement dated March 30, 1999 (the "QMS Contract").
(b) The Contracts are all the material contracts, leases, agreements,
undertakings and commitments of Seller which relate primarily to the operation
of the Purchased Business. The IQ2.net Contracts are all the material
contracts, leases, agreements, undertakings and commitments of IQ2.net. Neither
Seller nor IQ2.net is (nor to Seller's reasonable knowledge is any other party)
in material default under, nor does any event, circumstance or situation exist
which, with the passage of time and/or the giving of notice, would result in a
material default under any material lease, contract or agreement, undertaking,
commitment, judgment, order or decree of any court or any government agency or
instrumentality relating primarily to any of the Transferred Assets or the
Purchased Business, including without limitation, any material Contract or
material IQ2.net Contract, under which any person, firm, corporation or other
entity is or may be entitled to assert any rights against any of the Transferred
Assets, the Purchased Business or IQ2.net, except as disclosed in Schedule
--------
4.10(b) of the Disclosure Schedules.
- -------
4.11 Litigation.
----------
There are no actions, causes of action, claims, suits, proceedings,
orders, writs, investigations, injunctions or decrees pending or, to the
knowledge of Seller, threatened, against Seller or seeking to prevent
consummation of the transactions provided for herein, at law, in equity or
admiralty, or before or by any court or any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, except where any
of the foregoing have not had and could not reasonably be expected to have a
Material Adverse Effect. There are no actions, causes of action, claims, suits,
proceedings, orders, writs, investigations, injunctions or decrees pending or,
to the knowledge of Seller, threatened against IQ2.net or seeking to prevent the
consummation of the transactions provided for herein, at law, in equity or
admiralty, or before or by any court or any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, except where any
of the foregoing have not had and could not reasonably be expected to have a
Material Adverse Effect.
4.12 Taxes.
-----
Except as set forth on Schedule 4.12 of the Disclosure Schedules:
(a) Each of Seller, IQ2.net and each member of any consolidated,
combined or unitary group of which Seller or IQ2.net is a member (an
"Affiliate"), have filed all material Tax Returns that they were required to
file. Each such Tax Return was correct and complete in all material respects
when filed. Neither Seller, IQ2.net. nor any Affiliate currently is the
beneficiary of any extension of time within which to file any Tax Return. No
claim by an authority in a jurisdiction where IQ2.net does not file Tax Returns
is pending that IQ2.net is or may be subject to taxation in a material amount by
that jurisdiction. There are no Encumbrances on any of the assets of IQ2.net
that arose in connection with any failure (or alleged failure) to pay any
material amount of Tax.
15
<PAGE>
(b) Each of Seller, IQ2.net and any Affiliate has withheld and paid
all material Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(c) There is no pending material dispute or claim concerning any Tax
liability of Seller, IQ2.net or any Affiliate either (A) claimed or raised by
any Tax authority in writing or (B) as to which any director, officer or
employee responsible for Tax matters of Seller, IQ2.net or any Affiliate has
Knowledge based upon personal contact with any agent of a Tax authority.
Schedule 4.12 (iii) of the Disclosure Schedules lists all federal, state, local,
- -------------------
and foreign income Tax Returns filed with respect to Seller, IQ2.net and
Affiliates for taxable periods ended on or after December 31, 1995, indicates
those Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Seller has delivered to the Purchaser
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by Seller,
IQ2.net or an Affiliate since December 31, 1995.
(d) None of Seller, IQ2.net or any Affiliate has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency where such waiver or extension remains
in effect.
(e) IQ2.net has not filed a consent under Code (S)341(f) concerning
collapsible corporations. IQ2.net has not made any payments, is not obligated
to make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code (S)280G or Section 162 by reason of Section 162(m). IQ2.net is not a
party to any Tax allocation or sharing agreement or any other agreement pursuant
to which it could be liable for the Taxes of any person other than IQ2.net
(excluding any liability under Treas. Reg. (S)1.1502-6 or any similar provision
of state, local, or foreign law).
(f) The unpaid Taxes of Seller, IQ2.net and each Affiliate (A) did
not, as of March 31, 1999, exceed the reserve for Taxes (excluding any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the most recent balance sheet (included in
Seller's Form 10Q filed with the Securities and Exchange Commission for the
quarter then ended) (rather than in any notes thereto) and (B) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Seller and IQ2.net in filing
their Tax Returns. The unpaid Taxes of IQ2.net will not, as of the Closing Date,
exceed the reserve for Taxes (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
with regard to IQ2.net on the face of the Final Balance Sheet.
(g) "Tax" means any federal, state, local, or foreign income, gross
---
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code (S)59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
16
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(h) "Tax Return" means any return, declaration, report, claim for
----------
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
4.13 Compliance with Applicable Law.
------------------------------
Except as set forth in the Disclosure Schedules, each of Seller and IQ2.net is
presently complying, and on the Closing will be in compliance, in all material
respects with all applicable laws, rules, regulations, orders, ordinances,
judgments or decrees of all governmental authorities (federal, state, local or
otherwise) related to or affecting the Purchased Business, the Transferred
Assets or the business, operations, assets or properties of IQ2.net, except
where such failure to so comply has not had and could not be reasonably expected
to have a Material Adverse Effect.
4.14 Labor Relations and Employment; No Collective Bargaining.
--------------------------------------------------------
(a) Neither Seller (solely with respect to the Purchased Business)
nor IQ2.net has failed to comply in any material respect with Title VII of the
Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended,
the Occupational Safety and Health Act of 1970, as amended, any applicable
federal, state and local laws, rules and regulations relating to employment, or
any applicable laws, rules and regulations governing payment of minimum wages
and overtime rates, and the withholding and payment of taxes from compensation
of employees, except where such failure to so comply has not had and could not
be reasonably expected to have a Material Adverse Effect. The employment of all
persons presently employed or retained by Seller to work at the Purchased
Business or by IQ2.net is terminable at will, all employment agreements, if any,
between Seller or IQ2.net and any such employee shall terminate as of the
Closing, and there are no labor controversies pending or threatened between
Seller or IQ2.net and any such employees.
(b) Neither the employees of Seller employed at the Purchased
Business nor the employees of IQ2.net are subject to any collective bargaining
agreements or other contracts with a labor union, contingent or otherwise, nor
are any of such employees represented by any labor union. The relations of
Seller with respect to employees employed or retained by it in connection with
the Purchased Business and the relations of IQ2.net with respect to all of its
employees are satisfactory. There are no unfair labor practice charges or
complaints pending against Seller involving any employees now or previously
employed at the Purchased Business or against IQ2.net involving any employees
now or previously employed by it. During the 12-month period preceding the date
hereof, there have not been any labor disputes or written and filed grievances
or claims involving any employees of Seller relating to the Purchased Business
or any employees of IQ2.net.
4.15 Brokers and Finders.
-------------------
Except for fees and expenses payable to U.S. Bancorp Piper Jaffray
Inc. in connection with the transactions contemplated by this Agreement (which
fees and expenses are payable by Seller), neither Seller, IQ2.net nor any of
their officers, directors or employees, has incurred any liability for any
brokerage fees, commissions, finders' fees or similar fees or expenses in
connection with the transactions contemplated by this Agreement.
17
<PAGE>
4.16 Powers of Attorney.
------------------
Except as set forth in the Disclosure Schedules, neither Seller nor
IQ2.net has given to any person or party, and there is not currently existing,
any power of attorney pertaining to the Transferred Assets, the Purchased
Business or the business, properties or assets of IQ2.net.
4.17 Employee Benefit Plans.
----------------------
(a) Schedule 4.17 to the Disclosure Schedules lists, with respect to
-------------
Seller and IQ2.net, and any trade or business (whether or not incorporated) of
Seller or IQ2.net: (i) all employee benefit plans or arrangements, oral or
written; (ii) each stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit or
dependent care, life insurance or accident insurance plans, programs or
arrangements, oral or written; (iii) all bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or arrangements,
oral or written; (iv) all other fringe or employee benefit plans, programs or
arrangements, oral or written, that apply to senior management of Seller or
IQ2.net and that do not generally apply to all employees; and (v) any current or
former employment or executive compensation or severance agreements or
arrangements, written or otherwise, as to which unsatisfied obligations of
Seller or IQ2.net remain for the benefit of, or relating to, any present or
former employee, consultant or director of Seller or IQ2.net (collectively, the
"Seller Employee Plans").
(b) Seller has furnished or made available to Purchaser a copy of
each of the Seller Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in its
possession, any material employee communications relating thereto). The Seller
Employee Plans are duly registered where required by, and have at all times been
invested and administered in material compliance with, all applicable laws,
rules, regulations and terms of the Seller Employee Plans. All required employer
and employee contributions and premiums under the Seller Employee Plans have
been made, no past service funding obligations exist (either on a solvency or a
going concern basis) there are no outstanding violations or defaults thereunder,
and there are no actions or claims, pending or threatened (other than routine
claims for benefits), relating to any of the Seller Employee Plans. No promise
or commitment to increase benefits under any Seller Employee Plans has been made
except as required by applicable law.
4.18 Subsidiaries.
------------
IQ2.net has no subsidiaries and owns no equity interest in any other
corporation, firm, joint venture, partnership or other entity.
4.19 Directors and Officers.
----------------------
The names and titles of all the officers and directors of IQ2.net are
set forth on Schedule 4.19 of the Disclosure Schedules.
18
<PAGE>
4.20 Accounts Receivable.
-------------------
All of the accounts receivable reflected on the Final Balance Sheet
will have arisen from bona fide transactions in the ordinary course of the
Purchased Business and will not be subject to any set-off or counterclaims. All
accounts receivable reflected on the Final Balance Sheet will be collectible in
full in the ordinary course in the aggregate recorded amounts therefor, less any
reserves for doubtful accounts reflected on the Final Balance Sheet.
4.21 Environmental Matters.
---------------------
None of Seller, IQ2.net or the activities of the Purchased Business
are in material violation of any applicable statute, law or regulation relating
to the environment or occupational health and safety. Seller and IQ2.net have
obtained all material permits, licenses, registrations and other governmental
authorizations currently required by all applicable statutes, laws or
regulations relating to the environment or occupational health and safety
necessary for the conduct of the Purchased Business or the business of IQ2.net.
4.22 Asset Maintenance; Insurance; Sufficiency.
-----------------------------------------
Except as described in the Disclosure Schedules, the Transferred
Assets and the assets and properties of IQ2.net have been properly maintained
and are: (i) in satisfactory operating condition (except for ordinary wear and
tear which in the aggregate would not have a Material Adverse Effect) and (ii)
are capable of being used in the Purchased Business without present need for
repair or replacement except in the ordinary course of business. Seller has
maintained fire, casualty, liability and other insurance with respect to the
Purchased Business and the Transferred Assets at levels which insure Seller with
regard to the Purchased Business and IQ2.net in reasonably sufficient amounts
against risks customarily insured against by persons operating similar
businesses or properties of similar size in the localities where such businesses
or properties are located. The Transferred Assets and the assets and properties
of IQ2.net together constitute all properties and assets essential to conduct
and operate the Purchased Business in the manner in which it is presently
conducted by Seller and IQ2.net.
4.23 Disclosure.
----------
To the knowledge of Seller, no representation or warranty by Seller in
this Agreement (as supplemented by the Disclosure Schedules) or any statement in
the closing certificate delivered by Seller to Purchaser pursuant to Section
7.3(d)(i) contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
contained in such representation, warranty or certificate, in light of the
circumstances under which it was or will be made, not misleading. As used in
this Section 4.23, "knowledge of Seller" with respect to a fact or matter shall
mean that an executive officer of Seller or IQ2.net has, or at any time had, or
would after reasonable inquiry, have actual knowledge of such fact or matter.
4.24 Disclaimer of Other Representations and Warranties.
--------------------------------------------------
Except as expressly set forth in this Article IV, Seller makes no
representation or warranty, express or implied, at law or in equity, in respect
of any of its assets (including,
19
<PAGE>
without limitation, the Transferred Assets), liabilities or operations,
including without limitation, with respect to merchantability or fitness for any
particular purpose, and any such other representations or warranties are hereby
expressly disclaimed. Purchaser hereby acknowledges and agrees that, except to
the extent specifically set forth in this Article IV, Purchaser is purchasing
the Transferred Assets on an "as-is, where-is" basis. Without limiting the
generality of the foregoing, Seller makes no representation or warranty
regarding any assets other than the Transferred Assets or any liabilities other
than the Assumed Liabilities, and none shall be implied at law or in equity.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser hereby represents and warrants to each Seller as follows:
5.1 Corporate Organization.
----------------------
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
5.2 Authority.
---------
Purchaser has full corporate power and authority to execute and
deliver this Agreement and the documents to be delivered at the Closing pursuant
to Section 7.2 hereof (collectively, the "Purchaser Agreements") and to
--------------------
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Purchaser Agreements by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
corporate action or proceeding on the part of Purchaser is necessary to
authorize the execution and delivery by Purchaser of this Agreement or the
Purchaser Agreements or the consummation by Purchaser of the transactions
contemplated hereby or thereby. This Agreement has been, and the Purchaser
Agreements on the Closing Date will be, duly executed and delivered by Purchaser
and this Agreement is, and on the Closing Date each of the Purchaser Agreements
will be, legal, valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with their terms, subject to applicable laws affecting
creditors' rights generally and, as to enforcement, to general principles of
equity, regardless of whether applied in a proceeding at law or in equity.
5.3 No Violations: No Consents or Approvals Required.
------------------------------------------------
Neither the execution and delivery of this Agreement or the Purchaser
Agreements nor the consummation of the transactions contemplated hereby or
thereby will (i) conflict with or violate any provision of the Certificate of
Incorporation or by-laws of Purchaser, (ii) conflict with or violate any law,
rule, regulation, ordinance, order, writ, injunction, judgment or decree
applicable to Purchaser or by which any of its properties or assets are bound or
affected or (iii) conflict with or result in any breach of or constitute a
default (or an event which with
20
<PAGE>
notice or lapse of time or both would become a default) under, or give to others
any rights of termination or cancellation of, or accelerate the performance
required by or maturity of, or result in the creation of, any security interest,
lien, charge or encumbrance on any of its assets or properties pursuant to any
of the terms, conditions or provisions of, any note, bond, mortgage, indenture,
permit, license, franchise agreement, lease, contract, or other instrument or
obligation to which Purchaser is a party or by which Purchaser or any of its
properties or assets is bound or affected, except, in the case of (ii) and (iii)
above, for such conflicts, violations, breaches, defaults, terminations,
cancellations and accelerations which in the aggregate will not have a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated by this Agreement and the Purchaser Agreements. Except for
applicable requirements, if any, of the HSR Act, no notice, declaration, report
or other filing or registration with, and no waiver, consent, approval or
authorization of, any governmental or regulatory authority or instrumentality or
any other person is required to be submitted, made or obtained by Purchaser in
connection with the execution, delivery or performance of this Agreement or the
Purchaser Agreements and the consummation of the transactions contemplated
hereby or thereby.
5.4 Brokers and Finders.
-------------------
Purchaser does not have any obligation to pay any broker's, finder's,
investment banker's, financial advisor's or similar fee in connection with this
Agreement, or the transactions contemplated hereby or thereby, by reason of any
action taken by or on behalf of Purchaser except for fees and expenses payable
to Bowles Hollowell Connor, a division of First Union Capital Markets Group.
5.5 Disclosure.
----------
The representations and warranties by Purchaser in this Agreement and
the statements contained in the schedules, certificates, exhibits and other
writings furnished and to be furnished by Purchaser or its representatives to
Seller pursuant to this Agreement do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact necessary to make the statements herein or therein in light of the
circumstances under which it is not or will not be made, not misleading.
5.6 Financing.
---------
Purchaser has received certain non-binding commitments to provide
funds to Purchaser sufficient to enable Purchaser to consummate the transactions
contemplated hereby and to pay fees and expenses related thereto (the
"Financing"). Purchaser has delivered a draft term sheet (including all
---------
amendments thereto through the date hereof) to Seller setting forth the proposed
terms on which Purchaser contemplates it will receive the Financing.
5.7 Investment.
----------
Purchaser is not acquiring the capital stock of IQ2.net with a view to
or for sale in connection with any distribution thereof within the meaning of
the Securities Act of 1933, as amended.
21
<PAGE>
5.8 No Litigation.
-------------
There are no actions, causes of action, claims, suits, proceedings,
orders, writs, investigations, injunctions or decrees pending, or to the
knowledge of Purchaser, threatened against Purchaser, which would affect the
consummation of the transactions contemplated herein, at law, in equity or
admiralty, or before or by any court or any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
ARTICLE VI
----------
COVENANTS
---------
6.1 Conduct of the Purchased Business Pending the Closing.
-----------------------------------------------------
Seller hereby covenants that, from the date hereof to and including
the earlier of the termination of this Agreement and the Closing Date, unless
Purchaser shall have consented, which consent may be withheld in Purchaser's
sole discretion, or as otherwise contemplated by this Agreement:
(a) the Purchased Business shall be conducted and the Transferred
Assets and the assets and properties of IQ2.net repaired and maintained in the
ordinary and usual course, in a manner consistent with past practice;
(b) except in the ordinary course of business consistent with past
practice, neither the Seller in connection with the Purchased Business nor
IQ2.net shall (i) make any commitment to make any capital expenditures
individually in excess of $25,000 or in the aggregate in excess of $100,000;
(ii) dispose of any capital assets with a book value, individually or in the
aggregate, in excess of $100,000 or encumber any of its capital assets; (iii)
incur, or guarantee or otherwise become liable for, any indebtedness for
borrowed money in excess of $100,000 in the aggregate; (iv) amend any of the
Contracts or IQ2.net Contracts; or (v) enter into any new employee benefit plan,
program or arrangement or amend any existing employee benefit plan, program or
arrangement or grant any increases in employee compensation;
(c) Seller shall use its commercially reasonable efforts to preserve,
and shall cause IQ2.net to use its commercially reasonable efforts to preserve,
for Purchaser the goodwill of all persons dealing with the Purchased Business;
(d) Seller shall maintain, or cause IQ2.net to maintain, as
applicable, in full force and effect all insurance policies now in effect or
renewals thereof covering the Transferred Assets, the Purchased Business or the
assets and property of IQ2.net and the employees employed in the Purchased
Business or by IQ2.net prior to the Closing Date, and shall provide reasonable
assistance to Purchaser to make claims against or otherwise obtain benefits
payable under any insurance policies maintained by Seller or IQ2.net relating to
the Purchased Business that provide coverage with respect to events which occur
prior to the Closing. Purchaser shall reimburse Seller for all reasonable
out-of-pocket expenses incurred by Seller in providing said assistance;
22
<PAGE>
(e) Seller shall promptly notify Purchaser of (i) any breach or
violation of, default or event of default under, or actual or threatened
termination or cancellation of any contract or other instrument relating to the
Purchased Business, including, without limitation, any Contract or IQ2.net
Contract, which has had or could reasonably be expected to have a Material
Adverse Effect, (ii) any loss of, damage to, or disposition of any of the
Transferred Assets or any of the assets or properties of IQ2.net (other than the
sale or use of inventories in the ordinary course of business) which has had or
could reasonably be expected to have a Material Adverse Effect, and (iii) any
claim or litigation, threatened or instituted against Seller or IQ2.net, or any
other adverse event or occurrence involving or affecting the Purchased Business
or IQ2.net which has had or could reasonably be expected to have a Material
Adverse Effect;
(f) Seller shall not enter or permit IQ2.net to enter into any
collective bargaining agreement affecting the Purchased Business or the
employees of IQ2.net; and
(g) except in the ordinary course of business, consistent with past
practice, Seller shall not sell, dispose of, distribute, encumber or enter into
any agreement, arrangement or commitment, whether oral or written, for the sale,
disposition, distribution or encumbrance of any portion of the Purchased
Business or permit IQ2.net to do any of the foregoing with respect to any of its
assets or properties.
6.2 No Solicitation
---------------
(a) Unless and until the earlier of the Closing Date and the
termination of this Agreement pursuant to Section 9.1 hereof, Seller (including
through its agents, representatives or otherwise) shall not take or cause,
directly or indirectly, any of the following actions with any party other than
Purchaser or its respective designees: (i) solicit, knowingly encourage,
initiate or participate in any negotiations, inquiries or discussions with
respect to any offer, indication or proposal to acquire the Purchased Business,
any of the IQ2.net Common Stock or more than 10% of the other Transferred Assets
or the assets and properties of IQ2.net, whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the foregoing, an "Acquisition Proposal") or (ii) disclose, in
connection with an Acquisition Proposal, any non-public information or provide
access to its properties, books or records or those of IQ2.net, except as
required by law or pursuant to a governmental request for information.
(b) Notwithstanding anything to the contrary contained in Section
6.2(a) or elsewhere in this Agreement, prior to the Closing, Seller may, to the
extent the Board of Directors of the Company determines that it would be in the
best interests of Seller or its stockholders to do so, directly or indirectly,
participate in discussions or negotiations with, and furnish information, and
afford access to the properties, books, records, officers, employees and
representatives of the Seller and the Purchased Business to any Person, entity
or group after such Person, entity or group has delivered to Seller in writing,
an Acquisition Proposal which the Board of Directors of Seller in its good faith
reasonable judgment determines if consummated would be more favorable to Seller
or its stockholders than the transactions contemplated by this Agreement (a
"Superior Proposal"). In the event the Company receives a Superior Proposal,
-----------------
nothing contained in this Agreement (but subject to the terms of this paragraph
(b) and paragraph (c) below) will prevent the Board of Directors of Seller from
executing or entering into an
23
<PAGE>
agreement relating to such Superior Proposal and recommending such Superior
Proposal to its stockholders, if the Board determines in good faith that it is
appropriate to do so; in such case, the Board of Directors of Seller may
withdraw, modify or refrain from making its recommendation of the transactions
contemplated hereby, and, to the extent it does so, Seller may refrain from
calling, providing notice of and holding the stockholders meeting to adopt this
Agreement and from soliciting proxies or consents to secure the vote or written
consent of its stockholders to adopt this Agreement and may terminate this
Agreement; provided however that the Seller shall provide Purchaser at least
-------- -------
five (5) calendar days prior written notice of Seller's intention to execute or
enter into an agreement relating to such Superior Proposal and containing a true
and correct copy and statement of the terms of such Superior Proposal, including
an identification of the party proposing the Superior Proposal, in order to
allow Purchaser the opportunity to propose a counteroffer to such Superior
Proposal prior to the time Seller enters into an agreement relating to such
Superior Proposal.
(c) In the event Seller accepts a Superior Proposal, Seller may
terminate this Agreement by written notice to Purchaser, provided that Seller
--------
must abide by the termination provisions contained in Article IX of this
Agreement. Notwithstanding anything to the contrary contained in Section 6.2 or
elsewhere in this Agreement, prior to the Closing Date, Seller may, in
connection with a possible Acquisition Proposal, refer any third party to this
Section 6.2 and Article IX and make a copy of this Section 6.2 and Article IX
available to a third party.
6.3 Delivery of Balance Sheet and Additional Payment Amount.
-------------------------------------------------------
(a) As soon as practicable after the Closing Date, but in any case no
later than thirty days following the Closing Date, Seller shall deliver to
Purchaser an unaudited balance sheet setting forth in reasonable detail the Net
Asset Value, including without limitation and separately identifying the assets,
liabilities and stockholders' equity of IQ2.net, as of the Closing Date,
prepared in accordance with Section 2.2 hereof (the "Final Balance Sheet").
Seller shall give Purchaser written notice of its intent to deliver the Final
Balance Sheet to Purchaser at least five days prior to the date of delivery.
(b) Purchaser shall pay to Seller the Additional Payment Amount (if
any), in accordance with the provisions of Section 2.2 hereof.
6.4 Access to Information; Continued Assistance.
-------------------------------------------
(a) From the date hereof until the earlier of the termination of this
Agreement and the Closing Date, Seller shall and shall cause IQ2.net to (i) give
Purchaser and its respective authorized representatives reasonable access,
subject to such limitations or procedures as may be necessary to protect the
attorney-client privilege or the work product doctrine and subject to their
respective confidentiality obligations, to all offices, warehouses, and other
facilities and to all books and records of the Purchased Business or IQ2.net,
(ii) permit Purchaser and all such persons to make such inspections of the
Transferred Assets and the assets and properties of IQ2.net as they may
reasonably request and (iii) cause its officers to furnish Purchaser and all
such persons with such financial and operating data and other information with
respect to the Transferred Assets, the Purchased Business and IQ2.net as they
may from time to time
24
<PAGE>
reasonably request; provided that Purchaser shall exercise its rights under this
Section 6.4 in a manner that does not unreasonably interfere with the operations
of the Purchased Business.
(b) Purchaser will hold and will cause its representatives to hold in
strict confidence all documents and information concerning the Purchased
Business to the extent and in accordance with the terms and conditions of the
Confidentiality Agreement (as defined in Section 10.1 hereof).
(c) For a period of at least five (5) years following the Closing
Date, Purchaser will retain, at Purchaser's sole expense, the books, records and
other data of the Purchased Business transferred pursuant to this Agreement.
During such period, Purchaser will afford to Seller, its counsel and
accountants, during normal business hours, reasonable access to such books,
records and other data.
(d) Purchaser shall, at the request of Seller, (i) provide reasonable
assistance in the collection of information or documents and (ii) make
Purchaser's employees available when reasonably requested by Seller in
connection with claims or actions brought by or against third parties based upon
events or circumstances concerning Excluded Liabilities. Seller shall reimburse
Purchaser for all reasonable out-of-pocket expenses incurred by Purchaser in
providing said assistance.
(e) For a period of five (5) years following the Closing Date, Seller
will retain, at Seller's sole expense all tax and accounting records and other
books of account relating to the Purchased Business or IQ2.net not delivered to
Seller pursuant to Section 7.3(f) hereof on the Closing Date (the "Retained
Records"). During such period, Seller agrees to make available to Purchaser, for
inspection and copying at Purchaser's expense, at reasonable times upon request
therefor, (i) the Retained Records and (ii) any other records and documents
relating to the Purchased Business, the Transferred Assets or IQ2.net retained
by Seller, which in the case of this clause (ii) only, are, at the time of such
request, in Seller's possession or control. In addition, Seller agrees to make
available to Purchaser such then current employees of Seller, as Purchaser shall
from time to time reasonably request, to permit Purchaser to prepare (i) any tax
returns or other tax related documents in connection with any governmental
examination of tax returns and (ii) any other financial and accounting documents
for a one (1) year period following the Closing Date, relating to the Purchased
Business, the Transferred Assets or IQ2.net for periods from and after the
Closing Date. Except as provided in the first sentence of this Section,
Purchaser shall reimburse Seller for all reasonable expenses incurred by Seller
in providing the assistance set forth in this paragraph (e). After the fifth
anniversary of the Closing Date, Seller may dispose of any Retained Records;
provided, however, that before disposing of any Retained Records, it will first
- -------- -------
notify Purchaser and permit Purchaser, at its sole expense, to pick up such
Retained Records. In the event that Seller transfers all or substantially all of
its assets or liquidates and dissolves at a time when it continues to have
obligations under this paragraph (e), it shall either cause its successor to
agree to be bound by the provisions of this paragraph (e) or shall deliver to
Purchaser all (i) Retained Records and (ii) all other documents and records
relating to the Purchased Business, the Transferred Assets or IQ2.net then in
its possession.
25
<PAGE>
6.5 Commercially Reasonable Efforts.
-------------------------------
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto agrees to use its commercially reasonable efforts to take or
cause to be taken all actions and to do or cause to be done all things
necessary, proper or advisable to consummate the transfer of the Purchased
Business and the Transferred Assets and the transactions contemplated by this
Agreement, the Seller Agreements and the Purchaser Agreements and shall use its
commercially reasonable efforts to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings.
(b) In the event Purchaser or Seller, as the case may be, is unable
to obtain, prior to the Closing, any consents, approvals, waivers or other
authorizations necessary or advisable to transfer to Purchaser any Transferred
Asset or otherwise consummate the transactions contemplated hereby, and
Purchaser nonetheless elects to consummate the transactions contemplated hereby,
Purchaser and Seller will cooperate with each other in order to obtain such
consents, approvals, waivers or other authorizations at the earliest practicable
date. In each instance where such consents, approvals, waivers or other
authorizations cannot be obtained prior to the Closing, Seller shall use its
commercially reasonable efforts to enter into such alternative arrangements and
agreements with Purchaser as may be appropriate in order to permit Purchaser to
realize, receive and enjoy substantially similar rights and benefits and to
enable Purchaser to conduct operations of the Purchased Business and the
ownership of the Transferred Asset until the consents, approvals, waivers or
other authorizations are obtained; provided however, that Seller shall have no
obligation to pay any fees, incur any expense or make any modification to such
contract, license, lease, sales order, purchase order, commitment, permit,
operating authority or other agreement to obtain such consent. If, after the
exercise of commercially reasonable efforts, any such consents, approvals,
waivers or other authorizations are not obtained, Seller agrees to cooperate
with Purchaser in any reasonable arrangements designed to provide, to the extent
reasonably practicable and at Purchaser's request and expense, for the benefit
of Purchaser any and all rights of Seller in and to such Transferred Asset.
6.6 Public Announcements.
--------------------
Purchaser and Seller will consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation.
6.7 Competition; Non-solicitation.
-----------------------------
(a) Seller covenants and agrees that, during the three-year period
immediately following the Closing, it shall not, directly, indirectly or through
any ownership interest in any firm, corporation, partnership, proprietorship or
other business, engage in the activities now engaged in by the Purchased
Business in the geographic areas in which the Purchased Business is now
conducted; provided, however, that (i) Seller may own, directly or indirectly,
solely as an investment, securities of any person which are publicly traded if
Seller does not, directly or indirectly, beneficially own five percent or more
of any class of securities of such person; and (ii) Seller may have such an
ownership interest during such three-year period if such ownership
26
<PAGE>
arises as a result of the acquisition of a business entity having business
activities other than those now engaged in by the Purchased Business and Seller
is proceeding actively to dispose of those business activities prohibited by
this Section.
(b) For a period of three years after the Closing date, Seller shall
not directly or indirectly (i) induce or attempt to induce any employee of
IQ2.net or any employee of Seller who becomes an employee of Purchaser on or
after the date hereof to leave IQ2.net or Purchaser, as the case may be, or
accept any other employment or position unless (in each case, prior to any such
inducement or attempted inducement), such employee has been terminated by
IQ2.net or Purchaser or has resigned as an employee of IQ2.net or Purchaser,
(ii) assist any other entity in hiring any such employee other than by
furnishing employment data and recommendations when solicited by potential
employers, or (iii) solicit, approach or otherwise contact any client of the
Purchased Business in an attempt to obtain such client as a customer of any
business conducted by Seller.
(c) Nothing in this Section 6.7 shall prevent any direct or indirect
current or future stockholder or affiliate of Seller (each, a "Related Party")
from engaging in the activities now engaged in by the Purchased Business;
provided that Seller shall not do any of the following in an attempt to
circumvent the restrictions set forth in Section 6.7(a): (i) permit any Related
Party to use, or assist any Related Party in using, any Confidential Information
of Seller or IQ2.net in connection with such activities, (ii) permit any Related
Party to utilize the assistance of any person employed as an employee, agent,
contractor, consultant or advisor of Seller on the date thereof or the Closing
Date in connection with such activities, (iii) permit any Related Party to
utilize the trade names "IntelliQuest" or "IntelliQuest Information Group, Inc."
in connection with such activities, or (iv) assist any Related Party in the
solicitation of business from any client or customer of the Purchased Business
or IQ2.net prior to the Closing Date for services provided to such client or
customer by the Purchased Business or IQ2.net. As used herein, the term
"affiliate" shall have the meaning ascribed to such term in Rule 405 promulgated
under the Securities Act of 1933, as amended.
(d) Purchaser covenants and agrees that, if the Closing shall occur,
during the three-year period immediately following the Closing, it shall not,
directly, indirectly or through any ownership interest in any firm, corporation,
partnership, proprietorship or other business, engage in the activities now
engaged in by the Seller in connection with its research business in the
geographic areas in which such business is now conducted; provided, however,
that (i) Purchaser may own, directly or indirectly, solely as an investment,
securities of any person which are publicly traded if Purchaser does not,
directly or indirectly, beneficially own five percent or more of any class of
securities of such person; and (ii) Purchaser may have such an ownership
interest during such three-year period if such ownership arises as a result of
the acquisition of a business entity having business activities other than those
now engaged in by Seller is connection with its research business and Purchaser
is proceeding actively to dispose of those business activities prohibited by
this Section.
6.8 Collection of Accounts.
----------------------
Any payment in respect of accounts receivable reflected on the Final
Balance Sheet received by Seller following the Closing Date shall be segregated
into a separate account
27
<PAGE>
established for such purpose by Seller, and shall be paid to Purchaser within
five (5) business days of receipt by Seller by wire transfer in immediately
available (same day) funds to the account specified by Purchaser for this
purpose, together with a statement of accounting therefor in the form of
remittance advice provided in connection with such payment or, if no such
remittance advice was provided with such payment, in a manner otherwise
reasonably acceptable to Purchaser.
6.9 Offers of Employment.
--------------------
Prior to the Closing Date, Purchaser shall offer employment to Dr.
Charles Stryker and the other employees listed on Schedule 6.9 of the Disclosure
------------
Schedules, such employment to be effective on the Closing Date. Purchaser shall
not be obligated to offer employment to any other individuals currently employed
by Seller and shall not be obligated to assume any severance obligations with
respect to any employees who are not offered employment or who do not accept
Purchaser's offer of employment.
6.10 Seller 401(k) Plan.
------------------
(a) Effective as of the Closing Date, Seller shall cause each
employee of the Seller or IQ2.net who remains employed with IQ2.net following
the Closing Date or who becomes employed by the Purchaser (collectively, the
"Continued Employees") to have a fully nonforfeitable right to such employee's
account balances, if any, under the defined contribution individual account plan
currently participated in by employees of IQ2.net (the "Seller 401(k) Plan").
Effective as of the Closing Date, Purchaser shall establish or shall extend
coverage to each Continued Employee under Purchaser's current defined
contribution plan (the "Purchaser Plan") qualified pursuant to Sections 401(a)
and 401(k) of the Code as it exists on the Closing Date. Each Continued Employee
who is a participant in the Seller 401(k) Plan shall cease to be an active
participant in and to accrue benefits under such plan as of the Closing Date.
The Purchaser Plan shall credit each Continued Employee with service for
purposes of eligibility to participate and vesting under the Purchaser Plan to
the extent such service was recognized for such purposed under the Seller 401(k)
Plan immediately prior to the Closing Date.
(b) Purchaser shall cause Purchaser's Plan to accept rollover
contributions of amounts distributed from the Seller's 401(k) plan to continued
Employees, provided and to the extent that such amounts qualify as eligible
rollover amounts.
6.11 Vacation.
--------
With respect to any accrued but unused vacation time (which is
reflected as a liability on the Final Balance Sheet) to which any Continued
Employee is entitled pursuant to the vacation policy applicable to such
Continued Employee immediately prior to the Closing Date, Purchaser shall cause
IQ2.net to allow such Continued Employee to utilize such accrued vacation time
in accordance with the existing policies of Seller and IQ2.net as of the
Closing.
6.12 QMS Contract.
------------
Seller shall cause IQ2.net to terminate and/or discharge in full prior
to the Closing Date all of its liabilities and obligations under the QMS
Contract, and shall not permit IQ2.net to
28
<PAGE>
enter into, or incur any obligation or liability under any, product development
or licensing agreement or other contract or agreement with QMS pursuant to or in
connection with the QMS Contract.
6.13 Accelerated Vesting of Employee Options.
---------------------------------------
If any outstanding options, whether then vested or not, to purchase
capital stock of Seller granted to employees of the Purchased Business or
IQ2.net who will remain employees of the Purchased Business or IQ2.net on and
after the Closing Date (the "IQ2.net Employee Options") are not cancelled prior
to or within five business days following the Closing in exchange for cash
consideration on the same terms as options to purchase capital stock granted to
other employees of Seller, Seller shall, prior to or within five business days
following the Closing, take all actions necessary to vest in full and make
immediately exercisable all outstanding IQ2.net Employee Options not so
cancelled.
6.14 Assumed Liabilities; Excluded Liabilities.
-----------------------------------------
Pursuant to the Assumption Agreement, Purchaser shall agree to pay,
perform and discharge the Assumed Liabilities in accordance with terms thereof
as and when due or required. Seller shall pay, perform and discharge the
Excluded Liabilities in accordance with the terms thereof as and when due or
required.
6.15 Transition Services.
-------------------
Subsequent to the Closing, Seller shall provide to Naviant such
accounting, technical and other support services as Purchaser reasonably shall
request for a smooth and orderly transfer of the Purchased Business to
Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
---------------------
7.1 General Conditions.
------------------
The obligations of each party hereto to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of the following conditions (or the written waiver thereof by
such party):
(a) Orders, statutes, etc. No order, statute, rule, regulation,
---------------------
executive order, stay, decree or restraining order shall have been enacted,
entered, promulgated or enforced by any court of competent jurisdiction or
governmental or regulatory authority or instrumentality of competent
jurisdiction that prohibits the consummation of the transactions contemplated
hereby.
(b) HSR Act. Any waiting period applicable to the transactions
-------
contemplated hereby pursuant to the HSR Act shall have expired or been
terminated.
29
<PAGE>
(c) No Injunction; Litigation. No injunction or restraining order
-------------------------
shall be in effect which forbids or enjoins the consummation of the transactions
contemplated by this Agreement, no proceedings for such purpose shall be
pending, and no federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation
hereof. No litigation or governmental investigation or proceeding seeking to
enjoin or challenging, or seeking damages or relief in connection with, the
transactions contemplated by this Agreement shall be pending, which in either
party's reasonable judgment (with advice of counsel), makes it inadvisable to
proceed with the transaction contemplated by this Agreement.
(d) Approvals. All governmental and third party approvals, consents,
---------
licenses, permits or waivers necessary for consummation of the transactions
contemplated by this Agreement, including, without limitation, any consents
required under any Contract or IQ2.net Contract, shall have been obtained. In
addition, no Contract or IQ2.net Contract listed on Schedule 4.3 shall have been
terminated after notice of the transactions contemplated by this Agreement shall
have been given to the required parties thereto.
7.2 Conditions to Obligations of Seller.
-----------------------------------
The obligations of Seller to close the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of the following conditions (or the written waiver thereof by Seller):
(a) Covenants and Agreements. Purchaser shall have performed and
------------------------
complied with in all material respects all covenants and agreements required
under this Agreement to be performed by it at or prior to the Closing.
(b) Representations and Warranties. The representations and
------------------------------
warranties of Purchaser contained herein shall be true and correct in all
material respects (unless such representation or warranty is by its terms
expressed in terms of materiality, in which case, such representation or
warranty shall be true and correct in all respects) at and as of the Closing
Date as if made at and as of such time except to the extent that a different
time is specifically stated in such representations and warranties.
(c) Deliveries. Purchaser shall have delivered, or caused to be
----------
delivered, to Seller the following (which shall be in form and substance
satisfactory to Seller):
(i) Purchase Price - Seller shall have received the portion of
--------------
the Purchase Price payable directly to it, and the Escrow Agent shall have
received the Balance Sheet Adjustment Escrow Amount;
(ii) Opinion of Counsel - Seller shall have received an opinion
------------------
of Brobeck, Phleger & Harrison, LLP, counsel to the Purchaser, covering the
transactions contemplated hereby in form and substance reasonably satisfactory
to Seller;
(iii) Secretary's Certificate - a certificate, dated the Closing
-----------------------
Date, of the Secretary of Purchaser with respect to (a) the resolutions adopted
by the Board of Directors of Purchaser approving this Agreement and the
transactions contemplated hereby and (b) the
30
<PAGE>
incumbency and specimen signature of each officer of Purchaser executing this
Agreement and any other agreement or certificate to be executed by Purchaser and
a certification by another officer of Purchaser as to the incumbency and
specimen signature of the Secretary of the Purchaser;
(iv) Officer's Certificate - a certificate, substantially in a
---------------------
form attached hereto as Exhibit D-1 and by this reference incorporated herein,
-----------
dated the Closing Date and signed by an executive officer of Purchaser expressly
certifying that the conditions set forth in Sections 7.2(a) and 7.2(b) have been
met;
(v) Escrow Agreement - the Purchaser shall have executed an
----------------
Escrow Agreement with Seller and the Escrow Agent in substantially the form
attached hereto as Exhibit C; and
---------
(vi) [Reserved]; and
(vii) Cooperation Agreement. Purchaser shall have entered into a
---------------------
Cooperation Agreement with Seller in substantially the form attached hereto as
Exhibit L.
- ---------
7.3 Conditions to Obligations of Purchaser.
--------------------------------------
The obligation of Purchaser to close the transactions contemplated
hereby shall be subject to the fulfillment and satisfaction, prior to or at the
Closing, of the following conditions (or the written waiver thereof by
Purchaser):
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects (unless such representation or warranty is by its terms
expressed in terms of materiality, in which case, such representation or
warranty shall be true and correct in all respects) on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date, except to the extent that a different time is specifically stated in such
representations and warranties. Seller shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by Seller on or prior to the Closing Date.
(b) No Change in Capital Structure. No dividends, distributions, new
------------------------------
options or equity shall be paid or issued by IQ2.net, and no other changes in
the capitalization of IQ2.net shall have occurred between March 31, 1999 and the
Closing Date.
(c) Material Adverse Change. Since March 31, 1999, there shall not
-----------------------
have been a material adverse change in the assets or properties (including,
without limitation, the Transferred Assets), business, financial condition or
results of operations of IQ2.net and the Purchased Business, taken as a whole,
other than changes affecting the database research industry generally.
(d) Deliveries. Seller shall have delivered, or caused to be
----------
delivered, to Purchaser the following (which shall be in form and substance
satisfactory to Purchaser).
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<PAGE>
(i) Officer's Certificate - a certificate, substantially in a
---------------------
form attached hereto as Exhibit D-2 and by this reference incorporated herein,
-----------
dated the Closing Date and signed by an executive officer of Seller expressly
certifying that the conditions set forth in Sections 7.3(a) and 7.3(b) have been
met;
(ii) Opinion of Counsel - an opinion of counsel for Seller
------------------
covering the transactions contemplated hereby in form and substance reasonably
satisfactory to Purchaser;
(iii) Secretary's Certificate - a certificate, dated the Closing
-----------------------
Date, of the Secretary of Seller with respect to (a) the resolutions adopted by
the Board of Directors of Seller approving this Agreement and the transactions
contemplated hereby and (b) the incumbency and specimen signature of each
officer of Seller executing this Agreement and any other agreement or
certificate to be executed by Seller and a certification by another officer of
Seller as to the incumbency and specimen signature of the Secretary of the
Seller;
(iv) General Assignment and Bill of Sale - an original general
-----------------------------------
assignment and bill of sale, substantially in the form attached hereto as
Exhibit A and by this reference incorporated herein;
- ---------
(v) Stock Certificates and Stock Powers - Seller shall
-----------------------------------
deliver to Purchaser certificates evidencing all outstanding shares of the
IQ2.net Common Stock which are duly endorsed for transfer thereon or by means of
duly executed stock powers attached thereto;
(vi) Escrow Agreement - the Seller shall have executed an
----------------
Escrow Agreement with Purchaser and the Escrow Agent in substantially the form
attached hereto as Exhibit C;
---------
(vii) Intellectual Property Assignment - an original assignment
--------------------------------
of all Seller's Intellectual Property related to the Purchased Business,
including that set forth in Schedule 1.1(a)(i) of the Disclosure Schedules,
-----------------
substantially in the form attached hereto as Exhibit B and by this reference
---------
incorporated herein (the "Intellectual Property Agreement");
-------------------------------
(viii) [Reserved];
(ix) Resignations of Directors and Officers - Each of the
--------------------------------------
directors and officers of IQ2.net shall have delivered to Purchaser written
letters of resignation resigning such director's or officer's position with
IQ2.net as of the Closing Date;
(x) Acceptance of Employment Offers - Dr. Charles Stryker and
-------------------------------
at least 70% of the individuals listed on Schedule 6.9 hereof (or such other
------------
number as shall be acceptable to Purchaser) shall have accepted employment with
Purchaser on or before the Closing on terms and conditions acceptable to
Purchaser;
(xi) Employment Agreements - Each of Dr. Charles Stryker, and
---------------------
any other person listed on Schedule 6.9 hereof employed by Purchaser in
------------
connection with the transactions contemplated by this Agreement, shall have
entered into the Purchaser's standard Employment Agreement in substantially the
form attached hereto as Exhibit E;
---------
32
<PAGE>
(xii) License Agreement - Seller shall have entered a License
-----------------
Agreement with Purchaser and IQ2.net substantially in the form attached hereto
as Exhibit K relating to the Reply Quest software developed by Seller; and
---------
(xiii) Cooperation Agreement - Seller shall have entered into a
---------------------
Cooperation Agreement with Purchaser substantially in the form attached hereto
as Exhibit L.
---------
(e) Financing. Purchaser shall have obtained Financing resulting
---------
in net proceeds to Purchaser of at least $60 million on substantially the terms
set forth in the terms sheet with respect thereto previously provided to Seller.
(f) Records. Seller shall have delivered to Purchaser copies (which
-------
shall be true, complete and accurate in all material respects) of the following
accounting and tax records and books of account of Seller relating primarily to
the Purchased Business or IQ2.net in form acceptable to Purchaser: (i) current
accounts receivable and accounts payable files, including copies of all open
invoices, (ii) reconciliations of all bank statements relating to deposit
accounts included in the Transferred Assets or held by IQ2.net, (iii) sales tax
records for the one-year period on the Closing Date, and (iv) payroll records
for the one-year period ending on the Closing Date.
(g) Required Consents. All notices, declarations, reports and other
-----------------
filings and registrations with, and all waivers, consents, approvals and
authorizations of, any governmental or regulatory authority or instrumentality
or any other person required to be submitted, made or obtained by Seller or
IQ2.net in connection with the execution, delivery or performance of this
Agreement or the Seller Agreements or the consummation of the transactions
contemplated hereby or thereby, shall have been submitted, given, made or
obtained, except where the failure to give notice, declare, report, file, or
obtain any waiver, consent, approval or authorization does not and would not
reasonably be expected to have a material adverse effect on the ability of the
parties hereto to consummate the transactions contemplated by this Agreement or
a Material Adverse Effect.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
---------------------------
None of the representations and warranties of Seller contained in or
made pursuant to this Agreement or contained in any certificate, document or
instrument delivered pursuant to or in connection with this Agreement or the
transactions contemplated hereby shall survive the Closing. Covenants and
agreements set forth in this Agreement to be performed after the Closing will
survive the Closing in accordance with their respective terms. No claim shall be
made or action brought by any party after the Closing for the breach of any
representation or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement or with respect to any agreement or covenant in this
Agreement or in any instrument delivered pursuant to this Agreement, except with
respect to those that by their terms contemplate performance after the Closing.
33
<PAGE>
ARTICLE IX
TERMINATION; AMENDMENT; WAIVER
------------------------------
9.1 Termination.
-----------
This Agreement may be terminated at any time prior to the Closing Date
as follows:
(a) by the Seller or Purchaser if the Closing shall not have occurred
on or before September 30, 1999, which date may be extended by mutual consent of
the parties, provided that the right to terminate this Agreement under this
Section 9.1(a) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date;
(b) by Seller upon written notice to Purchaser if Purchaser has
materially breached any representation, warranty, covenant or agreement
contained herein and has not cured such breach within twenty (20) days of
receipt of written notice from the Seller or by the Closing Date, if earlier and
such breach will result in a condition to Seller's obligation to consummate the
transactions contemplated hereby not to be satisfied;
(c) by Purchaser upon written notice to Seller if the Seller has
materially breached any representation, warranty, covenant or agreement
contained herein and has not cured such breach within twenty (20) days of
receipt of written notice from the Purchaser or by the Closing Date, if earlier
and such breach will result in a condition to Purchaser's obligation to
consummate the transactions contemplated hereby not to be satisfied;
(d) by Seller or Purchaser if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Transfer and such order, decree or ruling shall have become final and
nonappealable;
(e) by the Purchaser if the Board of Directors of Seller (i) fails to
approve the this Agreement and the transactions contemplated hereby because it
does not believe this Agreement and the transactions contemplated hereby to be
fair to and in the best interest of Seller and its stockholders, (ii) adopts
resolutions approving or otherwise authorizes or recommends to Seller's
stockholders a Superior Proposal, or (iii) prior to the Closing Date, the Seller
has entered into an agreement to engage in a Superior Proposal with any person
other than Purchaser;
(f) at any time with the mutual written consent of Purchaser and
Seller; or
(g) by the Seller if the Board of Directors of Seller determines to
accept a Superior Proposal.
34
<PAGE>
9.2 Effect of Termination.
---------------------
If this Agreement is terminated as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect, without liability on
the part of any party, its directors, officers or stockholders, other than as
set forth in the provisions of this Section 9.2, Section 10.9 relating to
expenses, Section 6.6 relating to publicity and Section 10.1 relating to
confidentiality to the extent provided therein and Section 9.3. Nothing
contained in Section 9.2 or 9.3 shall relieve any party from liability for any
breach of any representation, warranty, covenant or agreement contained in this
Agreement occurring before such termination.
9.3 Termination Fee.
---------------
(a) Seller will make a cash payment to Purchaser of $1,500,000 if and
only if prior to the Closing Date:
(i) The Purchaser terminates this Agreement pursuant to
Section 9.1(e) hereof; or
(ii) The Seller terminates this Agreement pursuant to
Section 9.1 (g) hereof.
(b) If Purchaser terminates this Agreement pursuant to Section
9.1(c), Seller will make a cash payment to Purchaser of $300,000;
(c) If Purchaser terminates this Agreement pursuant to Section 9.1(c)
prior to the Closing Date and Seller or any affiliate thereof enters into a
definitive agreement within 180 days after the date of such termination to sell
all or substantially all of the Purchased Business in any one or series of
transactions, whether by sale of assets, merger consolidation or otherwise,
Seller shall make a cash payment of $1,200,000 to Purchaser (in addition to the
payment required by Section 9.3(b));
(d) Any payment required by this section will be payable (by wire
transfer of immediately available funds to an account designated by the party
entitled to such payment) within five (5) business days after receipt by Seller
from Purchaser of a demand for such payment.
9.4 Assignment.
----------
This Agreement shall be binding upon, and inure to the benefit of, the
parties and their respective successors and permitted assigns. This Agreement or
any rights or obligations hereunder shall not be assignable by any party, except
that either Seller or Purchaser may after the Closing (i) assign any or all of
its rights and interests hereunder (A) to one or more of its affiliates or (B)
in connection with the transfer of all or substantially all of its assets
(provided that any transferee shall expressly assume its liabilities and
obligations under this Agreement), (ii) designate one of more of its affiliates
to perform its obligations hereunder or (iii) pledge its rights hereunder to a
lender as security for any financing or refinancing (provided that Seller and
Purchaser shall nonetheless remain liable and responsible for the performance of
all of their
35
<PAGE>
respective obligations hereunder in the case of any of the foregoing). Any
attempted assignment made in violation of this Section 9.4 shall be null and
void.
9.5 Waiver.
------
The terms of this Agreement may be waived only by a written instrument
signed by the party waiving compliance. No waiver of any provision of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
9.6 Time of the Essence.
-------------------
The parties agree that time is of the essence in respect to the
consummation of all of the transactions contemplated by this Agreement.
ARTICLE X
MISCELLANEOUS
-------------
10.1 Confidentiality.
---------------
In the event that the transactions contemplated by this Agreement are
consummated, Seller shall treat the Confidential Information as confidential,
shall preserve the confidentiality thereof and shall not duplicate or use the
Confidential Information, and shall use all reasonable efforts to ensure that
its officers, directors, employees and affiliates who have had access to the
Confidential Information keep the Confidential Information confidential and do
not use the Confidential Information. The letter agreement dated April 8, 1999,
by and among the parties hereto relating to confidentiality (the
"Confidentiality Agreement") is hereby confirmed and acknowledged as a
continuing obligation of the parties and shall survive the Closing of the
transactions contemplated in this Agreement, and each party hereby represents
that it has, at all times since the execution of the Confidentiality Agreement,
complied with the provisions contained therein.
10.2 [Reserved].
--------
10.3 Title, Possession and Risk of Loss.
----------------------------------
The title to, possession of and risk of loss, destruction or damage
with respect to the Purchased Business and the Transferred Assets shall pass to
Purchaser as of the time of Closing; provided, however, that this Section 10.3
-------- -------
shall not diminish, limit or otherwise impair in any manner Purchaser's or
Seller's rights under the other provisions of this Agreement or the instruments,
agreements, certificates and documents to be executed and delivered in
connection herewith that apportion liability among the parties with respect to
events, occurrences, omissions or other matters arising or occurring during
specific periods.
36
<PAGE>
10.4 Entire Agreement; Amendments.
----------------------------
This Agreement, the other documents delivered in connection herewith
and the Confidentiality Agreement constitute the entire agreement of the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof. The representations,
warranties, covenants and agreements set forth in this Agreement constitute all
the representations, warranties, covenants and agreements of the parties hereto
and their respective shareholders, directors, officers, employees, affiliates,
advisors (including financial, legal and accounting), agents and representatives
and upon which the parties have relied, and except as specifically provided
herein, no change, modification, amendment, waiver, addition or termination of
this Agreement or any part thereof shall be valid unless in writing and signed
by or on behalf of the party to be charged therewith. No delay on the part of
any party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. Unless
otherwise provided, the rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies which the parities hereto may
otherwise have at law or in equity. Whenever this Agreement requires or permits
consent by or on behalf of a party, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 10.4.
10.5 Power of Attorney.
-----------------
Effective upon the Closing Date, Seller hereby irrevocably constitutes
and appoints Purchaser as its true and lawful attorney-in-fact, with full power
of substitution, in the name of Seller, on behalf of and for the benefit of the
Purchaser, to endorse, without recourse, checks, notes and other instruments
included in the Transferred Assets in the name of Seller. Seller agrees that the
foregoing powers are coupled with an interest and shall be irrevocable by
Seller. Seller further agrees that Purchaser shall retain for its own account
any amounts collected pursuant to the foregoing powers and Seller shall promptly
transfer and deliver to Purchaser any cash or other property received by Seller,
directly or indirectly, at any time after the Closing Date in respect of any
accounts receivable or otherwise included in the Transferred Assets transferred,
conveyed and assigned to Purchaser as provided herein.
10.6 Certain Tax Matters.
-------------------
The following provisions shall govern the allocation of responsibility
as between Purchaser and Seller for certain tax matters following the Closing
Date:
(a) Section 338(h)(10) Election. Seller will join with Purchaser in
---------------------------
making an election under Section 338(h)(10) of the Code (and any corresponding
elections under state, local, or foreign tax law to the extent requested by
Purchaser or Seller) (collectively, a "Section 338(h)(10) Election") with
respect to the purchase and sale of the stock of IQ2.net hereunder.
(b) Tax Periods Ending on or Before the Closing Date. Seller shall
------------------------------------------------
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for Seller and any Affiliate
37
<PAGE>
(other than IQ2.net) for all periods ending on or prior to the Closing Date
which are filed after the Closing Date, and any income Tax Return of IQ2.net
with respect to periods for which a consolidated, unitary or combined income Tax
Return of Seller or an Affiliate will include the operations of IQ2.net.
Purchaser shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of IQ2.net for periods ending on or prior to the Closing Date
which are filed after the Closing Date, other than those income Tax Returns of
IQ2.net which are filed as part of a consolidated, unitary or combined income
Tax Return of Seller or an Affiliate as set forth in the preceding sentence.
(c) Tax Periods Beginning Before and Ending After the Closing Date.
--------------------------------------------------------------
Purchaser shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns of IQ2.net for all periods which begin before the Closing Date
and end after the Closing Date
(d) Cooperation on Tax Matters.
--------------------------
(i) Purchaser, Seller and IQ2.net shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Purchaser and Seller agree (A) to retain all books and records with
respect to Tax matters pertinent to Seller and IQ2.net relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Purchaser, any extensions thereof)
of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, Purchaser or
Seller, as the case may be, shall allow the other party to take possession of
such books and records.
(ii) Purchaser and Seller further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other person or entity as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) Purchaser and Seller further agree, upon request, to
provide the other party with all information that either party may be required
to report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(e) Tax Contests. As of the Closing Date, Purchaser shall have the
------------
sole right and responsibility for conducting any audit, examination, proceeding
or litigation with respect to any Tax of IQ2.net.
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
--------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by Seller
when due, and Seller will, at its own expense, file all
38
<PAGE>
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Purchaser will, and will cause its affiliates to,
join in the execution of any such Tax Returns and other documentation.
(g) Indemnification. Seller shall indemnify, defend and hold IQ2.net
---------------
harmless from and against any and all Taxes attributable to the business, assets
or operations of any other member of any consolidated, combined or unitary group
which IQ2.net is required to pay in accordance with the provisions of Treas.
Reg. (S)1.1502-6 (or any similar provision of state, local, or foreign law).
10.7 Further Assurances.
------------------
From time to time after the Closing, (i) Seller will execute and
deliver, or cause its affiliates to execute and deliver, to Purchaser such
instruments of sale, transfer, conveyance, assignment and delivery, and such
consents, assurances, powers of attorney and other instruments as may be
reasonably requested by Purchaser or its counsel in order to vest in Purchaser
all right, title and interest of Seller in and to the Transferred Assets free
and clear of all Encumbrances other than Permitted Encumbrances and otherwise in
order to carry out the purpose and intent of this Agreement and (ii) Purchaser
will execute and deliver, or cause its affiliates to execute and deliver, to
Seller such instruments of assumption and other instruments as may be reasonably
requested by Seller or its counsel in order to vest in Purchaser all obligations
relating to the Assumed Liabilities and otherwise in order to carry out the
purposes and intent of this Agreement.
10.8 Notices.
-------
Any notices or other communications required or permitted hereunder or
otherwise in connection herewith shall be in writing and shall be deemed to have
been duly given when delivered in person or transmitted by facsimile
transmission or on receipt after dispatch by registered or certified mail,
postage prepaid, addressed, as follows:
If to Seller to:
IntelliQuest Information Group, Inc.
1250 S. Capital of Texas Highway
Suite 600
Austin, TX 78746
Facsimile: (512) 314-1878
Attention: Brian Sharples, President and CEO
39
<PAGE>
With a required copy (which shall not constitute notice) to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Facsimile: (650) 463-2600
Attention: Peter Kerman, Esq.
If to Purchaser to:
Naviant Technology Solutions, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073-3279
Facsimile: (610) 355-2428
Attention: James M. Flynn, President and CEO
With a required copy (which shall not constitute notice) to:
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, Texas 78701
Facsimile: (512) 477-5813
Attention: Carmelo M. Gordian, P.C.
or such other address as the person to whom notice is to be given has furnished
in writing to the other parties. A notice of change in address shall not be
deemed to have been given until received by the addressee.
10.9 Expenses.
--------
Each party hereto shall pay their own respective costs and expenses
incurred in connection with this Agreement, and the transactions contemplated
hereby (including without limitation all broker, investment banking, legal and
other professional fees) and, regardless of whether such transaction is
consummated or the Agreement is entered into by the parties. Without limiting
the generality of the foregoing, Seller shall pay all applicable sales, use,
transfer and documentary taxes arising out of the purchase and sale of the
Transferred Assets. The parties agree to cooperate to minimize the taxes arising
from the transactions contemplated by this Agreement, including where practical,
but not limited to, the electronic transmission of Intellectual Property so as
to limit the application of sales and use taxes.
10.10 Dispute Resolution.
------------------
The parties desire that any controversy or claim arising out of or
related to this Agreement, other than claims or controversies arising under
Section 6.7 (Competition; Non-Solicitation) or Article IX (Termination)
(collectively, the "Arbitral Disputes"), be resolved in an expeditious and
efficient manner exclusively in accordance with this dispute resolution
procedure. A dispute under this clause shall be initiated by delivering written
notice to the other
40
<PAGE>
party briefly stating the nature of the dispute and requesting resolution.
Except as otherwise specified, each party shall bear its own costs and fees
relating to any dispute.
(a) Informal Resolution. The parties agree that before initiation
-------------------
of any legal or arbitration proceeding with respect to any issue arising out of
the transactions contemplated by the Agreement, they shall cause their
respective representatives to attempt to resolve in good faith all disputes
between the parties. The parties agree that they will cause, in the case of
Purchaser, James M. Flynn or his successor-in-interest, and, in the case of
Seller, Brian Sharples or his successor-in-interest, to meet in person in
Austin, Texas, to attempt in good faith to resolve such dispute within fifteen
business days of notification of such dispute. In the event that the
representatives are unable to resolve such a dispute, the aggrieved party must
refer the dispute to mediation under paragraph (b).
(b) Mediation. In the event any dispute is not resolved by a
---------
meeting of the parties, the dispute shall be referred to non-binding mediation.
The mediation shall occur within 40 days of the meeting of the parties.
Mediation fees shall be split equally among the parties. The mediator shall be
selected by agreement of the parties or, in the event of no agreement, shall be
designated by Judicial Arbitration and Mediation Services ("JAMS"). The
mediation shall be attended by the parties' representatives designated in
paragraph (a) and, if desired, the parties' attorneys.
(c) Arbitration. In the event a dispute is not resolved by mediation
-----------
pursuant to Section (b), the aggrieved party shall refer any Arbitral Dispute to
binding arbitration. The aggrieved party shall be entitled to seek judicial
review of any non-Arbitral Disputes. The arbitration shall be governed by the
procedures set forth below. The arbitrator shall give written notice to the
parties of the arbitrator's determination, which shall be binding on the
parties. The parties agree to act in compliance with the arbitrator's
determination, and judgment upon the same may be entered by any court of
competent jurisdiction.
(i) Selection of Arbitrator. Within 30 days of referral of a
-----------------------
dispute to arbitration, a single arbitrator will be selected by agreement of the
parties or, in the event of no agreement, shall be designated by JAMS.
(ii) Discovery. The parties agree to submit discovery plans to
---------
the arbitrator within 15 days following the date that the arbitrator accepts his
appointment to this matter. The discovery plan will describe all discovery
contemplated. The arbitrator will schedule a meeting of counsel to occur within
15 days of his receipt of the discovery plans, at which time the arbitrator will
issue a written order scheduling dates for all depositions and completion dates
for all additional discovery. The written discovery plan may only be modified by
a written order from the arbitrator. The parties may request, in their discovery
plans, and the arbitrator shall be empowered to impose, limitations on the
nature and quantity of discovery to be conducted.
(iii) Procedure. The arbitration hearing shall take place in
---------
Austin, Texas within 90 days of the arbitrator's acceptance of his appointment.
The hearing is not to exceed two days. Introduction of evidence and testimony
at the hearing will be subject to the
41
<PAGE>
Federal Rules of Civil Procedure. Each party is entitled to be heard, to present
material evidence and testimony, and to cross-examine witnesses appearing at the
hearing.
(iv) Limitation on Damages. The arbitrator may not award
---------------------
exemplary or punitive damages.
10.11 Severability.
------------
In the event that any one or more of the provisions or parts of a
provision contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if such
invalid or illegal or unenforceable provision or part of a provision had never
been contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
10.12 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts executed and performed
in such State, without giving effect to conflicts of laws principles.
10.13 Bulk Sales Laws.
---------------
The parties hereby waive compliance with the Bulk Sales Laws of any
state in which the Transferred Assets are located or in which operations
relating to the Purchased Business are conducted.
10.14 Counterparts.
------------
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.
10.15 Headings; Interpretation; Disclosure Schedule.
---------------------------------------------
The descriptive headings of the several Articles and Sections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement. References to Sections or Articles, unless otherwise indicated,
are references to Sections of this Agreement. The parities have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. The word "including"
means including without limitation. Words (including defined terms) in the
singular shall be held to include the plural and vice versa and words of one
gender shall be held to include the other gender as the context requires. The
terms "hereof", "herein" and "herewith" and words of similar import shall,
unless otherwise stated, be construed
42
<PAGE>
to refer to this Agreement as a whole (including all of the Schedules and
Exhibits hereto) and not to any particular provision of this Agreement unless
otherwise specified. It is understood and agreed that neither the specifications
of any dollar amount in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and neither party shall use the fact of setting of such amounts or the fact of
the inclusion of such item in the Schedules or Exhibits in any dispute or
controversy between the parties as to whether any obligation, item or matter is
or is not material for purposes hereof.
10.16 Consent to Jurisdiction.
-----------------------
Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
Delaware State court, or Federal court of the United States of America, sitting
in Delaware, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the agreements
delivered in connection herewith or the transactions contemplated hereby or
thereby or for recognition or enforcement of any judgment relating thereto, and
each of the parties hereby irrevocably and unconditionally (i) agrees not to
commence any such action or proceeding except in such courts, (ii) agrees that
any claim in respect of any such action or proceeding may be heard and
determined in such Delaware State court or, to the extent permitted by law, in
such Federal court, (iii) waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any such action or proceeding in any such Delaware State or
Federal court, and (iv) waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such Delaware State or Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 10.8. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
10.17 Waiver of Jury Trial.
--------------------
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE
AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE EITHER OF SUCH WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
43
<PAGE>
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.17.
10.18 Indemnification.
---------------
Seller shall indemnify, defend and hold Purchaser and its officers,
directors, employees and affiliates harmless from and against any and all
claims, actions, suits, proceedings, investigations, losses, costs, damages and
expenses, including reasonable attorneys' fees and expenses, incurred by any of
them arising out of or relating to approval by the stockholders of Seller of the
transactions contemplated by this Agreement.
[SIGNATURE PAGE FOLLOWS]
44
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf by its duly authorized officer,
all as of the day and year first written above.
PURCHASER
---------
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:____________________________________
James M. Flynn
President and Chief Executive Officer
SELLER
------
INTELLIQUEST INFORMATION GROUP, INC.
By:____________________________________
Brian Sharples
President and Chief Executive Officer
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
<PAGE>
DISCLOSURE SCHEDULES
<PAGE>
EXHIBIT A
ASSIGNMENT AND BILL OF SALE
<PAGE>
EXHIBIT B
INTELLECTUAL PROPERTY ASSIGNMENT
<PAGE>
EXHIBIT C
ESCROW AGREEMENT
<PAGE>
EXHIBIT D
OFFICER'S CERTIFICATE
<PAGE>
EXHIBIT E
EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT F
[RESERVED]
<PAGE>
EXHIBIT G
[RESERVED]
<PAGE>
EXHIBIT H
ALLOCATION OF PURCHASE PRICE
<PAGE>
EXHIBIT I
ASSUMPTION AGREEMENT
<PAGE>
EXHIBIT J
[RESERVED]
<PAGE>
EXHIBIT K
LICENSE AGREEMENT
<PAGE>
EXHIBIT L
COOPERATION AGREEMENT
<PAGE>
EXHIBIT 10.30
PURCHASE AGREEMENT
BY AND AMONG
NAVIANT, INC.,
SOFTBANK CONTENT SERVICES, INC.
AND
SOFTBANK HOLDINGS INC.
MARCH 7, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS.................................................. 1
Section 1.1 Description of Assets to be Acquired................................. 1
Section 1.2 Excluded Assets...................................................... 3
Section 1.3 Non-Assignment or Subcontracting of Certain Assets................... 3
ARTICLE II LIABILITIES OF THE COMPANY.................................................. 3
Section 2.1 Assumed Liabilities.................................................. 3
Section 2.2 Excluded Liabilities................................................. 4
ARTICLE III SERIES E PREFERRED STOCK................................................... 4
ARTICLE IV CONSIDERATION............................................................... 4
Section 4.1 Consideration........................................................ 4
Section 4.2 Allocation of Acquisition Consideration.............................. 5
ARTICLE V CLOSING 5
Section 5.1 Closing Date......................................................... 5
Section 5.2 Deliveries by the Company............................................ 5
Section 5.3 Deliveries by Acquiror............................................... 6
Section 5.4 Further Assurances................................................... 6
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PARENT................................ 6
Section 6.1 Power and Authority.................................................. 6
Section 6.2 Accredited Investor Status........................................... 7
Section 6.3 Restricted Securities................................................ 7
Section 6.4 Investment Purposes of the Parent.................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 6.5 Brokers' and Finders' Fees........................................... 7
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARENT............... 7
Section 7.1 Organization, Standing and Power..................................... 8
Section 7.2 Assets 8
Section 7.3 Authority and Consents............................................... 8
Section 7.4 Financial Statements................................................. 9
Section 7.5 Absence of Certain Changes........................................... 9
Section 7.6 Absence of Undisclosed Liabilities................................... 10
Section 7.7 Litigation........................................................... 10
Section 7.8 Restrictions on Business Activities.................................. 10
Section 7.9 Governmental Authorization........................................... 10
Section 7.10 Title to Property.................................................... 11
Section 7.11 Inventory............................................................ 11
Section 7.12 Proprietary Rights................................................... 11
Section 7.13 Environmental Matters................................................ 12
Section 7.14 Taxes................................................................ 13
Section 7.15 Employee Benefit Plans............................................... 14
Section 7.16 Certain Affected Agreements.......................................... 14
Section 7.17 Employee Matters..................................................... 15
Section 7.18 Interested Party Transactions........................................ 16
Section 7.19 Insurance............................................................ 16
Section 7.20 Compliance With Laws................................................. 16
Section 7.21 Minute Books......................................................... 17
Section 7.22 Accounts Receivable.................................................. 17
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 7.23 Customers and Suppliers.......................................................... 17
Section 7.24 Contracts and Commitments........................................................ 17
Section 7.25 Year 2000 Compliance............................................................. 18
Section 7.26 Complete Copies of Materials..................................................... 18
Section 7.27 Brokers' and Finders' Fees....................................................... 18
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR................................................. 18
Section 8.1 Organization, Standing and Power................................................. 19
Section 8.2 Capital Structure................................................................ 19
Section 8.3 Authority........................................................................ 19
Section 8.4 Financial Statements............................................................. 20
Section 8.5 Absence of Certain Changes....................................................... 20
Section 8.6 Absence of Undisclosed Liabilities............................................... 21
Section 8.7 Litigation....................................................................... 21
Section 8.8 Governmental Authorization....................................................... 21
Section 8.9 Title to Property................................................................ 21
Section 8.10 Intellectual Property............................................................ 22
Section 8.11 Insurance........................................................................ 22
Section 8.12 Taxes............................................................................ 22
Section 8.13 Compliance With Laws............................................................. 23
Section 8.14 Year 2000 Compliance............................................................. 24
ARTICLE IX CONDUCT PRIOR TO THE CLOSING DATE................................................................ 24
Section 9.1 General Conduct of Business...................................................... 24
Section 9.2 Conduct of Business of the Company............................................... 24
Section 9.3 No Solicitation.................................................................. 26
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE X ADDITIONAL AGREEMENTS............................................................................. 27
Section 10.1 Access to Information............................................................. 27
Section 10.2 Public Disclosure................................................................. 27
Section 10.3 Consents; Cooperation............................................................. 28
Section 10.4 Legal Requirements................................................................ 28
Section 10.5 Non-competition................................................................... 29
Section 10.6 Non-solicitation.................................................................. 29
Section 10.7 COBRA............................................................................. 29
Section 10.8 Further Assurances................................................................ 29
ARTICLE XI CONDITIONS TO THE CLOSING........................................................................ 30
Section 11.1 Conditions to Obligations of Each Party to Effect the Closing..................... 29
Section 11.2 Additional Conditions to Obligations of the Parent and the Company................ 30
Section 11.3 Additional Conditions to the Obligations of the Acquiror.......................... 31
ARTICLE XII TERMINATION, AMENDMENT AND WAIVER............................................................... 33
Section 12.1 Termination....................................................................... 33
Section 12.2 Effect of Termination............................................................. 33
Section 12.3 Expenses.......................................................................... 33
ARTICLE XIII INDEMNIFICATION................................................................................ 34
Section 13.1 Indemnification................................................................... 34
Section 13.2 Procedure for Indemnification with Respect to Third-Party Claims.................. 35
Section 13.3 Procedure For Indemnification with Respect to Non-Third Party Claims.............. 36
Section 13.4 Reductions in Damages............................................................. 36
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Section 13.5 Limitations on Indemnification.................................................... 37
Section 13.6 Term.............................................................................. 37
Section 13.7 Limited Recourse.................................................................. 37
ARTICLE XIV GENERAL PROVISIONS.............................................................................. 37
Section 14.1 Survival.......................................................................... 37
Section 14.2 Notices........................................................................... 37
Section 14.3 Interpretation.................................................................... 39
Section 14.4 Counterparts...................................................................... 39
Section 14.5 Entire Agreement; Nonassignability; Parties in Interest........................... 39
Section 14.6 Severability...................................................................... 40
Section 14.7 Remedies Cumulative............................................................... 40
Section 14.8 Governing Law..................................................................... 40
Section 14.9 Rules of Construction............................................................. 40
Section 14.10 Amendment; Waiver................................................................. 40
Section 14.11 Consent to Jurisdiction; Service of Process....................................... 41
Section 14.12 Definitions of Material Adverse Effect............................................ 41
</TABLE>
<PAGE>
SCHEDULES
Schedule 1.1(a) Fixed Assets
Schedule 1.1(b) Inventory
Schedule 1.1(c) Contracts
Schedule 1.1(d) Real Property
Schedule 1.1(e) Proprietary Rights
Schedule 1.1(j) Leasehold Interests
Schedule 1.1(k) Insurance Policies
Schedule 1.2 Excluded Assets
Schedule 2.2 Excluded Liabilities
The Parent and Company Disclosure Schedules
Schedule 7.2 Assets
Schedule 7.3 Consents
Schedule 7.6 Undisclosed Liabilities and Creditors
Schedule 7.7 Litigation
Schedule 7.13 Environmental Matters
Schedule 7.14 Taxes
Schedule 7.15 Employee Benefit Plans
Schedule 7.17 Employee Matters
Schedule 7.20(b) Material Governmental Permits
The Acquiror Disclosure Schedule
Schedule 8.2 Capital Structure
Schedule 8.4 Financial Statements
Schedule 8.5 Absence of Changes
Schedule 8.6 Undisclosed Liabilities
Schedule 8.12 Taxes
EXHIBITS
Exhibit 5.2(a) Bill of Sale
Exhibit 5.2(b) Affidavit of Non-Foreign Status
Exhibit 5.2(e) Employment Agreements
Exhibit 5.3(c) Omnibus Amendment Agreement
Exhibit 7.12(c) Proprietary Information Agreements
Exhibit 11.2 Brobeck, Phleger & Harrison LLP - Legal Opinion
Exhibit 11.3(d) Sullivan & Crowell - Legal Opinion
vi
<PAGE>
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of March 7, 2000, by and among NAVIANT, INC., a Delaware corporation (the
"Acquiror"), SOFTBANK CONTENT SERVICES, INC., a Delaware corporation (the
"Company") doing business as eQuaint, a subsidiary of SOFTBANK HOLDINGS INC., a
Delaware corporation ("Parent"), and Parent.
RECITALS
A Parent owns of record and beneficially 100% of the outstanding
capital stock or other voting securities and equity interests of the Company
(collectively, the "Securities").
B The Company is engaged in, among other things, the business of
providing outsourced product registration of computer equipment, related
peripherals and other technology products (the "Business").
C Acquiror wishes to purchase from the Company and the Company
desires to sell to Acquiror the Assets set forth on the Schedules described
under Section 1.1 below (which assets, properties and rights constitute
substantially all of the assets of the Company), upon the terms and conditions
of this Agreement.
D Parent wishes to purchase from Acquiror and Acquiror desires to
sell to Parent shares of Acquiror's Series E Convertible Preferred Stock
("Series E Preferred Stock") upon the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the covenants, representations and
other agreements set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
Section 1.1 Description of Assets to be Acquired. Upon the terms
------------------------------------
and subject to the conditions set forth in this Agreement, at the Closing Date
(as defined in Section 5.1), the Company agrees to convey, sell, transfer,
assign, and deliver to Acquiror, and Acquiror shall purchase from the Company,
all right, title, and interest of the Company at the Closing Date in and to the
assets, properties, and rights of the Business of every kind, nature, and
description, personal, tangible and intangible, known or unknown, wherever
located, including, without limiting the generality of the foregoing (but
excluding the "Excluded Assets," as such term is defined in Section 1.2 below):
<PAGE>
(a) All interests in machinery, equipment, instruments, computer
hardware and software, tooling, furniture, fixtures, motor vehicles, supplies,
repair and maintenance parts, demonstration units, and other fixed assets used
in the Business, together with manufacturer or vendor warranties associated
therewith, including, without limitation, those interests listed on Schedule
--------
1.1(a) hereto;
- -----
(b) All inventories of whatever kind (together with any manufacturer
or vendor warranties associated therewith), works-in-process, finished goods and
supplies relating to the Business, including, without limitation, those listed
on Schedule 1.1(b) hereto (collectively, the "Inventory");
--------------
(c) All claims and rights under those agreements, contracts,
licenses, leases, franchises, instruments, documents, purchase and sale orders
and other executory commitments, and all permits, consents, and certificates of
any regulatory, administrative or other governmental agency or body, listed on
Schedule 1.1(c) hereto (collectively, the "Contracts");
- --------------
(d) All interests in the real property listed on Schedule 1.1(d)
---------------
hereto, and all buildings, facilities, and other improvements located thereon
(including construction in progress), together with all related rights,
easements and uses which benefit or burden any such property (collectively, the
"Real Property");
(e) All right, title and interest to trademarks, trademark rights,
service marks, service mark rights, copyrights, trade names, trade name rights,
fictitious business names, works of authorship, inventions, industrial models,
industrial designs, utility models and certificates of invention, designs,
emblems and logos, trade secrets, know-how, manufacturing formulae, technical
information, patents, patent applications, mask work registrations, inventions,
franchises, franchise rights, customer and supplier lists together with the
goodwill associated therewith and other proprietary rights used in the Business
(collectively, the "Proprietary Rights"), including without limitation those
listed on Schedule 1.1(e) hereto;
--------------
(f) All original books or duplicates thereof of account, general
ledgers, sales invoices, purchase orders, accounts payable and payroll records,
drawings, files, papers, and all other records relating to the Business (the
"Records");
(g) All rights under express or implied warranties from suppliers of
the Company of supplies used in the Business;
(h) All of the Company's causes of action, judgments, and claims or
demands of whatever kind or description arising out of or relating to the
Business;
(i) All goodwill of the Business (the "Goodwill");
(j) All leasehold interests of the Company listed on Schedule 1.1(j)
---------------
hereto ("Leasehold Interests");
2
<PAGE>
(k) All insurance policies of the Company, including officers' and
directors' liability insurance policies, together with all proceeds thereof and
rights thereunder, including those policies listed on Schedule 1.1(k) hereto;
--------------
and
(l) The current assets of the Company as of the Closing Date in the
categories that appear on the balance sheet of the Company dated as of February
29, 2000, which balance sheet shall be in form and substance substantially
similar to the audited balance sheet of the Company as of December 31, 1999,
including, without limitation, all lease and rent deposits, prepaid expenses,
prepaid taxes, bank accounts and all other current assets of the Company (the
"Current Assets").
The assets, properties, and rights to be conveyed, sold, transferred, assigned,
and delivered to Acquiror pursuant to this Section 1.1 are sometimes hereinafter
collectively referred to as the "Assets."
Section 1.2 Excluded Assets. Notwithstanding the provisions of
---------------
Section 1.1 hereof, the assets to be transferred to Acquiror pursuant to this
Agreement shall not include those assets specifically listed on Schedule 1.2
------------
(collectively, the "Excluded Assets").
Section 1.3 Non-Assignment or Subcontracting of Certain Assets.
--------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, to the extent that
the assignment or subcontracting hereunder of any of the Assets shall require
the consent of any other party (or in the event that any of the same shall be
nonassignable or unable to be subcontracted), neither this Agreement nor any
action taken pursuant to its provisions shall constitute an assignment or
subcontract or an agreement to assign or subcontract if such assignment or
subcontract or attempted assignment or subcontract would constitute a breach
thereof or result in the loss or diminution thereof; provided, however, that in
each such case, the Company shall use its best efforts to obtain the consent of
such other party to an assignment to Acquiror. If such consent is not obtained
by the Closing Date, the Company shall cooperate with Acquiror in any
arrangement designed for Acquiror to perform the Company's obligations with
respect to such Asset after the Closing Date and for Acquiror to receive the
benefits under any such Asset (net of any taxes imposed upon the Company or any
affiliate in connection with such Asset) after the Closing Date, which
arrangements may include enforcement, for the account and benefit of Acquiror,
of any and all rights of the Company against any other person arising out of the
breach or cancellation by such other person or otherwise, all of such actions of
the Company to be at the direction and expense of the Company. The Company shall
reimburse or pay Acquiror for all costs and expenses, including increased
obligations (net of any tax benefits or savings to the Acquiror or any affiliate
arising from such costs, expenses or obligations), resulting from an inability
of Acquiror to receive the benefits of such assignment or subcontract.
ARTICLE II
LIABILITIES OF THE COMPANY
--------------------------
Section 2.1 Assumed Liabilities. From and after the Closing Date,
-------------------
Acquiror agrees to assume and discharge or perform when due, any and all of the
debts,
3
<PAGE>
liabilities and obligations of the Company, or claims of such debts, liabilities
and obligations, whether matured or unmatured, liquidated or unliquidated, fixed
or contingent, known or unknown, whether arising out of occurrences prior to, at
or after the Closing Date, other than Excluded Liabilities (the "Assumed
Liabilities"), incurred in connection with or related to the Business.
Section 2.2 Excluded Liabilities. Notwithstanding any other
--------------------
provision of this Agreement, the debts, liabilities and obligations of the
Company which are not to be assumed by Acquiror hereunder (the "Excluded
Liabilities") are the following:
(a) all debts, liabilities and obligations arising out of or relating
to exclusively the Excluded Assets;
(b) any debt, liability or obligation, the existence of which
constitutes a breach of a representation or warranty set forth herein to the
extent that Acquiror would be entitled to indemnification under Section 13
hereof if such debt, liability or obligation were assumed by Acquiror;
(c) all debts, liabilities and obligations arising out of the
Business, the Assets or the income derived therefrom for Taxes for any taxable
period, or portion thereof, ending on or before the Closing Date; and
(d) all debts, liabilities and obligations set forth on Schedule 2.2
------------
hereto.
ARTICLE III
SERIES E PREFERRED STOCK
------------------------
The Amended and Restated Certificate of Incorporation of Acquiror (the
"Certificate of Incorporation") shall be amended and restated in the form of the
----------------------------
Third Amended and Restated Certificate of Incorporation attached as Exhibit III
-----------
hereto (the "New Certificate of Incorporation") setting forth the rights and
--------------------------------
preferences of the Series E Preferred Stock and modifying the rights and
preferences of the Series A Convertible Redeemable Preferred Stock, the Series B
Convertible Redeemable Preferred Stock, the Series C Convertible Redeemable
Preferred Stock and the Series D Non-Voting Convertible Preferred Stock (each
series as described in the New Certificate of Incorporation), which shall be
filed with the Secretary of State of the State of Delaware in accordance with
the Delaware General Corporation Law (the "DGCL")
ARTICLE IV
CONSIDERATION
-------------
Section 4.1 Consideration. Upon the terms and subject to the
-------------
conditions contained in this Agreement, in consideration for the Assets and in
full payment
4
<PAGE>
therefor, Acquiror will issue, or cause to be issued to the Parent, eleven
million (11,000,000) shares of its Series E Preferred Stock (the "Acquisition
Consideration").
Section 4.2 Allocation of Acquisition Consideration. The value of
---------------------------------------
the Acquisition Consideration paid by Acquiror shall be allocated in the manner
provided for in Schedule 4.2, which the parties acknowledge was prepared using
------------
the allocation methods and principles presented by Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code") and the Treasury Regulations
promulgated thereunder. Any revisions shall be determined in accordance with the
allocation methods and principles prescribed by Code Section 1060 and the
Treasury Regulations promulgated thereunder, in a manner consistent with the
initial allocations set forth on Schedule 4.2.
------------
ARTICLE V
CLOSING
-------
Section 5.1 Closing Date. The transactions contemplated by this
------------
Agreement shall be completed on the fifth business day following the
satisfaction of the conditions set forth in Article XI (the "Closing Date"),
unless otherwise agreed to by Acquiror and the Company. The Closing shall take
place at the offices of Brobeck, Phleger & Harrison LLP, 701 Pennsylvania
Avenue, NW, Suite 220, Washington, DC 20004, or at such other place or date as
may be agreed to in writing by Acquiror and the Company. The "Closing" shall
mean the deliveries to be made by the parties hereto at the Closing Date in
accordance with this Agreement.
Section 5.2 Deliveries by the Company. At the Closing, the Company
-------------------------
shall deliver to Acquiror, all duly and properly executed, the following:
(a) A good and sufficient Bill of Sale for the Assets in the form
attached hereto as Exhibit 5.2(a), selling, delivering, transferring, and
-------------
assigning to Acquiror title to all of the Company's right, title, and interest
to the Assets, free and clear of all mortgages, pledges, liens, encumbrances,
security interests, equities, charges, and restrictions of any nature
whatsoever.
(b) An affidavit of the Company, in the form attached hereto as
Exhibit 5.2(b), stating, under penalty of perjury, the Company's United States
- -------------
taxpayer identification number and that the Company is not a foreign person,
pursuant to Section 1445(b)(2) of the Code.
(c) Valid assignments for all Contracts and Proprietary Rights and
all other third party consents, including the consents of Creditors of the
Company listed in Schedule 7.3, and the consents of any other party which may be
------------
required for the consummation of the transactions contemplated hereby or
governmental consents necessary in order for Acquiror to operate the Business.
(d) Resale certificates for the resale of any items of Inventory.
5
<PAGE>
(e) Employment agreements, substantially in the form attached hereto
as Exhibit 5.2(e) with Paul O'Brien, J.D. de Haseth, Patti Randall and Andy
-------------
Broding.
Section 5.3 Deliveries by Acquiror. At the Closing, Acquiror shall
----------------------
deliver, or cause to be delivered, to the Company, the following:
(a) stock certificates registered in the name of the Company
representing the shares of the Acquisition Consideration;
(b) the New Certificate of Incorporation; and
(c) an executed Omnibus Amendment Agreement No. 2 to Naviant, Inc.
Amended and Restated Registration Rights Agreement and Amended and Restated
Stockholders' Agreement in the form attached hereto as Exhibit 5.3(c) hereto
-------------
(the "Omnibus Amendment Agreement").
---------------------------
Section 5.4 Further Assurances. At or after the Closing Date, each
------------------
party shall prepare, execute, and deliver, at the preparer's expense, such
further instruments of conveyance, sale, assignment, or transfer, and shall take
or cause to be taken such other or further action, as any party shall reasonably
request of any other party at any time or from time to time in order to perfect,
confirm, or evidence in Acquiror title to all or any part of the Assets and in
the Company title to the Acquisition Consideration, or to consummate, in any
other manner, the terms and provisions of this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE parent
--------------------------------------------
The Parent represents and warrants to, and covenants and agrees with,
the Acquiror as follows:
Section 6.1 Power and Authority. The Parent has all requisite power
-------------------
and authority to execute and deliver this Agreement and the other agreements
contemplated hereby (the "Ancillary Agreements") to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Ancillary Agreements to which the Parent is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Parent. This Agreement and each Ancillary Agreement to which the Parent is a
party has been duly executed and delivered by the Parent and constitutes the
valid and binding obligation of the Parent, enforceable against Parent in
accordance with its terms except as such enforcement may be limited by (i) the
effect of bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other laws affecting or relating to the rights of
creditors generally and (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
6
<PAGE>
Section 6.2 Accredited Investor Status. The Parent is and at the
--------------------------
Closing will be an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated by the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act").
Section 6.3 Restricted Securities. The Parent understands that the
---------------------
shares of Series E Preferred Stock to be issued and sold pursuant to this
Agreement, both to the Parent and the Company, are "restricted securities" under
the federal securities laws and that under such laws and applicable regulations
such securities may not be resold except pursuant to an effective registration
statement under the Securities Act or an available exemption therefrom. In this
connection, the Parent represents that it is familiar with SEC Rule 144 and Rule
145, each as presently in effect, and understands the resale limitations imposed
hereby and by the Securities Act. Acquiror may require a legal opinion of the
Parent's or the Company's counsel with respect to unregistered transfers of
Series E Preferred Stock. Notwithstanding anything in this Agreement to the
contrary, the Parent shall be permitted to sell, transfer, assign or pledge all
or any part of the shares of Series E Preferred Stock of Acquiror it receives to
any affiliates of Parent or SOFTBANK Corp., a Japanese corporation, including,
without limitation, SOFTBANK Capital Partners LP and any other partnership or
other entity of which any direct or indirect subsidiary of SOFTBANK Corp. is a
general partner or has investment discretion, or any employees of any of the
foregoing; provided that any such transfer shall comply with all applicable
state and federal securities laws and the regulations thereunder.
Section 6.4 Investment Purposes of the Parent. Parent understands
---------------------------------
that the Series E Preferred Stock will be acquired for investment for Parent's
own account, not as a nominee or agent, and not with a view to the public resale
or distribution thereof within the meaning of the federal or state securities
laws, and Parent has no present intention of selling, granting any participation
in, or otherwise distributing the same, except as permitted under Section 6.3.
Parent further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Series E Preferred Stock.
Section 6.5 Brokers' and Finders' Fees. The Parent has not
--------------------------
incurred, nor will the Parent incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or investment bankers' fees or
any similar charges in connection with this Agreement or any transaction
contemplated hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE COMPANY AND THE PARENT
-----------------------------
Except as disclosed in that section of the document of even date
herewith delivered by the Company to the Acquiror prior to the execution and
delivery of this Agreement (the "Company Disclosure Schedule") corresponding to
the Section of this Agreement to which any of the representations and
warranties specifically relate or as disclosed in another section of
7
<PAGE>
the Company Disclosure Schedule if it is reasonably apparent on the face of the
disclosure that it is applicable to another section of this Agreement, the
Company and the Parent, jointly and severally, represent and warrant to the
Acquiror as follows:
Section 7.1 Organization, Standing and Power. The Company is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the requisite power to own its
properties and to carry on its business as now being conducted and as currently
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which it does business. The Company has
delivered to the Acquiror a true and correct copy of its Certificate of
Incorporation and By-laws, each as amended to date. The Company does not,
directly or indirectly, own any equity or other beneficial interest in, or any
interest convertible or exchangeable or exercisable for, any equity or other
beneficial interest in, any corporation, partnership, limited liability company,
joint venture or other business association or entity.
Section 7.2 Assets. The Assets (excluding the Excluded Assets)
------
include all intellectual property, inventory and all other property in which the
Company has any right title or interest. The Assets (excluding the Excluded
Assets) include all the assets necessary to operate the Business in the same
manner as the Business was operated by the Company prior to the Closing Date.
The Assets are suitable for the purpose or purposes for which they are being
used, are in good operating condition and in reasonable repair, and free from
any known defects, except such minor defects as do not interfere in any material
respect with the continued use thereof. Each tangible Asset has been serviced
and maintained in accordance with customary industry practices. Subject to
normal wear and tear, such plants, facilities, machinery, and equipment are
capable of and are producing sound and merchantable products. The Assets are
free from all liens, charges, security interests or other encumbrances
(collectively, "Encumbrances") of any nature whatsoever, except (i) any
Encumbrances for Taxes (as defined below), assessments or other governmental
charges which are not delinquent or (ii) any workmen's, repairmen's,
warehousemen's and carriers' liens and Encumbrances arising in the ordinary
course of business (items included in (i) and (ii) are referred to herein as
"Permitted Encumbrances").
Section 7.3 Authority and Consents. The Company has all requisite
----------------------
power and authority to execute and deliver this Agreement and the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Agreements to which the Company is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement and each Ancillary Agreement to which the Company is a party has been
duly executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as such enforcement may be limited by (i) the effect of
bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other laws affecting or relating to the rights of
creditors generally and (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law. The execution and delivery of this Agreement or any Ancillary
Agreement by the Company (including the ability by the Company
8
<PAGE>
to transfer the Assets free and clear of all liens and encumbrances of any kind
or nature whatsoever other than liens and encumbrances set forth on the Schedule
of Exceptions and other than permitted encumbrances) do not, and the
consummation of the transactions contemplated hereby or thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the Certificate of Incorporation, By-laws or other charter or
organizational documents, each as amended, of the Company, or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, or any of its
properties or Assets, except for those necessary consents set forth on Schedule
--------
7.3 and except as would not reasonably be expected to have a Material Adverse
- ---
Effect on the Company. No consent, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or
other governmental or quasi-governmental authority or instrumentality of any
jurisdiction ("Governmental Entity") is required by or with respect to the
Company in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal or state securities laws,
(ii) the applicable requirements, if any, of bulk sales laws and the
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and (iii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on the Company and would not reasonably be
expected to prevent, or materially alter or delay, any of the transactions
contemplated by this Agreement.
Section 7.4 Financial Statements. The Company has delivered to the
--------------------
Acquiror the consolidated financial statements (including, without limitation,
consolidated balance sheets (income statements and statements of cash flows) of
the Company for its fiscal years ended on December 31, 1999 and December 31,
1998, respectively (collectively, the "Company Financial Statements"). The
Company Financial Statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated. The Company Financial Statements fairly
present the consolidated financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein. The Company
maintains an adequate system of internal financial and accounting controls in
accordance with GAAP. There has been no change in the Company's accounting
policies during the foregoing reporting periods except as described in the notes
to the Company Financial Statements. The Company's financial reserves are
adequate to cover claims already incurred.
Section 7.5 Absence of Certain Changes. Since December 31, 1999 (the
--------------------------
"Company Balance Sheet Date"), the Company has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect on the Company; (ii) any acquisition, sale or transfer of any material
asset of the Company; (iii) any material change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by the Company or any revaluation by the Company of any of its assets;
(iv) any declaration, setting
9
<PAGE>
aside, or payment of a dividend or other distribution with respect to the
securities of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of any of its securities; (v) any material
contract entered into by the Company, or any material amendment or termination
of, or default by the Company under, any material contract to which the Company
is a party or by which it is bound; (vi) any amendment or change to the
certificate of incorporation or bylaws of the Company; (vii) any increase in or
modification of the compensation or benefits payable or to become payable by the
Company to any of its directors or employees or (viii) any negotiation or
agreement by the Company to do any of the things described in Section 9.2 or in
the preceding clauses (i) through (vii) (other than negotiations with the
Acquiror and its representatives regarding the transactions contemplated by this
Agreement).
Section 7.6 Absence of Undisclosed Liabilities. The Company has no
----------------------------------
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) ("Debt") other than (i) those set forth or adequately provided
for in the consolidated balance sheets of the Company as of the Company Balance
Sheet Date included in the Company Financial Statements (the "Company Balance
Sheets"), (ii) those incurred in the ordinary course of business and not
required to be set forth in the Company Balance Sheets under GAAP, (iii) those
incurred in the ordinary course of business since the Company Balance Sheet Date
and consistent with past practice; and (iv) those incurred in connection with
the execution of this Agreement. Schedule 7.6 sets forth a list of all persons,
------------
corporations, partnerships and other entities holding or with any right to any
Debt ("Creditors") and a description of such Debt.
Section 7.7 Litigation. There is no private, governmental, judicial,
----------
administrative or regulatory action, suit, proceeding, claim, arbitration,
investigation, administrative charge or complaint pending before any agency,
court or tribunal (foreign or domestic) or, to the knowledge of the Parent and
the Company, threatened against the Company or any of its properties or any of
its officers or directors (in their capacities as such), that could reasonably
be expected to prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement or any of the Ancillary Agreements,
or that could reasonably be expected to have a Material Adverse Effect on the
Company. There is no judgment, decree or order against the Company, or, to the
knowledge of the Parent and the Company, any of their respective directors or
officers (in their capacities as such), that could reasonably be expected to
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements, or that could
reasonably be expected to have a Material Adverse Effect on the Company.
Schedule 7.7 contains a true and complete list of all actions, suits,
- ------------
proceedings, claims and all litigation involving the Company.
Section 7.8 Restrictions on Business Activities. There is no
-----------------------------------
agreement, judgment, injunction, order or decree binding upon the Company which
has or could reasonably be expected to have the effect of prohibiting or
impairing any current or future business practice related to the Business or the
conduct of the Business as currently conducted or as currently proposed to be
conducted by the Company.
Section 7.9 Governmental Authorization. The Company has obtained each
--------------------------
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which the
Company currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of the business
10
<PAGE>
of the Company or the holding of any such interest ((i) and (ii) herein
collectively called "Company Authorizations"), and all of such Company
Authorizations are in full force and effect, except in each such case where the
failure to obtain or have or maintain in full force and effect any such Company
Authorizations could not reasonably be expected to have a Material Adverse
Effect on the Company.
Section 7.10 Title to Property. The Company has good and marketable
-----------------
title to all of its properties, interests in properties and assets, real and
personal, reflected in the Company Balance Sheets or acquired after the Company
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Company Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests in such properties and assets, free and clear of all
Encumbrances except Permitted Encumbrances. The plants, property and equipment
of the Company that are used in the operations of the Business are in good
operating condition and repair, subject to normal wear and tear. All properties
used in the operations of the Company are reflected in the Company Balance
Sheets to the extent GAAP require the same to be reflected. Schedule 1.1(d)
---------------
identifies all of the Real Property owned or leased by the Company.
Section 7.11 Inventory. All Inventory of the Company and all items to
---------
be delivered to the Company for Inventory after the Closing Date that are
subject to purchase commitments outstanding at the Closing Date, consist of
items that are or upon delivery will be good and merchantable and of a quality
and quantity presently usable and saleable in the ordinary course of business,
except for defective, obsolete or unmarketable inventory with respect to which
reserves have been provided in the Company Financial Statements in accordance
with GAAP. All such Inventory is and will be valued for financial accounting
purposes using the first-in, first-out (FIFO) method, in accordance with GAAP
consistently applied. In any event, the Inventory is not stated on the Company's
Financial Statements in an amount greater than the estimated net realizable
value thereof.
Section 7.12 Proprietary Rights.
------------------
(a) To the Company's knowledge, there is no pending claim challenging
or questioning the right of the Company to use, sell, license or dispose of any
Proprietary Rights of the Business, nor is there any pending or, to the
Company's knowledge, threatened material litigation or proceeding involving any
Proprietary Rights of the Business. The Company is not in default in any
material respect nor has the Company received written notice or warning or, to
the knowledge of the Parent or the Company, oral notice or warning of alleged
nonperformance, delay in delivery or other noncompliance by the Company with
respect to its obligations under any licenses or agreements listed on Schedule
--------
1.1(e). The consummation of the transactions contemplated hereby will not (i)
- -----
constitute a material breach, or give rise to a right of forfeiture or
termination in, of any instrument or agreement governing any right in any
Proprietary Rights or (ii) in any material way impair the right of the Acquiror
to use, sell, license, dispose of or bring infringement action for any
Proprietary Rights. To the Company's knowledge, the use of the Proprietary
Rights by the Business as currently used does not constitute a breach of any
instrument or agreement governing any right in
11
<PAGE>
the Proprietary Rights or an infringement of the rights of any other person, in
each case that would reasonably be expected to have a Material Adverse Effect on
the Company.
(b) Except as otherwise set forth in Schedule 1.1(e) and as would not
---------------
have a Material Adverse Effect on the Business, the Company owns, or has the
right to use, sell, license, dispose of or bring infringement action for all
Proprietary Rights of the Business. The Company owns all right, title and
interest in and to, or has a license, sublicense or otherwise has permission
appropriate for the use contemplated to all of the Proprietary Rights, free and
clear of all Encumbrances other than Permitted Encumbrances.
(c) The Company has taken all reasonable actions and made all
applicable applications and filings pursuant to applicable laws to perfect or
protect its interests in, safeguard and maintain the secrecy and confidentiality
of all Proprietary Rights (including, without limitation, entering into
appropriate confidentiality, nondisclosure and noncompetition agreements, copies
of all such agreements have been delivered to Acquiror or its counsel, with all
officers, directors, subcontractors, consultants, employees, licensees and
entities that serve the Company), except where the failure to take such actions
or make such applications or filings would not have a Material Adverse Effect on
the Company or materially interfere with the use or enforcement of such
Proprietary Rights in the ordinary course of its business.
(d) Without limiting the generality of the foregoing, the Company has,
and enforces, a policy requiring each employee, consultant, and independent
contractor to execute proprietary information, confidentiality and invention and
copyright assignment agreements substantially in the form of Exhibit 7.12(c)
---------------
hereto, and each current and former employee, consultant and independent
contractor of the Company has executed such an agreement covering such person's
term of employment with or service to the Company and work responsibilities to
the Company.
(e) All trade secrets of the Company have not been used, divulged or
appropriated for the benefit of any person other than the Company or to the
detriment of the Company.
Section 7.13 Environmental Matters. Except as disclosed on Schedule
---------------------
7.13 or as would not reasonably be expected to have a Material Adverse Effect on
the Company: (a) the Company is in material compliance with applicable Federal,
state, local or foreign law, ordinance, rule, regulation, permit and
authorization pertaining to the protection of human health or the environment
(collectively, the "Environmental Laws"), (b) the Company has not received any
written notices from any Governmental Entity alleging the violation of any
applicable Environmental Laws, (c) the Company is not the subject of any court
order, administrative order or decree arising under any Environmental Law, and
(d) the Company has not generated, stored, used, emitted, discharged or disposed
of any hazardous substances except as permitted under applicable Environmental
Laws.
12
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Section 7.14 Taxes.
-----
(a) The Company has withheld and paid all material Taxes required by
law to be withheld and paid by the Company with respect to any amounts paid to
any employee, independent contractor, creditor, stockholder, or other third
party. There is no audit currently pending regarding any material Taxes. Neither
the Company nor the Parent expects any federal, state, local or foreign
governmental entity responsible for the imposition of any tax (a "Taxing
Authority") to assess any additional material Taxes for any period for which Tax
returns have been filed. There is no material outstanding or unresolved dispute
or claim concerning any Tax liability of the Company either (i) claimed or
raised by a Taxing Authority in writing or (ii) as to which the Company or
Parent has knowledge. No claim has ever been made by a Taxing Authority in a
jurisdiction where the Company does not file Tax returns that it is or may be
subject to taxation by that jurisdiction.
(b) The Company is a treated as a "C" corporation for federal income
tax purposes and is not a person other than a United States person within the
meaning of Section 7701(a)(30) of the Internal Revenue Code. There is no
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or independent contractor or
former employee or independent contractor of the Company that, individually or
collectively, could give rise to the payment by the Company of any amount that
would not be deductible pursuant to Section 280G or Section 162(m) of the Code.
None of the assets (including the Assets) of the Company (i) is property that is
required to be treated as owned by any other person pursuant to the so-called
"safe harbor lease" provisions of former Section 168(f)(8) of the Code, (ii)
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code or (iii) is "tax-exempt use property" within
the meaning of Section 168(h) of the Code.
(c) There are no material liens for Taxes upon the Assets except liens
for current Taxes not yet due. The Company is not party to a tax allocation or
sharing agreement.
(d) Schedule 7.14 lists all federal, state, local, and foreign income
Tax returns that have been audited, and indicates those Tax returns that are
currently the subject of an audit.
(e) For purposes of this Agreement, "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on
minimum tax, gross income, gross or net receipts, sales, use, ad valorem,
transfer, franchise, capital, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Taxing Authority responsible for the imposition of any such tax (domestic or
foreign), (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any Taxable period and (iii) any liability for the
payment of any amounts of the type described in (i) or (ii) as a result of any
express or implied obligation to indemnify any other person.
13
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Section 7.15 Employee Benefit Plans.
----------------------
(a) All employee benefit plans, programs, policies, or arrangements
(including, without limitation, each employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that are sponsored, maintained or contributed to or required to be
contributed to by the Company (the "Company Plans") are set forth in Schedule
--------
7.15.
- ----
(b) Each Company Plan has been maintained and administered in all
material respects in accordance with its terms and all applicable laws,
including ERISA and the Code. All contributions required to be made to each of
the Company Plans under the terms of such Company Plans, ERISA, the Code or any
other applicable laws have been timely made.
(c) Each Company Plan intended to be qualified under Section 401(a) of
the Code has either obtained a favorable determination letter as to its
qualified status from the Internal Revenue Service ("IRS") or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such determination letter and to make any
amendments necessary to obtain a favorable determination.
(d) No Company Plan is a multiemployer pension plan (as defined in
Section 3(37) of ERISA) or other pension plan subject to Title IV of ERISA or
Section 412 of the Code.
(e) To the knowledge of the Parent and the Company, there has been no
prohibited transaction (within the meaning of Section 406 or ERISA or Section
4975 of the Code) with respect to any Company Plan that could result in
liability to the Company. No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of the Parent and the Company
is threatened, against or with respect to any such Company Plan (other than
routine benefits claims).
(f) Company and any entity that, together with the Company, would be
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
are in material compliance with the requirements of the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and the regulations (including
proposed regulations) thereunder.
Section 7.16 Certain Affected Agreements. Neither the execution and
---------------------------
delivery of this Agreement or any Ancillary Agreements nor the consummation of
the transaction contemplated hereby or thereby will (i) result in any payment
(including, without limitation, severance, unemployment compensation,
contractual or statutory redundancy pay, golden parachute, liquidated damages,
damages for breach of contract or wrongful dismissal, compensation in respect of
unfair dismissal, bonus or otherwise) becoming due to any present or former
director, employee or consultant of the Company, (ii) materially increase any
benefits otherwise payable by the Company or (iii) result in the acceleration of
the time of payment or vesting of any such benefits.
14
<PAGE>
Section 7.17 Employee Matters.
----------------
(a) The Company is in compliance in all material respects with all
currently applicable laws and regulations and other requirements having the
force of law (including, without limitation, codes of practice, orders and
awards) respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice, except as
would not reasonably be expected to have a Material Adverse Effect on the
Company.
(b) The Company has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
directors, employees and consultants; and are not liable for any arrears of
wages, salaries, fees, commission, bonus, overtime pay, holiday pay, sick pay,
employer pension contribution (and employee pension contribution where relevant)
or any other benefits and emoluments, for any taxes or national insurance
contributions, or for any penalty for failure to comply with any of the
foregoing, except as would not reasonably be expected to have a Material Adverse
Effect on the Company.
(c) The Company is not liable for any payment to any trust or other
fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for employees (other than routine payments to be made in the normal
course of business and consistent with past practice).
(d) There are no pending claims against the Company under any workers
compensation plan or policy or for long term disability. The Company has no
severance or termination obligations under law or statute with respect to any
former employees or qualifying beneficiaries thereunder, except for obligations
that would not, individually or in the aggregate, have a Material Adverse Effect
on the Company.
(e) There are no controversies pending or, to the knowledge of the
Parent or the Company, threatened, between the Company and any of its present or
former directors, employees, consultants, trade unions or other employees'
representatives, which controversies have or could reasonably be expected to
result in an action, suit, proceeding, claim, arbitration or investigation
before any agency, court or tribunal, foreign or domestic.
(f) The Company is not a party to any collective bargaining agreement
or other labor union contract or any form of agreement or arrangement (whether
oral or in writing or existing by reason of custom or practice and whether or
not legally binding) with any labor union or other employees' representatives or
organization concerning or affecting the employees of the Company; nor does the
Parent or the Company know of any activities or proceedings of any labor union
to organize any such employees. Further, the Company, so far as the Company and
the Parent are aware, has not done any act which might be construed as
recognition and there has been no request for recognition from any labor union
and no such request is pending.
15
<PAGE>
(g) To the knowledge of the Company and the Parent, no employees of
the Company are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, confidentiality agreement or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company because of the nature of the business
conducted or presently proposed to be conducted by it or to the use of trade
secrets or proprietary information of others.
(h) The Company has no employment contract with any of its officers or
other employees. No key employee of the Company, other than any employee whose
duties are primarily secretarial or clerical, has given notice to the Company.
Section 7.18 Interested Party Transactions. The Company is not
-----------------------------
indebted to any director, officer, employee or agent of the Company (except for
amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses), and no such person is indebted to the Company.
Section 7.19 Insurance. The Company has policies of insurance and
---------
bonds of the type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of the Company. Schedule 1.1(k)
---------------
contains a complete list of the policies and contracts of insurance maintained
by the Company. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company are otherwise in
compliance in all material respects with the terms of such policies and bonds.
Neither the Company nor the Parent has knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
Section 7.20 Compliance With Laws.
--------------------
(a) The Company has complied with, is not in violation of, and has not
received any notices of violation with respect to, any statute, law, regulation,
ordinance, rule, judgment, order and decree of any applicable Governmental
Entity with respect to the conduct of the Business, or the ownership or
operation of the Business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on the
Company.
(b) The Company has, to the extent applicable to the Company,
complied, is in compliance with, all licensing requirements, rules and
regulations of the Governmental Entities with regulatory authority over the
Business, and has complied, and is in compliance with, all authorizations,
consents, licenses, permits (temporary or otherwise), orders, approvals,
restriction agreements, waivers, franchises and other rights ("Governmental
Permits") of Governmental Entities required to operate its business and maintain
its assets, except in each such case as would not reasonably be expected to have
a Material Adverse Effect on the Company. The Company has obtained all
Governmental Permits of any and all Governmental Entities required for the
carrying on of its business and the maintenance of its assets, except in each
such case as would not reasonably be expected to have a Material Adverse Effect
on the Company and such
16
<PAGE>
Governmental Permits are in full force and effect, and the Company has not
received any written notice from any regulatory authorities with regulatory
authority over the Company that any of such Governmental Permits may be revoked
or not renewed or withdrawn or (except to an immaterial or beneficial extent)
amended, in whole or in part. Schedule 7.20(b) sets forth a true and complete
----------------
list of all material Governmental Permits held by the Company. There is no order
issued, investigation or proceeding pending or (to the knowledge of the Company
and the Parent) threatened, or notice served, with respect to any violation of
any law, statute, ordinance, order, writ, decree, rule, interpretation or
regulation issued by any Governmental Entity applicable to the Company or, to
the knowledge of the Parent or the Company, any of their respective directors,
officers, employees or agents.
(c) The Company is not a party or subject to, any agreement, consent
decree or order, or other understanding or arrangement with, or any directive of
any Governmental Entity which imposes any material restrictions on or otherwise
affects in any material respect, the conduct of the Business.
Section 7.21 Minute Books. The minute books of the Company made
------------
available to the Acquiror contain a complete and accurate summary in all
material respects of all meetings of directors or actions by written consent
since the time of organization of the Company, and reflect all transactions
referred to in such minutes accurately in all material respects.
Section 7.22 Accounts Receivable. Subject to any reserves set forth in
-------------------
the Company Financial Statements, the accounts receivable shown on the Company
Financial Statements represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts.
Section 7.23 Customers and Suppliers. No customer which individually
-----------------------
accounted for more than five percent (5%) of the Company' consolidated gross
revenues during the fiscal year ended December 31, 1999, and no supplier of the
Company, has canceled or otherwise terminated, or made any written threat to the
Company to cancel or otherwise terminate its relationship with the Company, or
has decreased materially its services or supplies to the Company in the case of
any such supplier, or its usage of the services or products of the Company in
the case of such customer, and neither the Company nor the Parent has received
written notice from any such supplier or customer that it intends to cancel or
otherwise terminate its relationship with the Company or to decrease materially
its services or supplies to the Company or its usage of the services or products
of the Company, as the case may be. The Company has not knowingly breached, so
as to provide a benefit to the Company that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any
customer or supplier of the Company.
Section 7.24 Contracts and Commitments.
-------------------------
(a) The Contracts set forth on Schedule 1.1(c) constitute all
agreements to which the Company is a party or by which the Assets are bound
which are material to the Assets or the Business or are likely to materially
affect Acquiror's ability
17
<PAGE>
to operate the Business or use the Assets after the Closing Date, in the same
manner in which such Business is currently operated or the Assets are used by
the Company.
(b) The Company has performed all of its obligations under the terms
of each Contract to which it is a party, and is not in default thereunder,
except as would not reasonably be expected to have a Material Adverse Effect on
the Company. No event or omission has occurred which, but for the giving of
notice or lapse of time, or both, would constitute a default by such party
thereto under any such agreement. Each such agreement is in full force and
effect and is valid and binding on all parties thereto. True, correct and
complete copies of all Contracts have been delivered to the Acquiror. Each
Contract which requires a consent, waiver or approval for the assignment thereof
or for the consummation of the transactions contemplated hereby is listed on
Schedule 7.3 hereto. The Company has received no notice of default,
- ------------
cancellation, or termination in connection with any such Contract.
Section 7.25 Year 2000 Compliance. The Company has reviewed its
--------------------
operations to evaluate the extent to which the business or operations of the
Company will be affected by the Year 2000 Problem. As a result of such review,
the Company has no reason to believe, and does not believe, that the Year 2000
Problem has had or will have a Material Adverse Effect on the Company. The "Year
2000 Problem" as used herein means any significant risk that computer hardware
or software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind is not functioning or
will not function, in the case of dates or time periods occurring after December
31, 1999, at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000.
Section 7.26 Complete Copies of Materials. The Company has delivered
----------------------------
or made available to the Acquiror true and complete copies of each material
document which has been requested in writing by the Acquiror or its counsel in
connection with their legal and accounting review of the Company.
Section 7.27 Brokers' and Finders' Fees. Neither the Company nor any
--------------------------
of its affiliates has incurred, nor will they incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
----------------------------------------------
Except as disclosed in that section of the document of even date
herewith delivered by the Acquiror to the Company prior to the execution and
delivery of this Agreement (the "Acquiror Disclosure Schedule") corresponding to
the Section of this Agreement to which any of the representations and warranties
specifically relate or as disclosed in another section of the Acquiror
Disclosure Schedule if it is reasonably apparent on the face of the disclosure
that it
18
<PAGE>
is applicable to another Section of this Agreement, the Acquiror represents and
warrants to the Parent as follows:
Section 8.1 Organization, Standing and Power. The Acquiror is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Acquiror has the requisite power to own its
properties and to carry on its business as now being conducted and as currently
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which it does business. The Acquiror has
delivered to the Company a true and correct copy of its certificate of
incorporation and bylaws, each as amended to date.
Section 8.2 Capital Structure. Except as set forth on Schedule 8.2,
----------------- ------------
there are no other outstanding shares of capital stock, voting securities or
equity interests and no outstanding commitments to issue any shares of capital
stock, voting securities or equity interests of the Acquiror (collectively, the
"Acquiror Securities"). All outstanding Acquiror Securities are duly authorized,
validly issued, fully paid and non-assessable, are free and clear of any liens
or encumbrances, and are not subject to preemptive rights or rights of first
refusal. Except for the rights created pursuant to this Agreement, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which the Acquiror is a party or by which it is bound obligating
the Acquiror to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any voting securities or
equity interests of the Acquiror or obligating the Acquiror to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. All outstanding
Acquiror Securities were issued in compliance with all applicable securities
laws. The shares of the Series E Preferred Stock to be issued pursuant to this
Agreement will be duly authorized, validly issued, fully paid, and non-
assessable upon consummation of the transactions contemplated hereby.
Section 8.3 Authority. The Acquiror has all requisite corporate power
---------
and authority to execute and deliver this Agreement and the Ancillary Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Ancillary
Agreements to which the Acquiror is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Acquiror. This Agreement and each
Ancillary Agreement to which the Acquiror is a party has been duly executed and
delivered by the Acquiror, as applicable, and constitutes the valid and binding
obligations of the Acquiror, enforceable against the Acquiror in accordance with
its terms except as such enforcement may be limited by (i) the effect of
bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other laws affecting or relating to the rights of
creditors generally and (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless or whether considered in a proceeding in equity
or at law. The execution and delivery of this Agreement or any Ancillary
Agreement do not, and the consummation of the transactions contemplated hereby
or thereby will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a benefit under (i) any provision of the Certificate of Incorporation or By-
laws, each as amended, of the Acquiror or (ii) any material mortgage, indenture,
lease, contract
19
<PAGE>
or other agreement or instrument, permit, concession, franchise, license,
judgment, order or decree applicable to the Acquiror, or any of its properties
or assets, except as would not reasonably be expected to have a Material Adverse
Effect on the Acquiror. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to the Acquiror in connection with the execution and delivery
of this Agreement by the Acquiror or the consummation by the Acquiror of the
transactions contemplated hereby, except for (i) such filings as may be required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act") and (ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Acquiror and would not reasonably be expected to prevent,
materially alter or delay any of the transactions contemplated by this
Agreement.
Section 8.4 Financial Statements. The Acquiror has delivered to the
--------------------
Parent the audited consolidated financial statements (including, without
limitation, consolidated balance sheets, income statements and statements of
cash flows) of the Acquiror and its subsidiaries as of July 30, 1999 and July
31, 1998, and the unaudited financial statements (including, without limitation,
consolidated balance sheets, income statements and statements of cash flows) of
the Acquiror and its subsidiaries for the twelve-month period ended December 31,
1999 (collectively, the "Acquiror Financial Statements"). The Acquiror Financial
Statements have been prepared in accordance with GAAP (except that the unaudited
financial statements do not have notes thereto) applied on a consistent basis
throughout the periods indicated. The Acquiror Financial Statements fairly
present the consolidated financial condition and operating results of the
Acquiror and its subsidiaries as of the dates, and for the periods, indicated
therein, subject, in the case of unaudited financial statements, to normal year-
end audit adjustments (none of which are material). The Acquiror maintains and
will continue to maintain an adequate system of internal financial and
accounting controls in accordance with GAAP. There has been no change in the
Acquiror's accounting policies during the foregoing reporting periods except as
described in the notes to the Acquiror Financial Statements.
Section 8.5 Absence of Certain Changes. Since December 31, 1999 (the
--------------------------
"Acquiror Balance Sheet Date"), the Acquiror has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect on the Acquiror; (ii) an acquisition, sale or transfer of any material
asset of the Acquiror; (iii) any material change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by the Acquiror or any revaluation by the Acquiror of any of its assets;
(iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the securities of the Acquiror, or any direct or
indirect redemption, purchase or other acquisition by the Acquiror of any of its
securities; (v) any material contract entered into by the Acquiror, or any
material amendment or termination of, or default by the Acquiror under, any
material contract to which the Acquiror is a party or by which it is bound; (vi)
any amendment or change to the certificate of incorporation or bylaws of the
Acquiror; (vii) any increase in or modification of the compensation or benefits
payable or to become payable by the Acquiror to any of its directors or
employees or (viii) any negotiation or agreement by the Acquiror to do any of
the things described in the preceding clauses (i) through (vii) (other than
negotiations with the Parent and the Company and their representatives regarding
the transactions contemplated by this Agreement).
20
<PAGE>
Section 8.6 Absence of Undisclosed Liabilities. Neither the Acquiror,
----------------------------------
nor any of its subsidiaries has any material obligations or liabilities of any
nature (matured or unmatured, fixed or contingent) other than (i) those set
forth or adequately provided for in the consolidated balance sheets of the
Acquiror and its subsidiaries as of the Acquiror Balance Sheet Date included in
the Acquiror Financial Statements (the "Acquiror Balance Sheets"), (ii) those
incurred in the ordinary course of business and not required to be set forth in
the Acquiror Balance Sheets under GAAP, (iii) those incurred in the ordinary
course of business since the Acquiror Balance Sheet Date and consistent with
past practice; and (iv) those incurred in connection with the execution of this
Agreement.
Section 8.7 Litigation. There is no private, governmental, judicial,
----------
administrative or regulatory action, suit, proceeding, claim, arbitration,
investigation, administrative charge or complaint pending before any agency,
court or tribunal (foreign or domestic) or, to the knowledge of the Acquiror,
threatened against the Acquiror or any of its subsidiaries or any of their
respective properties or any of their respective officers or directors (in their
capacities as such), that could reasonably be expected to prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this Agreement
or any of the Ancillary Agreements, or that could reasonably be expected to have
a Material Adverse Effect on the Acquiror. There is no judgment, decree or order
against the Acquiror or any of its subsidiaries, or, to the knowledge of the
Acquiror, any of its directors or officers (in their capacities as such), that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements, or that could
reasonably be expected to have a Material Adverse Effect on the Acquiror.
Section 8.8 Governmental Authorization. The Acquiror and its
--------------------------
subsidiaries have obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which the Acquiror and its subsidiaries
currently operate or hold any interest in any of its or their properties or (ii)
that is required for the operation of the business of the Acquiror or any of its
subsidiaries or the holding of any such interest ((i) and (ii) herein
collectively called "Acquiror Authorizations"), and all of such Acquiror
Authorizations are in full force and effect, except in such case where the
failure to obtain or have or maintain in full force and effect any such Acquiror
Authorizations could not reasonably be expected to have a Material Adverse
Effect on the Acquiror.
Section 8.9 Title to Property. The Acquiror and its subsidiaries have
-----------------
good and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Acquiror Balance
Sheets or acquired after the Acquiror Balance Sheet Date (except properties,
interests in properties and assets sold or otherwise disposed of since the
Acquiror Balance Sheet Date in the ordinary course of business), or with respect
to leased properties and assets, valid leasehold interests in such properties
and assets, free and clear of all Encumbrances except Permitted Encumbrances.
The plants, property and equipment of the Acquiror and its subsidiaries that are
used in the operations of their businesses are in good operating condition and
repair, subject to normal wear and tear. All properties used in the operations
of the Acquiror and its subsidiaries are reflected in the Acquiror Balance
Sheets to the extent GAAP require the same to be reflected.
21
<PAGE>
Section 8.10 Intellectual Property.
---------------------
(a) To the Acquiror's knowledge, there is no pending claim
challenging or questioning the right of the Company to use, sell, license or
dispose of any Acquiror Proprietary Rights (as defined below), nor is there any
pending, or, to the Acquiror's knowledge, threatened material litigation or
proceeding involving any Acquiror Proprietary Rights. The consummation of the
transactions contemplated hereby will not constitute a material breach of any
instrument or agreement governing any right in any material Acquiror Proprietary
Rights. To the Acquiror's knowledge, the use of the Acquiror Proprietary Rights
by the Acquiror as currently used does not constitute a breach of any instrument
or agreement governing any right in the Acquiror Proprietary Rights or an
infringement of the rights of any other person, in each case that would
reasonably be expected to have a Material Adverse Effect on the Acquiror.
"Acquiror Proprietary Rights" shall mean all right, title and interest to
trademarks, trademark rights, service marks, service mark rights, copyrights,
trade names, trade name rights, fictitious business names, works of authorship,
inventions, industrial models, industrial design, utility models and
certificates of invention, designs, emblems and logos, trade secrets, know-how,
manufacturing formulae, technical information, patents, patent applications,
masks work registrations, inventions, franchises, franchise rights, customer and
supplier lists together with the goodwill associated therewith of the Acquiror
and its subsidiaries.
(b) Except as set forth in Schedule 8.10 and as would not have a
-------------
Material Adverse Effect on the Acquiror, the Acquiror owns, or has the right to
use, sell or license all Acquiror Proprietary Rights. The Acquiror owns all
right, title and interest in and to, or has a license, sublicense or otherwise
has permission appropriate for the use contemplated, to use, all of the Acquiror
Proprietary Rights, free and clear of all Encumbrances other than Permitted
Encumbrances.
(c) The Acquiror has taken reasonable steps to safeguard and maintain
the secrecy and confidentiality of, and its proprietary rights in, all Acquiror
Proprietary Rights.
Section 8.11 Insurance. The Acquiror and its subsidiaries have
---------
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses or owning assets similar to those of the
Acquiror and its subsidiaries. There is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and the Acquiror and
its subsidiaries are otherwise in compliance in all material respects with the
terms of such policies and bonds. The Acquiror has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
Section 8.12 Taxes.
-----
(a) All material Taxes due or payable by the Acquiror and each member
of the affiliated group of corporations of which the Acquiror is a member (the
"Acquiror Affiliated Group"), and all interest and penalties thereon, whether
disputed or
22
<PAGE>
not, other than Taxes which are not yet due and payable, have been paid in full.
All material Tax returns, statements, reports, forms and other documents
required to be filed in connection therewith have been duly and timely filed
(and no waiver or extension of any filing date applicable thereto has been
requested or granted) and were correct and complete in all material respects.
The Acquiror has withheld and paid all material Taxes required by law to be
withheld and paid by the Acquiror with respect to any amounts paid to any
employee, independent contractor, creditor, stockholder, or other third party.
There is no audit currently pending regarding any Taxes and the Acquiror has not
extended the period in which any Tax could be assessed or collected. The
Acquiror does not expect any Taxing Authority to assess any additional material
Taxes for any period for which Tax returns have been filed. There is no material
outstanding or unresolved dispute or claim concerning any material Tax liability
of the Acquiror or any other member of the Affiliated Group either (i) claimed
or raised by a Taxing Authority in writing or (ii) as to which the Acquiror has
knowledge. No claim has ever been made by a Taxing Authority in a jurisdiction
where the Company does not file Tax returns that it is or may be subject to
taxation by that jurisdiction.
(b) The Acquiror has not been a member of an affiliated group of
corporations filing a consolidated federal income tax return other than the
Acquiror Affiliated Group.
Section 8.13 Compliance With Laws.
--------------------
(a) The Acquiror and its subsidiaries have complied with, are not in
violation of, and have not received any notices of violation with respect to,
any statute, law, regulation, ordinance, rule, judgment, order and decree of any
applicable Governmental Entity with respect to the conduct of its business, or
the ownership or operation of its business, except for such violations or
failures to comply as could not be reasonably expected to have a Material
Adverse Effect on the Acquiror.
The Acquiror and its subsidiaries have, to the extent applicable to
the Acquiror, complied, and are in compliance with, all licensing requirements,
rules and regulations of any applicable Governmental Entity, and have complied,
and are in compliance with, all Governmental Permits of Governmental Entities
required to operate its business and maintain its assets, except as would not
reasonably be expected to have a Material Adverse Effect on the Acquiror. The
Acquiror and its subsidiaries have obtained all Governmental Permits of any and
all Governmental Entities required for the carrying on of its business and the
maintenance of its assets, except as would not reasonably be expected to have a
Material Adverse Effect on the Acquiror, and such Governmental Permits are in
full force and effect, and the Acquiror and its subsidiaries have not received
any written notice from any regulatory authorities with regulatory authority
over the Acquiror and its subsidiaries that any of such Governmental Permits may
be revoked or not renewed or withdrawn or (except to an immaterial or beneficial
extent) amended, in whole or in part. There is no order issued, investigation or
proceeding pending or, to the knowledge of the Acquiror, threatened, or notice
served, with respect to any violation of any law, statute, ordinance, order,
writ, decree, rule, interpretation or regulation issued by any Governmental
Entity applicable to the Acquiror, any of its subsidiaries, or, to the knowledge
of the Acquiror or its subsidiaries, any of their respective directors,
officers, employees or agents.
23
<PAGE>
Neither the Acquiror nor any of its subsidiaries is a party or subject to, any
agreement, consent decree or order, or other understanding or arrangement with,
or any directive of any Governmental Entity which imposes any material
restrictions on or otherwise affects in any material respect, the conduct of the
business of the Acquiror or any of its subsidiaries.
Section 8.14 Year 2000 Compliance. The Acquiror and its subsidiaries
--------------------
have reviewed their operations to evaluate the extent to which the business or
operations of the Acquiror and its subsidiaries will be affected by the Year
2000 Problem. As a result of such review, the Acquiror and its subsidiaries have
no reason to believe, and do not believe, that the Year 2000 Problem has had or
will have a Material Adverse Effect on the Acquiror or its subsidiaries.
ARTICLE IX
CONDUCT PRIOR TO THE CLOSING DATE
---------------------------------
Section 9.1 General Conduct of Business. During the period from the
---------------------------
date hereof and continuing until the earlier of the termination of this
Agreement or the Closing, except to the extent expressly contemplated by this
Agreement or as consented to in writing by the Acquiror, the Company shall, and
the Parent shall cause the Company to, conduct its businesses in the ordinary
course in substantially the same manner as heretofore conducted, pay debts and
Taxes when due subject to good faith disputes over such debts or Taxes, pay or
perform other obligations when due, and use all reasonable efforts consistent
with past practice and policies to preserve intact their present business
organizations, keep available the services of their present officers and key
employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
them, to the end that their goodwill and ongoing businesses shall be unimpaired
at the Closing Date. The Company shall promptly notify the Acquiror prior to
taking any action in contravention of Section 9.2 hereof or of any event which
could reasonably be expected to make inaccurate the Company's representations in
Section 7.5 hereof.
Section 9.2 Conduct of Business of the Company. During the period from
----------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Closing, except as set forth in the Company Disclosure
Schedule or as expressly contemplated by this Agreement, the Company shall not
cause or permit, and the Parent shall not permit the Company to cause or permit,
any of the following, without the prior written consent of the Acquiror:
(a) Dividends; Subsidiaries. Declare or pay any dividends on or make
-----------------------
any other distributions (whether in cash, stock or property) in respect of any
of its capital stock or other securities, or form any subsidiaries;
(b) Material Contracts. Enter into any material contract or
------------------
commitment, or amend or otherwise modify or waive any of the terms of any of its
material contracts, other than in the ordinary course of business consistent
with past practice;
24
<PAGE>
(c) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than pursuant to non-exclusive license
arrangements in the ordinary course of business consistent with past practice;
(d) Exclusive Rights. Enter into or amend any agreements pursuant
----------------
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products, services or
technology;
(e) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of its properties or assets which are material, individually or in
the aggregate, to its business, except for sales of products in the ordinary
course;
(f) Indebtedness. Incur any indebtedness for borrowed money or
------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(g) Leases. Enter into any operating lease involving payments in
------
excess of $100,000 per annum;
(h) Payment of Obligations. Pay, discharge or satisfy in an amount in
----------------------
excess of $50,000 in any one case or $100,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Company Financial Statements;
(i) Capital Expenditures. Make any capital expenditures, capital
--------------------
additions or capital improvements, or make any commitments for any of the
foregoing, except in the ordinary course of business consistent with past
practice, and in any event not to exceed $50,000 for any such transaction or
$100,000 in the aggregate of all such transactions;
(j) Insurance. Materially reduce the amount of any insurance coverage
---------
provided by existing insurance policies;
(k) Termination or Waiver. Expressly terminate or waive any right of
---------------------
substantial value;
(l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
----------------------
any employee benefit or stock purchase or option plan, or hire any new director
level or officer level employee, pay any special bonus or special remuneration
to any employee or director or, other than in the ordinary course consistent
with past practice in connection with scheduled performance reviews, increase
the salaries or wage rates of its employees;
(m) Severance Arrangements. Grant any severance or termination pay to
----------------------
any director, officer or other employee, except payments made pursuant to
written agreements outstanding on the date of this Agreement;
25
<PAGE>
(n) Lawsuits. Commence a lawsuit other than (i) for the routine
--------
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with the Acquiror prior to the
filing of such a suit, or (iii) against the Acquiror or its agents;
(o) Acquisitions. Acquire or agree to acquire by merging,
------------
consolidating or amalgamating with, or by purchasing a material portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to its business, other than inventory in the ordinary course of
business;
(p) Taxes. Other than in the ordinary course of business, make or
-----
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material Tax Return or any amendment to a
material Tax Return, enter into any closing agreement, settle any material claim
or assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(q) Notices. Fail to give all notices and other information required
-------
to be given to the employees of the Company, any collective bargaining unit
representing any group of employees of the Company, and any applicable
government authority under applicable law (domestic or foreign) in connection
with the transactions provided for in this Agreement;
(r) Revaluation. Revalue any of its assets for financial accounting
-----------
purposes, including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; or
(s) Other. Take or agree in writing or otherwise to take, any of
-----
the actions described in Section 9.2 (a) through (R) above, or any other action
that would materially delay or materially impair the ability of the Company or
the Parent to consummate the Closing.
Section 9.3 No Solicitation. The Company, the Parent and the
---------------
officers, directors, employees or other agents of the Company will not, directly
or indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal or (ii) engage in negotiations with, or disclose any
nonpublic information relating to either of the Company to, or afford access to
the properties, books or records of either of the Company to, any person that
has advised either of the Company that it may be considering making, or that has
made, an Acquisition Proposal. The Company and the Parent shall not, and shall
not permit any of the Company' officers, directors, employees or other
representatives to agree to or endorse any Acquisition Proposal. The Company
will promptly notify the Acquiror after receipt of any Acquisition Proposal or
any notice that any person is considering making a Acquisition Proposal or any
request for nonpublic information relating to either of the Company or for
access to the properties, books or records of either of the Company by any
person that has advised either of
26
<PAGE>
the Company that it may be considering making, or that has made, a Acquisition
Proposal and will keep the Acquiror fully informed of the status and details of
any such Acquisition Proposal notice, request or any correspondence or
communications related thereto and shall provide the Acquiror with a true and
complete copy of such Acquisition Proposal notice or request or correspondence
or communications related thereto, if it is in writing, or a written summary
thereof, if it is not in writing. For purposes of this Agreement, "Acquisition
Proposal" means any offer or proposal for, or any indication of interest in, a
business combination involving either of the Company or the direct or indirect
acquisition of ten percent (10%) or more of the outstanding capital stock or
other equity interests of the Company, or a significant portion of the assets
of, either of the Company, other than the transactions contemplated by this
Agreement.
ARTICLE X
ADDITIONAL AGREEMENTS
---------------------
Section 10.1 Access to Information.
---------------------
(a) The Company shall, and the Parent shall cause the Company to,
afford the Acquiror and its accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
Closing Date to all of the Company' properties, books, contracts, commitments
and records concerning the business, properties and personnel of the Company as
the Acquiror may reasonably request; provided, however, that neither the
Acquiror nor any of its accountants, counsel or representatives shall be given
access to any Tax Returns filed on a combined, integrated or consolidated basis
with the Parent or any of its affiliates (other than the Company). The Company
agree to provide to the Acquiror and its accountants, counsel and other
representatives copies of internal financial statements, budgets, operating
plans and, to the extent they are available, projections, promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof
until the Closing Date, each of the Acquiror and the Company shall confer with
one or more representatives of the other party to report operational matters of
materiality and the general status of ongoing operations.
No information or knowledge obtained in any investigation pursuant to
this Section 10.1 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the transactions contemplated hereby.
Section 10.2 Public Disclosure. Unless otherwise permitted by this
-----------------
Agreement, the Acquiror and the Company shall consult with each other before
issuing any press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement or the Ancillary Agreements and
the transactions contemplated hereby and thereby, and neither shall issue any
such press release or make any such statement or disclosure without the prior
approval of the other (which approval shall not be unreasonably withheld),
except as
27
<PAGE>
may be required by law or by obligations pursuant to any listing agreement with
any securities exchange or with the NASD.
Section 10.3 Consents; Cooperation.
---------------------
(a) Each of the Acquiror and the Company shall promptly apply for or
otherwise seek, and use its commercially reasonable efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
transactions contemplated hereby, including those required under the HSR Act,
any foreign antitrust laws and any securities regulatory laws. The Company shall
use commercially reasonable efforts to obtain all necessary consents, waivers
and approvals under any of its material contracts for the assignment thereof or
otherwise for the consummation of the transactions contemplated hereby. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act, any other antitrust or fair trade law or any
securities regulatory law.
(b) Each of the Acquiror and the Company shall use commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by this
Agreement under federal, state or foreign statutes, rules, regulations, orders
or decrees. In connection therewith, if any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement, each of the Acquiror and the Company
shall cooperate and use commercially reasonable efforts vigorously to contest
and resist any such action or proceeding and to have vacated, lifted, reversed,
or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent (each an "Order"), that is in effect and
that prohibits, prevents, or restricts consummation of the transactions
contemplated hereby, unless either the Acquiror or the Company decides that
litigation is not in its best interests. Each of the Acquiror and the Company
shall use commercially reasonable efforts to take such action as may be required
to cause the expiration of the notice periods under the HSR Act or other
antitrust laws with respect to such transactions as promptly as possible after
the execution of this Agreement.
(c) Notwithstanding anything to the contrary in this Agreement, (i)
the Acquiror shall not be required to divest any of its businesses, product
lines or assets, or to take or agree to take any other action or agree to any
limitation that could reasonably be expected to have a Material Adverse Effect
on the Acquiror or on the Company after the Closing Date and (ii) the Company
shall not be required to divest any of their businesses, product lines or
assets, or to take or agree to take any other action or agree to any limitation
that could reasonably be expected to have a Material Adverse Effect on the
Company.
Section 10.4 Legal Requirements. Each of the Acquiror and the
------------------
Company will take all reasonable actions necessary to comply in all material
respects promptly
28
<PAGE>
with all legal requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made by them in
connection with the taking of any action contemplated by this Agreement.
Section 10.5 Non-competition. During the four (4) year period
---------------
commencing on the Closing Date, the Parent agrees that the Parent, and any
Subsidiary of the Parent (collectively, the "Parent Group") shall not directly
engage in any activity that competes or will compete with the Business. A
"Subsidiary" of any entity shall be any other entity in which such entity, or
one or more Subsidiaries of such entity, or such entity and one or more
Subsidiaries thereof, owns at least 80% of the voting power of all outstanding
shares of the capital stock of such entity.
Section 10.6 Non-solicitation. During the two (2) year period
----------------
commencing on the Closing Date, the Parent agrees that the Parent Group shall
not, directly or indirectly, either as a partner, owner shareholder or in any
other capacity whatsoever, on behalf of any person, firm, corporation,
partnership or entity, recruit, solicit, hire, or assist any other person or
party in recruiting, soliciting, or hiring any employee of the Business.
Section 10.7 COBRA. Parent shall be responsible for providing the
-----
continued health coverage required under Section 4980B of the Code ("COBRA
Coverage") with respect to any employees of the Company or eligible dependents
who incur a qualifying event under Section 4980B of the Code on or before the
Closing Date. Acquiror shall be responsible for providing COBRA Coverage for any
employees of the Company employed by the Acquiror or eligible dependents who,
with respect to their coverage under Acquiror's health plan, incur a qualifying
event under Section 4980B of the Code at any time after the Closing Date.
Section 10.8 Further Assurances. Each of the parties to this
------------------
Agreement shall use its reasonable best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
the Closing under this Agreement. Each party hereto, at the reasonable request
of another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting the Closing and the other transactions contemplated hereby.
ARTICLE XI
CONDITIONS TO THE CLOSING
-------------------------
Section 11.1 Conditions to Obligations of Each Party to Effect the
-----------------------------------------------------
Closing. The respective obligations of each party to this Agreement to
- -------
consummate the
29
<PAGE>
Closing shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing, by
agreement of the Acquiror, the Company and the Parent:
(a) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the Closing shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental Entity
or instrumentality, domestic or foreign, seeking any of the foregoing be
pending; nor shall there be any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Closing which makes the Closing
illegal. In the event an injunction or other order shall have been issued, each
party agrees to use its reasonable efforts to have such injunction or other
order lifted.
Section 11.2 Additional Conditions to Obligations of the Parent and
------------------------------------------------------
the Company. The obligations of the Parent and the Company to consummate the
- -----------
Closing shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing, by the
Parent:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Acquiror in this Agreement shall be true and correct in
all material respects (except that any such representations and warranties that
are qualified by their terms by a reference to Material Adverse Effect or
materiality as so qualified shall be true in all respects) on and as of the
Closing Date as though such representations and warranties were made on and as
of such time (except that any such representations and warranties that are made
as of a particular date other than the date of this Agreement shall have been so
true and correct as of such particular date), and the Acquiror shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it at or prior to the Closing.
(b) Regulatory Consents and Approvals. All consents, approvals,
---------------------------------
waivers and actions of, filings with and notices to any Governmental Entity or
other regulatory authority necessary for consummation of or in connection with
the transactions contemplated hereby and required to be obtained by the Acquiror
(a) shall have been timely and duly obtained, made or given by the Acquiror, (b)
shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (c) shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental
Entity or other regulatory authority necessary for the Closing or in connection
with the transactions contemplated hereby, including under the HSR Act and
securities regulatory laws, shall have occurred.
(c) Certificate of the Acquiror. The Parent and the Company shall
---------------------------
have been provided with a certificate executed on behalf of the Acquiror by an
officer of the Acquiror certifying that the conditions set forth in Section
11.2(a) have been fulfilled.
30
<PAGE>
(d) Legal Opinion. The Parent and the Company shall have received a
-------------
legal opinion from the Acquiror's legal counsel, Brobeck, Phleger & Harrison
LLP, in substantially the form of Exhibit 11.2.
------------
(e) Closing Certificates. The Parent and the Company shall have been
--------------------
provided with such certificates and closing documents as are customary for
transactions of the type contemplated hereby and as may be reasonably requested
by the Parent, the Company or their counsel.
(f) Omnibus Amendment Agreement. The Omnibus Amendment Agreement
----------------------------
shall have been duly executed and delivered by the Acquiror and the other
parties thereto.
(g) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition, (financial or otherwise) properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of the Acquiror and its subsidiaries, taken as a whole.
Section 11.3 Additional Conditions to the Obligations of the
-----------------------------------------------
Acquiror. The obligations of the Acquiror with respect to the Closing shall be
- --------
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, by the Acquiror:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Parent and the Company in this Agreement shall be true and
correct in all material respects (except that any such representations and
warranties that are qualified by their terms by a reference to Material Adverse
Effect or materiality as so qualified shall be true and correct in all respects)
on and as of the Closing Date as though such representations and warranties were
made on and as of such time (except that any such representations and warranties
that are made as of a particular date other than the date of this Agreement
shall have been so true and correct as of such particular date), and the Parent
and the Company shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by them at or prior to the Closing.
(b) Regulatory Consents and Approvals. All consents, approvals,
---------------------------------
waivers and actions of, filings with and notices to any Governmental Entity or
other regulatory authority necessary for consummation of or in connection with
the transactions contemplated hereby and required to be obtained by the Parent
or the Company (a) shall have been timely and duly obtained, made or given by
the Company and the Parent, (b) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (c) shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental Entity or other regulatory authority necessary for the Closing
or in connection with the transactions contemplated hereby, including under the
HSR Act and securities regulatory laws, shall have occurred.
31
<PAGE>
(c) Certificate of the Company. The Acquiror shall have been provided
--------------------------
with a certificate executed on behalf of each of the Parent and the Company by
an authorized officer thereof certifying that the conditions set forth in
Section 11.3(a) have been fulfilled.
(d) Legal Opinion. The Acquiror shall have received a legal opinion
-------------
from the Parent's and the Company's legal counsel, Sullivan & Cromwell, in
substantially the form of Exhibit 11.3(d).
---------------
(e) Closing Certificates. The Acquiror shall have been provided with
--------------------
such certificates and closing documents as are customary for transactions of the
type contemplated hereby and as may be reasonably requested by the Acquiror or
its counsel.
(f) Third Party Consents. The Acquiror shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the transactions
contemplated hereby under the Contracts listed on Schedule 7.24 hereto.
(g) Transitional Services Agreement. The Acquiror shall have received
-------------------------------
a fully executed copy of the Transitional Services Agreement, in substantially
the form of Exhibit 11.3(g).
---------------
(h) Omnibus Amendment Agreement. The Omnibus Amendment Agreement
---------------------------
shall have been duly executed and delivered by the Parent, the Company and the
other parties thereto.
(i) Key Employees. Each of Paul O'Brien, J.D. de Haseth, Patti
-------------
Randall and Andy Broding shall have accepted employment with the Acquiror on
terms acceptable to each party.
(j) No Material Adverse Changes. There shall not have occurred
---------------------------
any material adverse change in the condition, (financial or otherwise)
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of the Company.
(k) Affidavit of Non-Foreign Status. An affidavit of Seller, in the
-------------------------------
form attached hereto as Exhibit 5.2(b), stating, under penalty of perjury,
--------------
Seller's United States taxpayer identification number and that Seller is not a
foreign person, pursuant to Section 1445(b)(2) of the Code.
32
<PAGE>
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 12.1 Termination. At any time prior to the Closing Date,
-----------
this Agreement may be terminated:
(a) by mutual written consent duly authorized by the Acquiror, the
Parent and the Company;
(b) by the Acquiror, the Parent or the Company, if the Closing shall
not have occurred on or before June 15, 2000 (provided, a later date may be
agreed upon in writing by the parties hereto, and provided further that the
right to terminate this Agreement under this Section 12.1(b) shall not be
available to any party whose action or failure to act has been the cause or
resulted in the failure of the Closing to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement);
(c) by the Acquiror, if any of the Company or the Parent shall
materially breach any representation, warranty, obligation or agreement
hereunder and such breach shall not have been cured within ten (10) business
days of receipt by the Company of written notice of such breach, provided that
the right to terminate this Agreement by the Acquiror under this Section 12.1(c)
shall not be available to the Acquiror where the Acquiror is at that time in
material breach of this Agreement;
(d) by the Parent, if the Acquiror shall materially breach any
representation, warranty, obligation or agreement hereunder and such breach
shall not have been cured within ten (10) days of receipt by the Acquiror of
written notice of such breach, provided that the right to terminate this
Agreement by the Parent under this Section 12.1(d) shall not be available to the
Parent where the Parent or the Company is at that time in material breach of
this Agreement; or
(e) by the Acquiror or by the Parent, if any permanent injunction or
other order of a court or other competent authority preventing the Closing shall
have become final and nonappealable.
Section 12.2 Effect of Termination. In the event of termination of
----------------------
this Agreement as provided in Section 12.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of the
Acquiror or the Company or their respective officers, directors, securityholders
or affiliates, except to the extent that such termination results from the
willful breach by a party hereto of any of its representations, warranties or
covenants set forth in this Agreement; provided that the provisions of Section
12.3 (Expenses) and this Section 12.2 and of Article XIII (but only with respect
to such a willful breach) shall remain in full force and effect and survive any
termination of this Agreement.
Section 12.3 Expenses.
--------
(a) Subject to the other terms hereof , whether or not the Closing
occurs, all costs and expenses incurred in connection with this Agreement and
the
33
<PAGE>
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisers, accountants and legal counsel) shall be paid, in the
case of the expenses and costs of (i) the Company and the Parent, by the Parent
and (ii) the Acquiror, by the Acquiror. The filing fee with respect to HSR Act
filing shall be borne equally by the Company and Acquiror such that the Company
pays an amount equal to one-half of such fee, and Acquiror pays an amount equal
to one-half of such fee.
(b) In the event that the Acquiror shall terminate this Agreement
pursuant to Section 12.1(c) then the Parent shall, or shall cause the Company
to, promptly reimburse the Acquiror for all of the out-of-pocket costs and
expenses incurred by the Acquiror in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel).
(c) In the event that the Parent shall terminate this Agreement
pursuant to Section 12.1(d), the Acquiror shall promptly reimburse the Company
for all of the out-of-pocket costs and expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel).
ARTICLE XIII
INDEMNIFICATION
---------------
Section 13.1 Indemnification.
---------------
(a) Subject to the limitations set forth in this Article XIII, the
Parent and, prior to the Closing, the Company shall jointly and severally
indemnify and hold harmless the Acquiror and its officers, directors, agents and
employees, and each person, if any, who controls or may control the Acquiror
within the meaning of the Securities Act (any person entitled to indemnification
under this Section 13.1(a) (a "Company Indemnified Person") or Section 13.1(b)
(a "Buyer Indemnified Person") is hereinafter referred to as an "Indemnified
Person", and any person required to indemnify such Indemnified Person is
hereinafter referred to as an "Indemnifying Person") from and against any and
all losses, costs, damages, liabilities and expenses arising from claims,
demands, actions, causes of action, including, without limitation, reasonable
legal fees (collectively, "Damages") arising out of any or breach of or default
in connection with any of the representations, warranties, covenants and
agreements given or made by any of the Company or the Parent in this Agreement,
the Ancillary Agreements, the Company Disclosure Schedule or any exhibit or
schedule to this Agreement.
(b) The Acquiror shall indemnify and hold harmless the Parent and its
officers, directors, agents and employees, and each person, if any, who
controls or may control the Parent within the meaning of the Securities Act
from and against any and all Damages arising out of any or breach of or default
in connection with any of the representations, warranties, covenants and
agreements given or made by the Acquiror in
34
<PAGE>
this Agreement, the Ancillary Agreements, the Acquiror Disclosure Schedule or
any exhibit or schedule to this Agreement.
(c) The Acquiror and the Parent each acknowledge that such Damages,
if any, would relate to unresolved contingencies existing at the Closing Date,
which if resolved at the Closing Date would have led to a change in the total
consideration the Acquiror would have agreed to issue and convey hereunder or
the Parent and the Company would have agreed to accept hereunder. If the Closing
does not occur. Notwithstanding any provision to the contrary, if the Closing is
consummated, the Parent shall bear, and the Company shall be released from, all
of the liabilities, obligations and duties pursuant to this Article XIII, it
being understood that the Parent shall remain solely liable thereon.
Section 13.2 Procedure for Indemnification with Respect to Third-Party
-------------------------------------------
Claims
- ------
(a) If an Indemnified Person determines to seek indemnification under
this Article XIII with respect to the existence of a claim giving rise to
Damages ("Claim") resulting from the assertion of liability by third parties or
an Indemnified Person shall give notice to the Indemnifying Person promptly
after such Indemnified Person becomes aware of any claim or of facts upon which
any such claim will be based; the notice shall set forth such material
information with respect thereto as is then reasonably available to such
Indemnified Person. In case any such liability is asserted against such
Indemnified Person, and such Indemnified Person notifies such Indemnifying
Person thereof, such Indemnifying Person will be entitled, if it so elects, by
written notice delivered to such Indemnified Person within twenty (20) days
after receiving such notice, to assume the defense thereof with counsel
reasonably satisfactory to such Indemnified Person. Notwithstanding the
foregoing, (i) such Indemnified Person shall also have the right to employ its
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Person unless it shall reasonably determine
that there is a conflict of interest between such Indemnified Person and
Indemnifying Person with respect to such claim or there are or may be legal
defenses available to such Indemnified Person which are different from or
additional to those available to such Indemnifying Person or a difference of
position or potential difference of position exists between or among such
Indemnifying Person and Indemnified Person that would make such separate
representation advisable in the reasonable opinion of counsel to such
Indemnified Person, in which case the fees and expenses of one such counsel will
be borne by such Indemnifying Person, (ii) such Indemnified Person shall not
have any obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing, and (iii) the rights of such
Indemnified Person to be indemnified hereunder in respect of such claims
resulting from the assertion of liability by third parties shall not be
adversely affected by its failure to give notice pursuant to the foregoing
unless, and, if so, only to the extent that, such Indemnifying Person is
prejudiced thereby. With respect to any assertion of liability by a third party
that results in such claim, the parties hereto shall make available to each
other all relevant information in their possession material to any such
assertion.
35
<PAGE>
(b) In the event that such Indemnifying Person, within twenty (20)
days after receipt of the aforesaid notice of a claim, fails to assume the
defense of such Indemnified Person against such claim, such Indemnified Person
shall have the right to undertake the defense, compromise, or settlement of such
action on behalf of and for the account, expense, and risk of such Indemnifying
Person; provided, however, that such Indemnified Person shall not, without such
Indemnifying Person's prior written consent, settle or compromise any such claim
or consent to entry of any judgment in respect thereof, and such Indemnifying
Person shall have no liability with respect to any such compromise or settlement
thereof effected without its prior written consent.
(c) Notwithstanding anything in this Article XIII to the contrary,
such Indemnified Person shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Person shall not, without such
Indemnified Person's written consent (which consent shall not be unreasonably
withheld), settle or compromise any such claim or consent to entry of any
judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to such Indemnified Person a release from all liability in respect of
such claim.
Section 13.3 Procedure For Indemnification with Respect to Non-
--------------------------------------------------
Third Party Claims. In the event that an Indemnified Person asserts the
- ------------------
existence of a claim giving rise to Damages (but excluding claims resulting from
the assertion of liability by third parties), it shall give written notice to
the Indemnifying Person. Such written notice shall state that it is being given
pursuant to this Section 13.3, specify the nature and amount of the claim
asserted and indicate the date on which such assertion shall be deemed accepted
and the amount of the claim deemed a valid claim (such date to be established in
accordance with the next sentence). Such Indemnifying Person, within sixty (60)
days after the mailing of notice by such Indemnified Person, shall give written
notice to such Indemnified Person announcing its intent to contest such
assertion. In the event that such Indemnifying Person contests the assertion of
a claim by giving such written notice to such Indemnified Person within said
period, then the parties shall act in good faith to reach agreement regarding
such claim. In the event that litigation shall arise with respect to any such
claim, the prevailing party shall be entitled to reimbursement of costs and
expenses incurred in connection with such litigation including reasonable
attorneys' fees.
Section 13.4 Reductions in Damages.
---------------------
(a) Any amount payable by an Indemnifying Person pursuant to this
Section 13 (after giving effect to Section 13.5) shall be reduced by any net tax
benefit to the Indemnified Person that results from the Damages that are being
indemnified and the receipt of the indemnification payment. For purposes of the
preceding sentence, the "net tax benefit" shall equal all actual U.S. federal,
state, local and foreign income tax deduction arising from the Damages minus any
income or gain recognized as a result of receiving the indemnity payment
multiplied by the maximum marginal effective federal, state or local income tax
rates, whichever are applicable, to such income or gain.
36
<PAGE>
(b) An Indemnifying Person shall not be required to indemnify an
Indemnified Person with respect to any Damages to the extent that indemnity
therefor is available pursuant to any policies of insurance.
Section 13.5 Limitations on Indemnification
------------------------------
(a) The indemnification obligations of the Parent and the Company,
under Section 13.1, on the one hand, and the indemnification obligations of
Acquiror under Section 13.2, on the other hand, shall be effective only when the
aggregate amount of all Claims by the Buyer Indemnified Persons or the Company
Indemnified Persons, as the case may be, subject to indemnification hereunder
exceeds $250,000 (the "Deductible"), in which case the Indemnifying Persons
shall be liable only for Damages in excess of such amount. In no event shall the
aggregate amount of indemnity payments by the Buyer Indemnified Persons, on the
one hand, or the Company Indemnified Persons, on the other hand, exceed
$15,000,000. In no event shall an indemnity be recoverable from the Indemnifying
Persons with respect to any individual Claim unless the amount thereof equals at
least $10,000, and no Claim in an amount less than $10,000 shall count toward
the deductible.
Section 13.6 Term. The indemnification obligations under
----
Section 13.1 and Section 13.2 shall cease and be of no force and effect after
the first anniversary of the Closing Date, except with respect to any Claim for
indemnification hereunder made prior to such business date in writing and
stating with specificity the basis for such Claim; provided that any Claim for
Damages arising out of any breach or default in connection with the
representations and warranties (i) contained in Sections 7.2, 7.13 and
Section 8.2 shall survive indefinitely and (ii) contained in Section 7.14 and
8.12 shall survive until the applicable statutes of limitation in respect
thereof has expired.
Section 13.7 Limited Recourse. Notwithstanding anything to the
-----------------
contrary contained herein, it is agreed that no claim of any nature hereunder
shall or may be asserted, and no recourse hereunder shall or may be had, against
any officer, director, employee, shareholder, general partner, limited partner
or affiliate of any Indemnifying Person. To the extent permitted by applicable
law, Parent, Company and Acquiror and each other Indemnified Person hereby
expressly waive, relinquish, release and remise any right that Parent, Company
or Acquiror or such other Indemnified Person might otherwise have to assert or
enforce any claim hereunder against any person or entity, or the assets of any
person or entity, except in a manner consistent with this Section 13.
ARTICLE XIV
GENERAL PROVISIONS
------------------
Section 14.1 Survival. The representations, warranties and covenants
--------
of the parties contained herein shall survive until the first anniversary of the
Closing Date (or, if later, the final resolution of any indemnity claims
hereunder), except that the representations, warranties and covenants (i)
contained in Sections 7.2, 7.13 and 8.2 shall survive indefinitely (ii)
37
<PAGE>
contained in Section 7.14 and 8.12 shall survive until the applicable statutes
of limitation in respect thereof shall have expired and the provisions of
Sections 12.2 and 12.3 and of Article XIII shall survive in accordance with
their terms.
Section 14.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to the Acquiror, to:
Naviant, Inc.
14 Campus Boulevard
Newtown Square, PA 19073-3279
Attention: Robert L. R. Munden
General Counsel
Facsimile No.: (610) 355-2428
Telephone No.: (610) 355-7040
with a copy (which shall not constitute notice) to:
Brobeck, Phleger & Harrison LLP
701 Pennsylvania Ave., N.W.
Washington, D.C. 20004
Attention: Kevin Lavin, Esq.
Facsimile No.: (202) 220-5200
Telephone No.: (202) 220-6000
(b) if to the Company, to:
SOFTBANK Content Services, Inc.
c/o SOFTBANK Holdings Inc.
300 Delaware Avenue, Suite 909
Wilmington, DE 19801
Attention: Francis Jacobs
Fax: (302) 552-3128
Tel: (302) 552-3104
38
<PAGE>
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell
1888 Century Park East, Suite 2100
Los Angeles, CA 90067
Attention: John L. Savva
Fax: (310) 712-8800
Tel: (310) 712-6650
(c) if to the Parent, to:
SOFTBANK Holdings Inc.
300 Delaware Avenue, Suite 909
Wilmington, DE 19801
Attention: Francis Jacobs
Fax: (302) 552-3128
Tel: (302) 552-3104
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell
1888 Century Park East, Suite 2100
Los Angeles, CA 90067
Attention: John L. Savva
Fax: (310) 712-8800
Tel: (310) 712-6650
Section 14.3 Interpretation. When a reference is made in this
--------------
Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement
unless otherwise indicated. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The phrases "the date of this Agreement", "the date hereof", and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14.4 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 14.5 Entire Agreement; Nonassignability; Parties in
----------------------------------------------
Interest. This Agreement and the documents and instruments and other agreements
- --------
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules, including the Company Disclosure Schedule and the
Acquiror Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
39
<PAGE>
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms, (b) are not
intended to confer upon any other person any rights or remedies hereunder, (c)
shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, and (d) shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Section 14.6 Severability. In the event that any provision of this
-----------
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 14.7 Remedies Cumulative. Except as otherwise provided
-------------------
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
Section 14.8 Governing Law. (a) This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New York without
reference to such state's principles of conflicts of law.
Section 14.9 Rules of Construction. The parties hereto agree that
---------------------
they have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
Section 14.10 Amendment; Waiver. This Agreement may not be changed,
-----------------
amended, terminated, augmented, rescinded, or discharged (other than by
performance), in whole or in part, except by a writing executed by the Acquiror,
the Company and the Parent, and no waiver of any of the provisions or conditions
of this Agreement or any of the rights of a party hereto shall be effective or
binding unless such waiver shall be in writing and signed by the party claimed
to have given or consented thereto. At any time prior to the Closing Date any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Except to the extent that a party hereto
may have otherwise agreed in writing, no waiver by that party of any condition
of this Agreement or breach by the other party of any of its obligations or
representations hereunder or
40
<PAGE>
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 14.11 Consent to Jurisdiction; Service of Process. Any action,
-------------------------------------------
suit or proceeding arising out of or relating to this Agreement may be
instituted in any United States Federal court or any state court located in New
York, New York and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim it may
now or hereafter have that it is not subject personally to the jurisdiction of
such court, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court.
Each party further irrevocably submits to the jurisdiction of such court in any
such action, suit or proceeding, and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with this Agreement from which no appeal
has been taken or is available. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against any
party if given personally or by registered or certified mail, postage prepaid
and return receipt requested, or by personal service on such party. Nothing
contained herein shall be deemed to affect the right of any party to serve
process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction.
Section 14.12 Definitions of Material Adverse Effect. For purposes of
--------------------------------------
this Agreement, "Material Adverse Effect" means, with respect to any entity or
entities (and in the case of the Company, the Business), any event, change,
condition or effect that is, or could be reasonably expected to be, materially
adverse to the condition (financial or otherwise), properties, assets
(including, without limitation, intangible assets), liabilities, business,
operations or results of operations of such entity or entities (and in the case
of the Company, the Business).
41
<PAGE>
IN WITNESS WHEREOF, the Acquiror, the Parent and the Company
have caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized as of the date first written above.
NAVIANT, INC.
By: ___________________________________
Name:
Title:
SOFTBANK CONTENT SERVICES, INC.
By: ___________________________________
Name:
Title:
SOFTBANK HOLDINGS INC.
By: ___________________________________
Name: Francis Jacobs
Title: Vice President
<PAGE>
EXHIBIT 5.2(a)
<PAGE>
EXHIBIT 5.2(b)
<PAGE>
EXHIBIT 5.2(e)
<PAGE>
EXHIBIT 5.3(c)
<PAGE>
EXHIBIT 7.12(c)
<PAGE>
EXHIBIT 11.2
<PAGE>
EXHIBIT 11.3(d)
<PAGE>
EXHIBIT 10.31
PURCHASE AGREEMENT
BY AND AMONG
NAVIANT, INC.,
SOFTBANK CONTENT SERVICES, INC.
AND
SOFTBANK HOLDINGS INC.
MARCH 7, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS................................................... 1
Section 1.1 Description of Assets to be Acquired................................ 1
Section 1.2 Excluded Assets..................................................... 3
Section 1.3 Non-Assignment or Subcontracting of Certain Assets.................. 3
ARTICLE II LIABILITIES OF THE COMPANY.................................................. 3
Section 2.1 Assumed Liabilities................................................. 3
Section 2.2 Excluded Liabilities................................................ 4
ARTICLE III SERIES E PREFERRED STOCK.................................................... 4
ARTICLE IV CONSIDERATION................................................................ 4
Section 4.1 Consideration....................................................... 4
Section 4.2 Allocation of Acquisition Consideration............................. 5
ARTICLE V CLOSING....................................................................... 5
Section 5.1 Closing Date........................................................ 5
Section 5.2 Deliveries by the Company........................................... 5
Section 5.3 Deliveries by Acquiror.............................................. 6
Section 5.4 Further Assurances.................................................. 6
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PARENT................................. 6
Section 6.1 Power and Authority................................................. 6
Section 6.2 Accredited Investor Status.......................................... 7
Section 6.3 Restricted Securities............................................... 7
Section 6.4 Investment Purposes of the Parent................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 6.5 Brokers' and Finders' Fees.......................................... 7
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PARENT.................................................................. 7
Section 7.1 Organization, Standing and Power.................................... 8
Section 7.2 Assets.............................................................. 8
Section 7.3 Authority and Consents.............................................. 8
Section 7.4 Financial Statements................................................ 9
Section 7.5 Absence of Certain Changes.......................................... 9
Section 7.6 Absence of Undisclosed Liabilities.................................. 10
Section 7.7 Litigation.......................................................... 10
Section 7.8 Restrictions on Business Activities................................. 10
Section 7.9 Governmental Authorization.......................................... 10
Section 7.10 Title to Property................................................... 11
Section 7.11 Inventory........................................................... 11
Section 7.12 Proprietary Rights.................................................. 11
Section 7.13 Environmental Matters............................................... 12
Section 7.14 Taxes............................................................... 13
Section 7.15 Employee Benefit Plans.............................................. 14
Section 7.16 Certain Affected Agreements......................................... 14
Section 7.17 Employee Matters.................................................... 15
Section 7.18 Interested Party Transactions....................................... 16
Section 7.19 Insurance........................................................... 16
Section 7.20 Compliance With Laws................................................ 16
Section 7.21 Minute Books........................................................ 17
Section 7.22 Accounts Receivable................................................. 17
</TABLE>
ii
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<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.23 Customers and Suppliers............................................. 17
Section 7.24 Contracts and Commitments........................................... 17
Section 7.25 Year 2000 Compliance................................................ 18
Section 7.26 Complete Copies of Materials........................................ 18
Section 7.27 Brokers' and Finders' Fees.......................................... 18
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR............................. 18
Section 8.1 Organization, Standing and Power.................................... 19
Section 8.2 Capital Structure................................................... 19
Section 8.3 Authority........................................................... 19
Section 8.4 Financial Statements................................................ 20
Section 8.5 Absence of Certain Changes.......................................... 20
Section 8.6 Absence of Undisclosed Liabilities.................................. 21
Section 8.7 Litigation.......................................................... 21
Section 8.8 Governmental Authorization.......................................... 21
Section 8.9 Title to Property................................................... 21
Section 8.10 Intellectual Property............................................... 22
Section 8.11 Insurance........................................................... 22
Section 8.12 Taxes............................................................... 22
Section 8.13 Compliance With Laws................................................ 23
Section 8.14 Year 2000 Compliance................................................ 24
ARTICLE IX CONDUCT PRIOR TO THE CLOSING DATE............................................ 24
Section 9.1 General Conduct of Business......................................... 24
Section 9.2 Conduct of Business of the Company.................................. 24
Section 9.3 No Solicitation..................................................... 26
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE X ADDITIONAL AGREEMENTS......................................................... 27
Section 10.1 Access to Information............................................... 27
Section 10.2 Public Disclosure................................................... 28
Section 10.3 Consents; Cooperation............................................... 28
Section 10.4 Legal Requirements.................................................. 29
Section 10.5 Non-competition..................................................... 29
Section 10.6 Non-solicitation.................................................... 29
Section 10.7 COBRA............................................................... 29
Section 10.8 Further Assurances.................................................. 29
ARTICLE XI CONDITIONS TO THE CLOSING.................................................... 29
Section 11.1 Conditions to Obligations of Each Party to Effect the Closing....... 29
Section 11.2 Additional Conditions to Obligations of the Parent and the Company.. 30
Section 11.3 Additional Conditions to the Obligations of the Acquiror............ 31
ARTICLE XII TERMINATION, AMENDMENT AND WAIVER........................................... 33
Section 12.1 Termination......................................................... 33
Section 12.2 Effect of Termination............................................... 33
Section 12.3 Expenses............................................................ 33
ARTICLE XIII INDEMNIFICATION............................................................ 34
Section 13.1 Indemnification..................................................... 34
Section 13.2 Procedure for Indemnification with Respect to Third-Party Claims.... 35
Section 13.3 Procedure For Indemnification with Respect to Non-Third Party Claims 36
Section 13.4 Reductions in Damages............................................... 36
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 13.5 Limitations on Indemnification...................................... 37
Section 13.6 Term................................................................ 37
Section 13.7 Limited Recourse.................................................... 37
ARTICLE XIV GENERAL PROVISIONS.......................................................... 37
Section 14.1 Survival............................................................ 37
Section 14.2 Notices............................................................. 38
Section 14.3 Interpretation...................................................... 39
Section 14.4 Counterparts........................................................ 39
Section 14.5 Entire Agreement; Nonassignability; Parties in Interest............. 39
Section 14.6 Severability........................................................ 40
Section 14.7 Remedies Cumulative................................................. 40
Section 14.8 Governing Law....................................................... 40
Section 14.9 Rules of Construction............................................... 40
Section 14.10 Amendment; Waiver................................................... 40
Section 14.11 Consent to Jurisdiction; Service of Process......................... 41
Section 14.12 Definitions of Material Adverse Effect.............................. 41
</TABLE>
v
<PAGE>
SCHEDULES
Schedule 1.1(a) Fixed Assets
Schedule 1.1(b) Inventory
Schedule 1.1(c) Contracts
Schedule 1.1(d) Real Property
Schedule 1.1(e) Proprietary Rights
Schedule 1.1(j) Leasehold Interests
Schedule 1.1(k) Insurance Policies
Schedule 1.2 Excluded Assets
Schedule 2.2 Excluded Liabilities
The Parent and Company Disclosure Schedules
Schedule 7.2 Assets
Schedule 7.3 Consents
Schedule 7.6 Undisclosed Liabilities and Creditors
Schedule 7.7 Litigation
Schedule 7.13 Environmental Matters
Schedule 7.14 Taxes
Schedule 7.15 Employee Benefit Plans
Schedule 7.17 Employee Matters
Schedule 7.20(b) Material Governmental Permits
The Acquiror Disclosure Schedule
Schedule 8.2 Capital Structure
Schedule 8.4 Financial Statements
Schedule 8.5 Absence of Changes
Schedule 8.6 Undisclosed Liabilities
Schedule 8.12 Taxes
EXHIBITS
Exhibit 5.2(a) Bill of Sale
Exhibit 5.2(b) Affidavit of Non-Foreign Status
Exhibit 5.2(e) Employment Agreements
Exhibit 5.3(c) Omnibus Amendment Agreement
Exhibit 7.12(c) Proprietary Information Agreements
Exhibit 11.2 Brobeck, Phleger & Harrison LLP - Legal Opinion
Exhibit 11.3(d) Sullivan & Crowell - Legal Opinion
vi
<PAGE>
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of March 7, 2000, by and among NAVIANT, INC., a Delaware corporation (the
"Acquiror"), SOFTBANK CONTENT SERVICES, INC., a Delaware corporation (the
"Company") doing business as eQuaint, a subsidiary of SOFTBANK HOLDINGS INC., a
Delaware corporation ("Parent"), and Parent.
RECITALS
A. Parent owns of record and beneficially 100% of the outstanding
capital stock or other voting securities and equity interests of the Company
(collectively, the "Securities").
B. The Company is engaged in, among other things, the business of
providing outsourced product registration of computer equipment, related
peripherals and other technology products (the "Business").
C. Acquiror wishes to purchase from the Company and the Company
desires to sell to Acquiror the Assets set forth on the Schedules described
under Section 1.1 below (which assets, properties and rights constitute
substantially all of the assets of the Company), upon the terms and conditions
of this Agreement.
D. Parent wishes to purchase from Acquiror and Acquiror desires to
sell to Parent shares of Acquiror's Series E Convertible Preferred Stock
("Series E Preferred Stock") upon the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the covenants, representations and
other agreements set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
Section 1.1 Description of Assets to be Acquired. Upon the terms and
------------------------------------
subject to the conditions set forth in this Agreement, at the Closing Date (as
defined in Section 5.1), the Company agrees to convey, sell, transfer, assign,
and deliver to Acquiror, and Acquiror shall purchase from the Company, all
right, title, and interest of the Company at the Closing Date in and to the
assets, properties, and rights of the Business of every kind, nature, and
description, personal, tangible and intangible, known or unknown, wherever
located, including, without limiting the generality of the foregoing (but
excluding the "Excluded Assets," as such term is defined in Section 1.2 below):
<PAGE>
(a) All interests in machinery, equipment, instruments, computer
hardware and software, tooling, furniture, fixtures, motor vehicles, supplies,
repair and maintenance parts, demonstration units, and other fixed assets used
in the Business, together with manufacturer or vendor warranties associated
therewith, including, without limitation, those interests listed on
Schedule 1.1(a) hereto;
- ---------------
(b) All inventories of whatever kind (together with any manufacturer or
vendor warranties associated therewith), works-in-process, finished goods and
supplies relating to the Business, including, without limitation, those listed
on Schedule 1.1(b) hereto (collectively, the "Inventory");
---------------
(c) All claims and rights under those agreements, contracts, licenses,
leases, franchises, instruments, documents, purchase and sale orders and other
executory commitments, and all permits, consents, and certificates of any
regulatory, administrative or other governmental agency or body, listed on
Schedule 1.1(c) hereto (collectively, the "Contracts");
- ---------------
(d) All interests in the real property listed on Schedule 1.1(d) hereto,
---------------
and all buildings, facilities, and other improvements located thereon (including
construction in progress), together with all related rights, easements and uses
which benefit or burden any such property (collectively, the "Real Property");
(e) All right, title and interest to trademarks, trademark rights,
service marks, service mark rights, copyrights, trade names, trade name rights,
fictitious business names, works of authorship, inventions, industrial models,
industrial designs, utility models and certificates of invention, designs,
emblems and logos, trade secrets, know-how, manufacturing formulae, technical
information, patents, patent applications, mask work registrations, inventions,
franchises, franchise rights, customer and supplier lists together with the
goodwill associated therewith and other proprietary rights used in the Business
(collectively, the "Proprietary Rights"), including without limitation those
listed on Schedule 1.1(e) hereto;
---------------
(f) All original books or duplicates thereof of account, general
ledgers, sales invoices, purchase orders, accounts payable and payroll records,
drawings, files, papers, and all other records relating to the Business (the
"Records");
(g) All rights under express or implied warranties from suppliers of the
Company of supplies used in the Business;
(h) All of the Company's causes of action, judgments, and claims or
demands of whatever kind or description arising out of or relating to the
Business;
(i) All goodwill of the Business (the "Goodwill");
(j) All leasehold interests of the Company listed on Schedule 1.1(j)
---------------
hereto ("Leasehold Interests");
2
<PAGE>
(k) All insurance policies of the Company, including officers' and
directors' liability insurance policies, together with all proceeds thereof and
rights thereunder, including those policies listed on Schedule 1.1(k) hereto;
---------------
and
(l) The current assets of the Company as of the Closing Date in the
categories that appear on the balance sheet of the Company dated as of February
29, 2000, which balance sheet shall be in form and substance substantially
similar to the audited balance sheet of the Company as of December 31, 1999,
including, without limitation, all lease and rent deposits, prepaid expenses,
prepaid taxes, bank accounts and all other current assets of the Company (the
"Current Assets").
The assets, properties, and rights to be conveyed, sold, transferred, assigned,
and delivered to Acquiror pursuant to this Section 1.1 are sometimes hereinafter
collectively referred to as the "Assets."
Section 1.2 Excluded Assets. Notwithstanding the provisions of Section
---------------
1.1 hereof, the assets to be transferred to Acquiror pursuant to this Agreement
shall not include those assets specifically listed on Schedule 1.2
------------
(collectively, the "Excluded Assets").
Section 1.3 Non-Assignment or Subcontracting of Certain Assets.
--------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, to the extent that
the assignment or subcontracting hereunder of any of the Assets shall require
the consent of any other party (or in the event that any of the same shall be
nonassignable or unable to be subcontracted), neither this Agreement nor any
action taken pursuant to its provisions shall constitute an assignment or
subcontract or an agreement to assign or subcontract if such assignment or
subcontract or attempted assignment or subcontract would constitute a breach
thereof or result in the loss or diminution thereof; provided, however, that in
each such case, the Company shall use its best efforts to obtain the consent of
such other party to an assignment to Acquiror. If such consent is not obtained
by the Closing Date, the Company shall cooperate with Acquiror in any
arrangement designed for Acquiror to perform the Company's obligations with
respect to such Asset after the Closing Date and for Acquiror to receive the
benefits under any such Asset (net of any taxes imposed upon the Company or any
affiliate in connection with such Asset) after the Closing Date, which
arrangements may include enforcement, for the account and benefit of Acquiror,
of any and all rights of the Company against any other person arising out of the
breach or cancellation by such other person or otherwise, all of such actions of
the Company to be at the direction and expense of the Company. The Company shall
reimburse or pay Acquiror for all costs and expenses, including increased
obligations (net of any tax benefits or savings to the Acquiror or any affiliate
arising from such costs, expenses or obligations), resulting from an inability
of Acquiror to receive the benefits of such assignment or subcontract.
ARTICLE II
LIABILITIES OF THE COMPANY
---------------------------
Section 2.1 Assumed Liabilities. From and after the Closing Date,
-------------------
Acquiror agrees to assume and discharge or perform when due, any and all of the
debts,
3
<PAGE>
liabilities and obligations of the Company, or claims of such debts, liabilities
and obligations, whether matured or unmatured, liquidated or unliquidated, fixed
or contingent, known or unknown, whether arising out of occurrences prior to, at
or after the Closing Date, other than Excluded Liabilities (the "Assumed
Liabilities"), incurred in connection with or related to the Business.
Section 2.2 Excluded Liabilities. Notwithstanding any other provision
--------------------
of this Agreement, the debts, liabilities and obligations of the Company which
are not to be assumed by Acquiror hereunder (the "Excluded Liabilities") are the
following:
(a) all debts, liabilities and obligations arising out of or relating to
exclusively the Excluded Assets;
(b) any debt, liability or obligation, the existence of which
constitutes a breach of a representation or warranty set forth herein to the
extent that Acquiror would be entitled to indemnification under Section 13
hereof if such debt, liability or obligation were assumed by Acquiror;
(c) all debts, liabilities and obligations arising out of the Business,
the Assets or the income derived therefrom for Taxes for any taxable period, or
portion thereof, ending on or before the Closing Date; and
(d) all debts, liabilities and obligations set forth on Schedule 2.2
------------
hereto.
ARTICLE III
SERIES E PREFERRED STOCK
------------------------
The Amended and Restated Certificate of Incorporation of Acquiror (the
"Certificate of Incorporation") shall be amended and restated in the form of the
----------------------------
Third Amended and Restated Certificate of Incorporation attached as Exhibit III
-----------
hereto (the "New Certificate of Incorporation") setting forth the rights and
--------------------------------
preferences of the Series E Preferred Stock and modifying the rights and
preferences of the Series A Convertible Redeemable Preferred Stock, the Series B
Convertible Redeemable Preferred Stock, the Series C Convertible Redeemable
Preferred Stock and the Series D Non-Voting Convertible Preferred Stock (each
series as described in the New Certificate of Incorporation), which shall be
filed with the Secretary of State of the State of Delaware in accordance with
the Delaware General Corporation Law (the "DGCL")
ARTICLE IV
CONSIDERATION
-------------
Section 4.1 Consideration. Upon the terms and subject to the conditions
-------------
contained in this Agreement, in consideration for the Assets and in full payment
4
<PAGE>
therefor, Acquiror will issue, or cause to be issued to the Parent, eleven
million (11,000,000) shares of its Series E Preferred Stock (the "Acquisition
Consideration").
Section 4.2 Allocation of Acquisition Consideration. The value of the
---------------------------------------
Acquisition Consideration paid by Acquiror shall be allocated in the manner
provided for in Schedule 4.2, which the parties acknowledge was prepared using
------------
the allocation methods and principles presented by Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code") and the Treasury Regulations
promulgated thereunder. Any revisions shall be determined in accordance with the
allocation methods and principles prescribed by Code Section 1060 and the
Treasury Regulations promulgated thereunder, in a manner consistent with the
initial allocations set forth on Schedule 4.2.
------------
ARTICLE V
CLOSING
-------
Section 5.1 Closing Date. The transactions contemplated by this
------------
Agreement shall be completed on the fifth business day following the
satisfaction of the conditions set forth in Article XI (the "Closing Date"),
unless otherwise agreed to by Acquiror and the Company. The Closing shall take
place at the offices of Brobeck, Phleger & Harrison LLP, 701 Pennsylvania
Avenue, NW, Suite 220, Washington, DC 20004, or at such other place or date as
may be agreed to in writing by Acquiror and the Company. The "Closing" shall
mean the deliveries to be made by the parties hereto at the Closing Date in
accordance with this Agreement.
Section 5.2 Deliveries by the Company. At the Closing, the Company
-------------------------
shall deliver to Acquiror, all duly and properly executed, the following:
(a) A good and sufficient Bill of Sale for the Assets in the form
attached hereto as Exhibit 5.2(a), selling, delivering, transferring, and
--------------
assigning to Acquiror title to all of the Company's right, title, and interest
to the Assets, free and clear of all mortgages, pledges, liens, encumbrances,
security interests, equities, charges, and restrictions of any nature
whatsoever.
(b) An affidavit of the Company, in the form attached hereto as
Exhibit 5.2(b), stating, under penalty of perjury, the Company's United States
- --------------
taxpayer identification number and that the Company is not a foreign person,
pursuant to Section 1445(b)(2) of the Code.
(c) Valid assignments for all Contracts and Proprietary Rights and all
other third party consents, including the consents of Creditors of the Company
listed in Schedule 7.3, and the consents of any other party which may be
------------
required for the consummation of the transactions contemplated hereby or
governmental consents necessary in order for Acquiror to operate the Business.
(d) Resale certificates for the resale of any items of Inventory.
5
<PAGE>
(e) Employment agreements, substantially in the form attached hereto as
Exhibit 5.2(e) with Paul O'Brien, J.D. de Haseth, Patti Randall and Andy
- -------------
Broding.
Section 5.3 Deliveries by Acquiror. At the Closing, Acquiror shall
----------------------
deliver, or cause to be delivered, to the Company, the following:
(a) stock certificates registered in the name of the Company
representing the shares of the Acquisition Consideration;
(b) the New Certificate of Incorporation; and
(c) an executed Omnibus Amendment Agreement No. 2 to Naviant, Inc.
Amended and Restated Registration Rights Agreement and Amended and Restated
Stockholders' Agreement in the form attached hereto as Exhibit 5.3(c) hereto
--------------
(the "Omnibus Amendment Agreement").
---------------------------
Section 5.4 Further Assurances. At or after the Closing Date, each
------------------
party shall prepare, execute, and deliver, at the preparer's expense, such
further instruments of conveyance, sale, assignment, or transfer, and shall take
or cause to be taken such other or further action, as any party shall reasonably
request of any other party at any time or from time to time in order to perfect,
confirm, or evidence in Acquiror title to all or any part of the Assets and in
the Company title to the Acquisition Consideration, or to consummate, in any
other manner, the terms and provisions of this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PARENT
--------------------------------------------
The Parent represents and warrants to, and covenants and agrees with,
the Acquiror as follows:
Section 6.1 Power and Authority. The Parent has all requisite power and
-------------------
authority to execute and deliver this Agreement and the other agreements
contemplated hereby (the "Ancillary Agreements") to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Ancillary Agreements to which the Parent is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Parent. This Agreement and each Ancillary Agreement to which the Parent is a
party has been duly executed and delivered by the Parent and constitutes the
valid and binding obligation of the Parent, enforceable against Parent in
accordance with its terms except as such enforcement may be limited by (i) the
effect of bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other laws affecting or relating to the rights of
creditors generally and (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
6
<PAGE>
Section 6.2 Accredited Investor Status. The Parent is and at the Closing
--------------------------
will be an "accredited investor" within the meaning of Rule 501 of Regulation D
promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
Section 6.3 Restricted Securities. The Parent understands that the
---------------------
shares of Series E Preferred Stock to be issued and sold pursuant to this
Agreement, both to the Parent and the Company, are "restricted securities" under
the federal securities laws and that under such laws and applicable regulations
such securities may not be resold except pursuant to an effective registration
statement under the Securities Act or an available exemption therefrom. In this
connection, the Parent represents that it is familiar with SEC Rule 144 and Rule
145, each as presently in effect, and understands the resale limitations imposed
hereby and by the Securities Act. Acquiror may require a legal opinion of the
Parent's or the Company's counsel with respect to unregistered transfers of
Series E Preferred Stock. Notwithstanding anything in this Agreement to the
contrary, the Parent shall be permitted to sell, transfer, assign or pledge all
or any part of the shares of Series E Preferred Stock of Acquiror it receives to
any affiliates of Parent or SOFTBANK Corp., a Japanese corporation, including,
without limitation, SOFTBANK Capital Partners LP and any other partnership or
other entity of which any direct or indirect subsidiary of SOFTBANK Corp. is a
general partner or has investment discretion, or any employees of any of the
foregoing; provided that any such transfer shall comply with all applicable
state and federal securities laws and the regulations thereunder.
Section 6.4 Investment Purposes of the Parent. Parent understands that
---------------------------------
the Series E Preferred Stock will be acquired for investment for Parent's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the federal or state securities laws,
and Parent has no present intention of selling, granting any participation in,
or otherwise distributing the same, except as permitted under Section 6.3.
Parent further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Series E Preferred Stock.
Section 6.5 Brokers' and Finders' Fees. The Parent has not incurred,
--------------------------
nor will the Parent incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE COMPANY AND THE PARENT
-----------------------------
Except as disclosed in that section of the document of even date
herewith delivered by the Company to the Acquiror prior to the execution and
delivery of this Agreement (the "Company Disclosure Schedule") corresponding to
the Section of this Agreement to which any of the representations and warranties
specifically relate or as disclosed in another section of
7
<PAGE>
the Company Disclosure Schedule if it is reasonably apparent on the face of the
disclosure that it is applicable to another Section of this Agreement, the
Company and the Parent, jointly and severally, represent and warrant to the
Acquiror as follows:
Section 7.1 Organization, Standing and Power. The Company is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the requisite power to own its
properties and to carry on its business as now being conducted and as currently
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which it does business. The Company has
delivered to the Acquiror a true and correct copy of its Certificate of
Incorporation and By-laws, each as amended to date. The Company does not,
directly or indirectly, own any equity or other beneficial interest in, or any
interest convertible or exchangeable or exercisable for, any equity or other
beneficial interest in, any corporation, partnership, limited liability company,
joint venture or other business association or entity.
Section 7.2 Assets. The Assets (excluding the Excluded Assets) include
------
all intellectual property, inventory and all other property in which the Company
has any right title or interest. The Assets (excluding the Excluded Assets)
include all the assets necessary to operate the Business in the same manner as
the Business was operated by the Company prior to the Closing Date. The Assets
are suitable for the purpose or purposes for which they are being used, are in
good operating condition and in reasonable repair, and free from any known
defects, except such minor defects as do not interfere in any material respect
with the continued use thereof. Each tangible Asset has been serviced and
maintained in accordance with customary industry practices. Subject to normal
wear and tear, such plants, facilities, machinery, and equipment are capable of
and are producing sound and merchantable products. The Assets are free from all
liens, charges, security interests or other encumbrances (collectively,
"Encumbrances") of any nature whatsoever, except (i) any Encumbrances for Taxes
(as defined below), assessments or other governmental charges which are not
delinquent or (ii) any workmen's, repairmen's, warehousemen's and carriers'
liens and Encumbrances arising in the ordinary course of business (items
included in (i) and (ii) are referred to herein as "Permitted Encumbrances").
Section 7.3 Authority and Consents. The Company has all requisite power
----------------------
and authority to execute and deliver this Agreement and the Ancillary Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Ancillary
Agreements to which the Company is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement and each
Ancillary Agreement to which the Company is a party has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms except as
such enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting or relating to the rights of creditors generally and (ii) the
rules governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The execution and delivery of
this Agreement or any Ancillary Agreement by the Company (including the ability
by the Company
8
<PAGE>
to transfer the Assets free and clear of all liens and encumbrances of any kind
or nature whatsoever other than liens and encumbrances set forth on the Schedule
of Exceptions and other than permitted encumbrances) do not, and the
consummation of the transactions contemplated hereby or thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the Certificate of Incorporation, By-laws or other charter or
organizational documents, each as amended, of the Company, or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, or any of its
properties or Assets, except for those necessary consents set forth on
Schedule 7.3 and except as would not reasonably be expected to have a Material
- ------------
Adverse Effect on the Company. No consent, approval, order or authorization of,
or registration, declaration or filing with any court, administrative agency or
other governmental or quasi-governmental authority or instrumentality of any
jurisdiction ("Governmental Entity") is required by or with respect to the
Company in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal or state securities laws,
(ii) the applicable requirements, if any, of bulk sales laws and the
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and (iii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on the Company and would not reasonably be
expected to prevent, or materially alter or delay, any of the transactions
contemplated by this Agreement.
Section 7.4 Financial Statements. The Company has delivered to the
--------------------
Acquiror the consolidated financial statements (including, without limitation,
consolidated balance sheets (income statements and statements of cash flows) of
the Company for its fiscal years ended on December 31, 1999 and December 31,
1998, respectively (collectively, the "Company Financial Statements"). The
Company Financial Statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated. The Company Financial Statements fairly
present the consolidated financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein. The Company
maintains an adequate system of internal financial and accounting controls in
accordance with GAAP. There has been no change in the Company's accounting
policies during the foregoing reporting periods except as described in the notes
to the Company Financial Statements. The Company's financial reserves are
adequate to cover claims already incurred.
Section 7.5 Absence of Certain Changes. Since December 31, 1999 (the
--------------------------
"Company Balance Sheet Date"), the Company has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect on the Company; (ii) any acquisition, sale or transfer of any material
asset of the Company; (iii) any material change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by the Company or any revaluation by the Company of any of its assets;
(iv) any declaration, setting
9
<PAGE>
aside, or payment of a dividend or other distribution with respect to the
securities of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of any of its securities; (v) any material
contract entered into by the Company, or any material amendment or termination
of, or default by the Company under, any material contract to which the Company
is a party or by which it is bound; (vi) any amendment or change to the
certificate of incorporation or bylaws of the Company; (vii) any increase in or
modification of the compensation or benefits payable or to become payable by the
Company to any of its directors or employees or (viii) any negotiation or
agreement by the Company to do any of the things described in Section 9.2 or in
the preceding clauses (i) through (vii) (other than negotiations with the
Acquiror and its representatives regarding the transactions contemplated by this
Agreement).
Section 7.6 Absence of Undisclosed Liabilities. The Company has no
----------------------------------
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) ("Debt") other than (i) those set forth or adequately provided
for in the consolidated balance sheets of the Company as of the Company Balance
Sheet Date included in the Company Financial Statements (the "Company Balance
Sheets"), (ii) those incurred in the ordinary course of business and not
required to be set forth in the Company Balance Sheets under GAAP, (iii) those
incurred in the ordinary course of business since the Company Balance Sheet Date
and consistent with past practice; and (iv) those incurred in connection with
the execution of this Agreement. Schedule 7.6 sets forth a list of all persons,
------------
corporations, partnerships and other entities holding or with any right to any
Debt ("Creditors") and a description of such Debt.
Section 7.7 Litigation. There is no private, governmental, judicial,
----------
administrative or regulatory action, suit, proceeding, claim, arbitration,
investigation, administrative charge or complaint pending before any agency,
court or tribunal (foreign or domestic) or, to the knowledge of the Parent and
the Company, threatened against the Company or any of its properties or any of
its officers or directors (in their capacities as such), that could reasonably
be expected to prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement or any of the Ancillary Agreements,
or that could reasonably be expected to have a Material Adverse Effect on the
Company. There is no judgment, decree or order against the Company, or, to the
knowledge of the Parent and the Company, any of their respective directors or
officers (in their capacities as such), that could reasonably be expected to
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements, or that could
reasonably be expected to have a Material Adverse Effect on the Company.
Schedule 7.7 contains a true and complete list of all actions, suits,
- ------------
proceedings, claims and all litigation involving the Company.
Section 7.8 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting or impairing any
current or future business practice related to the Business or the conduct of
the Business as currently conducted or as currently proposed to be conducted by
the Company.
Section 7.9 Governmental Authorization. The Company has obtained each
--------------------------
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which the
Company currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of the business
10
<PAGE>
of the Company or the holding of any such interest ((i) and (ii) herein
collectively called "Company Authorizations"), and all of such Company
Authorizations are in full force and effect, except in each such case where the
failure to obtain or have or maintain in full force and effect any such Company
Authorizations could not reasonably be expected to have a Material Adverse
Effect on the Company.
Section 7.10 Title to Property. The Company has good and marketable
-----------------
title to all of its properties, interests in properties and assets, real and
personal, reflected in the Company Balance Sheets or acquired after the Company
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Company Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests in such properties and assets, free and clear of all
Encumbrances except Permitted Encumbrances. The plants, property and equipment
of the Company that are used in the operations of the Business are in good
operating condition and repair, subject to normal wear and tear. All properties
used in the operations of the Company are reflected in the Company Balance
Sheets to the extent GAAP require the same to be reflected. Schedule 1.1(d)
---------------
identifies all of the Real Property owned or leased by the Company.
Section 7.11 Inventory. All Inventory of the Company and all items to be
---------
delivered to the Company for Inventory after the Closing Date that are subject
to purchase commitments outstanding at the Closing Date, consist of items that
are or upon delivery will be good and merchantable and of a quality and quantity
presently usable and saleable in the ordinary course of business, except for
defective, obsolete or unmarketable inventory with respect to which reserves
have been provided in the Company Financial Statements in accordance with GAAP.
All such Inventory is and will be valued for financial accounting purposes using
the first-in, first-out (FIFO) method, in accordance with GAAP consistently
applied. In any event, the Inventory is not stated on the Company's Financial
Statements in an amount greater than the estimated net realizable value thereof.
Section 7.12 Proprietary Rights.
------------------
(a) To the Company's knowledge, there is no pending claim challenging or
questioning the right of the Company to use, sell, license or dispose of any
Proprietary Rights of the Business, nor is there any pending or, to the
Company's knowledge, threatened material litigation or proceeding involving any
Proprietary Rights of the Business. The Company is not in default in any
material respect nor has the Company received written notice or warning or, to
the knowledge of the Parent or the Company, oral notice or warning of alleged
nonperformance, delay in delivery or other noncompliance by the Company with
respect to its obligations under any licenses or agreements listed on
Schedule 1.1(e). The consummation of the transactions contemplated hereby will
- ---------------
not (i) constitute a material breach, or give rise to a right of forfeiture or
termination in, of any instrument or agreement governing any right in any
Proprietary Rights or (ii) in any material way
11
<PAGE>
impair the right of the Acquiror to use, sell, license, dispose of or bring
infringement action for any Proprietary Rights. To the Company's knowledge, the
use of the Proprietary Rights by the Business as currently used does not
constitute a breach of any instrument or agreement governing any right in the
Proprietary Rights or an infringement of the rights of any other person, in each
case that would reasonably be expected to have a Material Adverse Effect on the
Company.
(b) Except as otherwise set forth in Schedule 1.1(e) and as would not
---------------
have a Material Adverse Effect on the Business, the Company owns, or has the
right to use, sell, license, dispose of or bring infringement action for all
Proprietary Rights of the Business. The Company owns all right, title and
interest in and to, or has a license, sublicense or otherwise has permission
appropriate for the use contemplated to all of the Proprietary Rights, free and
clear of all Encumbrances other than Permitted Encumbrances.
(c) The Company has taken all reasonable actions and made all applicable
applications and filings pursuant to applicable laws to perfect or protect its
interests in, safeguard and maintain the secrecy and confidentiality of all
Proprietary Rights (including, without limitation, entering into appropriate
confidentiality, nondisclosure and noncompetition agreements, copies of all such
agreements have been delivered to Acquiror or its counsel, with all officers,
directors, subcontractors, consultants, employees, licensees and entities that
serve the Company), except where the failure to take such actions or make such
applications or filings would not have a Material Adverse Effect on the Company
or materially interfere with the use or enforcement of such Proprietary Rights
in the ordinary course of its business.
(d) Without limiting the generality of the foregoing, the Company has,
and enforces, a policy requiring each employee, consultant, and independent
contractor to execute proprietary information, confidentiality and invention and
copyright assignment agreements substantially in the form of Exhibit 7.12(c)
---------------
hereto, and each current and former employee, consultant and independent
contractor of the Company has executed such an agreement covering such person's
term of employment with or service to the Company and work responsibilities
to the Company.
(e) All trade secrets of the Company have not been used, divulged or
appropriated for the benefit of any person other than the Company or to the
detriment of the Company.
Section 7.13 Environmental Matters. Except as disclosed on Schedule 7.13
---------------------
or as would not reasonably be expected to have a Material Adverse Effect on the
Company: (a) the Company is in material compliance with applicable Federal,
state, local or foreign law, ordinance, rule, regulation, permit and
authorization pertaining to the protection of human health or the environment
(collectively, the "Environmental Laws"), (b) the Company has not received any
written notices from any Governmental Entity alleging the violation of any
applicable Environmental Laws, (c) the Company is not the subject of any court
order, administrative order or decree arising under any Environmental Law, and
(d) the Company has not generated, stored, used, emitted, discharged or disposed
of any hazardous substances except as permitted under applicable Environmental
Laws.
12
<PAGE>
Section 7.14 Taxes.
-----
(a) The Company has withheld and paid all material Taxes required by law
to be withheld and paid by the Company with respect to any amounts paid to any
employee, independent contractor, creditor, stockholder, or other third party.
There is no audit currently pending regarding any material Taxes. Neither the
Company nor the Parent expects any federal, state, local or foreign governmental
entity responsible for the imposition of any tax (a "Taxing Authority") to
assess any additional material Taxes for any period for which Tax returns have
been filed. There is no material outstanding or unresolved dispute or claim
concerning any Tax liability of the Company either (i) claimed or raised by a
Taxing Authority in writing or (ii) as to which the Company or Parent has
knowledge. No claim has ever been made by a Taxing Authority in a jurisdiction
where the Company does not file Tax returns that it is or may be subject to
taxation by that jurisdiction.
(b) The Company is a treated as a "C" corporation for federal income tax
purposes and is not a person other than a United States person within the
meaning of Section 7701(a)(30) of the Internal Revenue Code. There is no
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or independent contractor or
former employee or independent contractor of the Company that, individually or
collectively, could give rise to the payment by the Company of any amount that
would not be deductible pursuant to Section 280G or Section 162(m) of the Code.
None of the assets (including the Assets) of the Company (i) is property that is
required to be treated as owned by any other person pursuant to the so-called
"safe harbor lease" provisions of former Section 168(f)(8) of the Code, (ii)
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code or (iii) is "tax-exempt use property" within
the meaning of Section 168(h) of the Code.
(c) There are no material liens for Taxes upon the Assets except liens
for current Taxes not yet due. The Company is not party to a tax allocation or
sharing agreement.
(d) Schedule 7.14 lists all federal, state, local, and foreign income
Tax returns that have been audited, and indicates those Tax returns that are
currently the subject of an audit.
(e) For purposes of this Agreement, "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on
minimum tax, gross income, gross or net receipts, sales, use, ad valorem,
transfer, franchise, capital, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Taxing Authority responsible for the imposition of any such tax (domestic or
foreign), (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any Taxable period and (iii) any liability for the
payment of any amounts of the type described in (i) or (ii) as a result of any
express or implied obligation to indemnify any other person.
13
<PAGE>
Section 7.15 Employee Benefit Plans.
----------------------
(a) All employee benefit plans, programs, policies, or arrangements
(including, without limitation, each employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that are sponsored, maintained or contributed to or required to be
contributed to by the Company (the "Company Plans") are set forth in
Schedule 7.15.
- -------------
(b) Each Company Plan has been maintained and administered in all
material respects in accordance with its terms and all applicable laws,
including ERISA and the Code. All contributions required to be made to each of
the Company Plans under the terms of such Company Plans, ERISA, the Code or any
other applicable laws have been timely made.
(c) Each Company Plan intended to be qualified under Section 401(a) of
the Code has either obtained a favorable determination letter as to its
qualified status from the Internal Revenue Service ("IRS") or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such determination letter and to make any
amendments necessary to obtain a favorable determination.
(d) No Company Plan is a multiemployer pension plan (as defined in
Section 3(37) of ERISA) or other pension plan subject to Title IV of ERISA or
Section 412 of the Code.
(e) To the knowledge of the Parent and the Company, there has been no
prohibited transaction (within the meaning of Section 406 or ERISA or Section
4975 of the Code) with respect to any Company Plan that could result in
liability to the Company. No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of the Parent and the Company
is threatened, against or with respect to any such Company Plan (other than
routine benefits claims).
(f) Company and any entity that, together with the Company, would be
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
are in material compliance with the requirements of the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and the regulations (including
proposed regulations) thereunder.
Section 7.16 Certain Affected Agreements. Neither the execution and
---------------------------
delivery of this Agreement or any Ancillary Agreements nor the consummation of
the transaction contemplated hereby or thereby will (i) result in any payment
(including, without limitation, severance, unemployment compensation,
contractual or statutory redundancy pay, golden parachute, liquidated damages,
damages for breach of contract or wrongful dismissal, compensation in respect of
unfair dismissal, bonus or otherwise) becoming due to any present or former
director, employee or consultant of the Company, (ii) materially increase any
benefits otherwise payable by the Company or (iii) result in the acceleration of
the time of payment or vesting of any such benefits.
14
<PAGE>
Section 7.17 Employee Matters.
----------------
(a) The Company is in compliance in all material respects with all
currently applicable laws and regulations and other requirements having the
force of law (including, without limitation, codes of practice, orders and
awards) respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice, except as
would not reasonably be expected to have a Material Adverse Effect on the
Company.
(b) The Company has withheld all amounts required by law or by agreement
to be withheld from the wages, salaries, and other payments to directors,
employees and consultants; and are not liable for any arrears of wages,
salaries, fees, commission, bonus, overtime pay, holiday pay, sick pay, employer
pension contribution (and employee pension contribution where relevant) or any
other benefits and emoluments, for any taxes or national insurance
contributions, or for any penalty for failure to comply with any of the
foregoing, except as would not reasonably be expected to have a Material Adverse
Effect on the Company.
(c) The Company is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(d) There are no pending claims against the Company under any workers
compensation plan or policy or for long term disability. The Company has no
severance or termination obligations under law or statute with respect to any
former employees or qualifying beneficiaries thereunder, except for obligations
that would not, individually or in the aggregate, have a Material Adverse Effect
on the Company.
(e) There are no controversies pending or, to the knowledge of the
Parent or the Company, threatened, between the Company and any of its present or
former directors, employees, consultants, trade unions or other employees'
representatives, which controversies have or could reasonably be expected to
result in an action, suit, proceeding, claim, arbitration or investigation
before any agency, court or tribunal, foreign or domestic.
(f) The Company is not a party to any collective bargaining agreement or
other labor union contract or any form of agreement or arrangement (whether oral
or in writing or existing by reason of custom or practice and whether or not
legally binding) with any labor union or other employees' representatives or
organization concerning or affecting the employees of the Company; nor does the
Parent or the Company know of any activities or proceedings of any labor union
to organize any such employees. Further, the Company, so far as the Company and
the Parent are aware, has not done any act which might be construed as
recognition and there has been no request for recognition from any labor union
and no such request is pending.
15
<PAGE>
(g) To the knowledge of the Company and the Parent, no employees of the
Company are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, confidentiality agreement or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company because of the nature of the business
conducted or presently proposed to be conducted by it or to the use of trade
secrets or proprietary information of others.
(h) The Company has no employment contract with any of its officers or
other employees. No key employee of the Company, other than any employee whose
duties are primarily secretarial or clerical, has given notice to the Company.
Section 7.18 Interested Party Transactions. The Company is not indebted
-----------------------------
to any director, officer, employee or agent of the Company (except for amounts
due as normal salaries and bonuses and in reimbursement of ordinary expenses),
and no such person is indebted to the Company.
Section 7.19 Insurance. The Company has policies of insurance and bonds
---------
of the type and in amounts customarily carried by persons conducting businesses
or owning assets similar to those of the Company. Schedule 1.1(k) contains a
---------------
complete list of the policies and contracts of insurance maintained by the
Company. There is no material claim pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and the Company are otherwise in compliance in all
material respects with the terms of such policies and bonds. Neither the Company
nor the Parent has knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
Section 7.20 Compliance With Laws.
--------------------
(a) The Company has complied with, is not in violation of, and has not
received any notices of violation with respect to, any statute, law, regulation,
ordinance, rule, judgment, order and decree of any applicable Governmental
Entity with respect to the conduct of the Business, or the ownership or
operation of the Business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on the
Company.
(b) The Company has, to the extent applicable to the Company, complied,
is in compliance with, all licensing requirements, rules and regulations of the
Governmental Entities with regulatory authority over the Business, and has
complied, and is in compliance with, all authorizations, consents, licenses,
permits (temporary or otherwise), orders, approvals, restriction agreements,
waivers, franchises and other rights ("Governmental Permits") of Governmental
Entities required to operate its business and maintain its assets, except in
each such case as would not reasonably be expected to have a Material Adverse
Effect on the Company. The Company has obtained all Governmental Permits of any
and all Governmental Entities required for the carrying on of its business and
the maintenance of its assets, except in each such case as would not reasonably
be expected to have a Material Adverse Effect on the Company and such
16
<PAGE>
Governmental Permits are in full force and effect, and the Company has not
received any written notice from any regulatory authorities with regulatory
authority over the Company that any of such Governmental Permits may be revoked
or not renewed or withdrawn or (except to an immaterial or beneficial extent)
amended, in whole or in part. Schedule 7.20(b) sets forth a true and complete
----------------
list of all material Governmental Permits held by the Company. There is no order
issued, investigation or proceeding pending or (to the knowledge of the Company
and the Parent) threatened, or notice served, with respect to any violation of
any law, statute, ordinance, order, writ, decree, rule, interpretation or
regulation issued by any Governmental Entity applicable to the Company or, to
the knowledge of the Parent or the Company, any of their respective directors,
officers, employees or agents.
(c) The Company is not a party or subject to, any agreement, consent
decree or order, or other understanding or arrangement with, or any directive of
any Governmental Entity which imposes any material restrictions on or otherwise
affects in any material respect, the conduct of the Business.
Section 7.21 Minute Books. The minute books of the Company made
------------
available to the Acquiror contain a complete and accurate summary in all
material respects of all meetings of directors or actions by written consent
since the time of organization of the Company, and reflect all transactions
referred to in such minutes accurately in all material respects.
Section 7.22 Accounts Receivable. Subject to any reserves set forth in
-------------------
the Company Financial Statements, the accounts receivable shown on the Company
Financial Statements represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts.
Section 7.23 Customers and Suppliers
. No customer which individually accounted for more than five percent
(5%) of the Company' consolidated gross revenues during the fiscal year ended
December 31, 1999, and no supplier of the Company, has canceled or otherwise
terminated, or made any written threat to the Company to cancel or otherwise
terminate its relationship with the Company, or has decreased materially its
services or supplies to the Company in the case of any such supplier, or its
usage of the services or products of the Company in the case of such customer,
and neither the Company nor the Parent has received written notice from any
such supplier or customer that it intends to cancel or otherwise terminate its
relationship with the Company or to decrease materially its services or supplies
to the Company or its usage of the services or products of the Company, as the
case may be. The Company has not knowingly breached, so as to provide a benefit
to the Company that was not intended by the parties, any agreement with, or
engaged in any fraudulent conduct with respect to, any customer or supplier of
the Company.
Section 7.24 Contracts and Commitments.
-------------------------
(a) The Contracts set forth on Schedule 1.1(c) constitute all agreements
to which the Company is a party or by which the Assets are bound which are
material to the Assets or the Business or are likely to materially affect
Acquiror's ability
17
<PAGE>
to operate the Business or use the Assets after the Closing Date, in the same
manner in which such Business is currently operated or the Assets are used by
the Company.
(b) The Company has performed all of its obligations under the terms of
each Contract to which it is a party, and is not in default thereunder, except
as would not reasonably be expected to have a Material Adverse Effect on the
Company. No event or omission has occurred which, but for the giving of notice
or lapse of time, or both, would constitute a default by such party thereto
under any such agreement. Each such agreement is in full force and effect and is
valid and binding on all parties thereto. True, correct and complete copies of
all Contracts have been delivered to the Acquiror. Each Contract which requires
a consent, waiver or approval for the assignment thereof or for the consummation
of the transactions contemplated hereby is listed on Schedule 7.3 hereto. The
------------
Company has received no notice of default, cancellation, or termination in
connection with any such Contract.
Section 7.25 Year 2000 Compliance. The Company has reviewed its
--------------------
operations to evaluate the extent to which the business or operations of the
Company will be affected by the Year 2000 Problem. As a result of such review,
the Company has no reason to believe, and does not believe, that the Year 2000
Problem has had or will have a Material Adverse Effect on the Company. The "Year
2000 Problem" as used herein means any significant risk that computer hardware
or software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind is not functioning or
will not function, in the case of dates or time periods occurring after December
31, 1999, at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000.
Section 7.26 Complete Copies of Materials. The Company has delivered or
----------------------------
made available to the Acquiror true and complete copies of each material
document which has been requested in writing by the Acquiror or its counsel in
connection with their legal and accounting review of the Company.
Section 7.27 Brokers' and Finders' Fees . Neither the Company nor any of
--------------------------
its affiliates has incurred, nor will they incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
----------------------------------------------
Except as disclosed in that section of the document of even date
herewith delivered by the Acquiror to the Company prior to the execution and
delivery of this Agreement (the "Acquiror Disclosure Schedule") corresponding to
the Section of this Agreement to which any of the representations and warranties
specifically relate or as disclosed in another section of the Acquiror
Disclosure Schedule if it is reasonably apparent on the face of the disclosure
that it
18
<PAGE>
is applicable to another Section of this Agreement, the Acquiror represents and
warrants to the Parent as follows:
Section 8.1 Organization, Standing and Power. The Acquiror is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Acquiror has the requisite power to own its
properties and to carry on its business as now being conducted and as currently
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which it does business. The Acquiror has
delivered to the Company a true and correct copy of its certificate of
incorporation and bylaws, each as amended to date.
Section 8.2 Capital Structure. Except as set forth on Schedule 8.2,
there are no other outstanding shares of capital stock, voting securities or
equity interests and no outstanding commitments to issue any shares of capital
stock, voting securities or equity interests of the Acquiror (collectively, the
"Acquiror Securities"). All outstanding Acquiror Securities are duly authorized,
validly issued, fully paid and non-assessable, are free and clear of any liens
or encumbrances, and are not subject to preemptive rights or rights of first
refusal. Except for the rights created pursuant to this Agreement, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which the Acquiror is a party or by which it is bound obligating
the Acquiror to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any voting securities or
equity interests of the Acquiror or obligating the Acquiror to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. All outstanding
Acquiror Securities were issued in compliance with all applicable securities
laws. The shares of the Series E Preferred Stock to be issued pursuant to this
Agreement will be duly authorized, validly issued, fully paid, and non-
assessable upon consummation of the transactions contemplated hereby.
Section 8.3 Authority. The Acquiror has all requisite corporate power
---------
and authority to execute and deliver this Agreement and the Ancillary Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Ancillary
Agreements to which the Acquiror is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Acquiror. This Agreement and each
Ancillary Agreement to which the Acquiror is a party has been duly executed and
delivered by the Acquiror, as applicable, and constitutes the valid and binding
obligations of the Acquiror, enforceable against the Acquiror in accordance with
its terms except as such enforcement may be limited by (i) the effect of
bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other laws affecting or relating to the rights of
creditors generally and (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless or whether considered in a proceeding in equity
or at law. The execution and delivery of this Agreement or any Ancillary
Agreement do not, and the consummation of the transactions contemplated hereby
or thereby will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a benefit under (i) any provision of the Certificate of Incorporation or By-
laws, each as amended, of the Acquiror or (ii) any material mortgage, indenture,
lease, contract
19
<PAGE>
or other agreement or instrument, permit, concession, franchise, license,
judgment, order or decree applicable to the Acquiror, or any of its properties
or assets, except as would not reasonably be expected to have a Material Adverse
Effect on the Acquiror. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to the Acquiror in connection with the execution and delivery
of this Agreement by the Acquiror or the consummation by the Acquiror of the
transactions contemplated hereby, except for (i) such filings as may be required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act") and (ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Acquiror and would not reasonably be expected to prevent,
materially alter or delay any of the transactions contemplated by this
Agreement.
Section 8.4 Financial Statements. The Acquiror has delivered to the
--------------------
Parent the audited consolidated financial statements (including, without
limitation, consolidated balance sheets, income statements and statements of
cash flows) of the Acquiror and its subsidiaries as of July 30, 1999 and July
31, 1998, and the unaudited financial statements (including, without limitation,
consolidated balance sheets, income statements and statements of cash flows) of
the Acquiror and its subsidiaries for the twelve-month period ended December 31,
1999 (collectively, the "Acquiror Financial Statements"). The Acquiror Financial
Statements have been prepared in accordance with GAAP (except that the unaudited
financial statements do not have notes thereto) applied on a consistent basis
throughout the periods indicated. The Acquiror Financial Statements fairly
present the consolidated financial condition and operating results of the
Acquiror and its subsidiaries as of the dates, and for the periods, indicated
therein, subject, in the case of unaudited financial statements, to normal year-
end audit adjustments (none of which are material). The Acquiror maintains and
will continue to maintain an adequate system of internal financial and
accounting controls in accordance with GAAP. There has been no change in the
Acquiror's accounting policies during the foregoing reporting periods except as
described in the notes to the Acquiror Financial Statements.
Section 8.5 Absence of Certain Changes. Since December 31, 1999 (the
--------------------------
"Acquiror Balance Sheet Date"), the Acquiror has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect on the Acquiror; (ii) an acquisition, sale or transfer of any material
asset of the Acquiror; (iii) any material change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by the Acquiror or any revaluation by the Acquiror of any of its assets;
(iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the securities of the Acquiror, or any direct or
indirect redemption, purchase or other acquisition by the Acquiror of any of its
securities; (v) any material contract entered into by the Acquiror, or any
material amendment or termination of, or default by the Acquiror under, any
material contract to which the Acquiror is a party or by which it is bound; (vi)
any amendment or change to the certificate of incorporation or bylaws of the
Acquiror; (vii) any increase in or modification of the compensation or benefits
payable or to become payable by the Acquiror to any of its directors or
employees or (viii) any negotiation or agreement by the Acquiror to do any of
the things described in the preceding clauses (i) through (vii) (other than
negotiations with the Parent and the Company and their representatives regarding
the transactions contemplated by this Agreement).
20
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Section 8.6 Absence of Undisclosed Liabilities. Neither the Acquiror,
----------------------------------
nor any of its subsidiaries has any material obligations or liabilities of any
nature (matured or unmatured, fixed or contingent) other than (i) those set
forth or adequately provided for in the consolidated balance sheets of the
Acquiror and its subsidiaries as of the Acquiror Balance Sheet Date included in
the Acquiror Financial Statements (the "Acquiror Balance Sheets"), (ii) those
incurred in the ordinary course of business and not required to be set forth in
the Acquiror Balance Sheets under GAAP, (iii) those incurred in the ordinary
course of business since the Acquiror Balance Sheet Date and consistent with
past practice; and (iv) those incurred in connection with the execution of this
Agreement.
Section 8.7 Litigation. There is no private, governmental, judicial,
----------
administrative or regulatory action, suit, proceeding, claim, arbitration,
investigation, administrative charge or complaint pending before any agency,
court or tribunal (foreign or domestic) or, to the knowledge of the Acquiror,
threatened against the Acquiror or any of its subsidiaries or any of their
respective properties or any of their respective officers or directors (in their
capacities as such), that could reasonably be expected to prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this Agreement
or any of the Ancillary Agreements, or that could reasonably be expected to have
a Material Adverse Effect on the Acquiror. There is no judgment, decree or order
against the Acquiror or any of its subsidiaries, or, to the knowledge of the
Acquiror, any of its directors or officers (in their capacities as such), that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements, or that could
reasonably be expected to have a Material Adverse Effect on the Acquiror .
Section 8.8 Governmental Authorization. The Acquiror and its
--------------------------
subsidiaries have obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which the Acquiror and its subsidiaries
currently operate or hold any interest in any of its or their properties or (ii)
that is required for the operation of the business of the Acquiror or any of its
subsidiaries or the holding of any such interest ((i) and (ii) herein
collectively called "Acquiror Authorizations"), and all of such Acquiror
Authorizations are in full force and effect, except in such case where the
failure to obtain or have or maintain in full force and effect any such Acquiror
Authorizations could not reasonably be expected to have a Material Adverse
Effect on the Acquiror.
Section 8.9 Title to Property. The Acquiror and its subsidiaries have
-----------------
good and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Acquiror Balance
Sheets or acquired after the Acquiror Balance Sheet Date (except properties,
interests in properties and assets sold or otherwise disposed of since the
Acquiror Balance Sheet Date in the ordinary course of business), or with respect
to leased properties and assets, valid leasehold interests in such properties
and assets, free and clear of all Encumbrances except Permitted Encumbrances.
The plants, property and equipment of the Acquiror and its subsidiaries that are
used in the operations of their businesses are in good operating condition and
repair, subject to normal wear and tear. All properties used in the operations
of the Acquiror and its subsidiaries are reflected in the Acquiror Balance
Sheets to the extent GAAP require the same to be reflected.
21
<PAGE>
Section 8.10 Intellectual Property.
---------------------
(a) To the Acquiror's knowledge, there is no pending claim challenging
or questioning the right of the Company to use, sell, license or dispose of any
Acquiror Proprietary Rights (as defined below), nor is there any pending, or, to
the Acquiror's knowledge, threatened material litigation or proceeding involving
any Acquiror Proprietary Rights. The consummation of the transactions
contemplated hereby will not constitute a material breach of any instrument or
agreement governing any right in any material Acquiror Proprietary Rights. To
the Acquiror's knowledge, the use of the Acquiror Proprietary Rights by the
Acquiror as currently used does not constitute a breach of any instrument or
agreement governing any right in the Acquiror Proprietary Rights or an
infringement of the rights of any other person, in each case that would
reasonably be expected to have a Material Adverse Effect on the Acquiror.
"Acquiror Proprietary Rights" shall mean all right, title and interest to
trademarks, trademark rights, service marks, service mark rights, copyrights,
trade names, trade name rights, fictitious business names, works of authorship,
inventions, industrial models, industrial design, utility models and
certificates of invention, designs, emblems and logos, trade secrets, know-how,
manufacturing formulae, technical information, patents, patent applications,
masks work registrations, inventions, franchises, franchise rights, customer and
supplier lists together with the goodwill associated therewith of the Acquiror
and its subsidiaries.
(b) Except as set forth in Schedule 8.10 and as would not have a
-------------
Material Adverse Effect on the Acquiror, the Acquiror owns, or has the right to
use, sell or license all Acquiror Proprietary Rights. The Acquiror owns all
right, title and interest in and to, or has a license, sublicense or otherwise
has permission appropriate for the use contemplated, to use, all of the Acquiror
Proprietary Rights, free and clear of all Encumbrances other than Permitted
Encumbrances.
(c) The Acquiror has taken reasonable steps to safeguard and maintain
the secrecy and confidentiality of, and its proprietary rights in, all Acquiror
Proprietary Rights.
Section 8.11 Insurance. The Acquiror and its subsidiaries have policies
---------
of insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of the Acquiror and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Acquiror and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. The Acquiror has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
Section 8.12 Taxes.
-----
(a) All material Taxes due or payable by the Acquiror and each member of
the affiliated group of corporations of which the Acquiror is a member (the
"Acquiror Affiliated Group"), and all interest and penalties thereon, whether
disputed or
22
<PAGE>
not, other than Taxes which are not yet due and payable, have been paid in full.
All material Tax returns, statements, reports, forms and other documents
required to be filed in connection therewith have been duly and timely filed
(and no waiver or extension of any filing date applicable thereto has been
requested or granted) and were correct and complete in all material respects.
The Acquiror has withheld and paid all material Taxes required by law to be
withheld and paid by the Acquiror with respect to any amounts paid to any
employee, independent contractor, creditor, stockholder, or other third party.
There is no audit currently pending regarding any Taxes and the Acquiror has not
extended the period in which any Tax could be assessed or collected. The
Acquiror does not expect any Taxing Authority to assess any additional material
Taxes for any period for which Tax returns have been filed. There is no material
outstanding or unresolved dispute or claim concerning any material Tax liability
of the Acquiror or any other member of the Affiliated Group either (i) claimed
or raised by a Taxing Authority in writing or (ii) as to which the Acquiror has
knowledge. No claim has ever been made by a Taxing Authority in a jurisdiction
where the Company does not file Tax returns that it is or may be subject to
taxation by that jurisdiction.
(b) The Acquiror has not been a member of an affiliated group of
corporations filing a consolidated federal income tax return other than the
Acquiror Affiliated Group.
Section 8.13 Compliance With Laws.
--------------------
(a) The Acquiror and its subsidiaries have complied with, are not in
violation of, and have not received any notices of violation with respect to,
any statute, law, regulation, ordinance, rule, judgment, order and decree of any
applicable Governmental Entity with respect to the conduct of its business, or
the ownership or operation of its business, except for such violations or
failures to comply as could not be reasonably expected to have a Material
Adverse Effect on the Acquiror.
The Acquiror and its subsidiaries have, to the extent applicable to
the Acquiror, complied, and are in compliance with, all licensing requirements,
rules and regulations of any applicable Governmental Entity, and have complied,
and are in compliance with, all Governmental Permits of Governmental Entities
required to operate its business and maintain its assets, except as would not
reasonably be expected to have a Material Adverse Effect on the Acquiror. The
Acquiror and its subsidiaries have obtained all Governmental Permits of any and
all Governmental Entities required for the carrying on of its business and the
maintenance of its assets, except as would not reasonably be expected to have a
Material Adverse Effect on the Acquiror, and such Governmental Permits are in
full force and effect, and the Acquiror and its subsidiaries have not received
any written notice from any regulatory authorities with regulatory authority
over the Acquiror and its subsidiaries that any of such Governmental Permits may
be revoked or not renewed or withdrawn or (except to an immaterial or beneficial
extent) amended, in whole or in part. There is no order issued, investigation
or proceeding pending or, to the knowledge of the Acquiror, threatened, or
notice served, with respect to any violation of any law, statute, ordinance,
order, writ, decree, rule, interpretation or regulation issued by any
Governmental Entity applicable to the Acquiror, any of its subsidiaries, or, to
the knowledge of the Acquiror or its subsidiaries, any of their respective
directors, officers, employees or agents.
23
<PAGE>
Neither the Acquiror nor any of its subsidiaries is a party or subject to, any
agreement, consent decree or order, or other understanding or arrangement with,
or any directive of any Governmental Entity which imposes any material
restrictions on or otherwise affects in any material respect, the conduct of the
business of the Acquiror or any of its subsidiaries.
Section 8.14 Year 2000 Compliance. The Acquiror and its subsidiaries
--------------------
have reviewed their operations to evaluate the extent to which the business or
operations of the Acquiror and its subsidiaries will be affected by the Year
2000 Problem. As a result of such review, the Acquiror and its subsidiaries have
no reason to believe, and do not believe, that the Year 2000 Problem has had or
will have a Material Adverse Effect on the Acquiror or its subsidiaries.
ARTICLE IX
CONDUCT PRIOR TO THE CLOSING DATE
---------------------------------
Section 9.1 General Conduct of Business. During the period from the date
---------------------------
hereof and continuing until the earlier of the termination of this Agreement or
the Closing, except to the extent expressly contemplated by this Agreement or as
consented to in writing by the Acquiror, the Company shall, and the Parent shall
cause the Company to, conduct its businesses in the ordinary course in
substantially the same manner as heretofore conducted, pay debts and Taxes when
due subject to good faith disputes over such debts or Taxes, pay or perform
other obligations when due, and use all reasonable efforts consistent with past
practice and policies to preserve intact their present business organizations,
keep available the services of their present officers and key employees and
preserve their relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with them, to the end that their
goodwill and ongoing businesses shall be unimpaired at the Closing Date. The
Company shall promptly notify the Acquiror prior to taking any action in
contravention of Section 9.2 hereof or of any event which could reasonably be
expected to make inaccurate the Company's representations in Section 7.5 hereof.
Section 9.2 Conduct of Business of the Company. During the period from
----------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Closing, except as set forth in the Company Disclosure
Schedule or as expressly contemplated by this Agreement, the Company shall not
cause or permit, and the Parent shall not permit the Company to cause or permit,
any of the following, without the prior written consent of the Acquiror:
(a) Dividends; Subsidiaries. Declare or pay any dividends on or make any
-----------------------
other distributions (whether in cash, stock or property) in respect of any of
its capital stock or other securities, or form any subsidiaries;
(b) Material Contracts. Enter into any material contract or commitment,
------------------
or amend or otherwise modify or waive any of the terms of any of its material
contracts, other than in the ordinary course of business consistent with past
practice;
24
<PAGE>
(c) Intellectual Property. Transfer to any person or entity any rights
---------------------
to its Intellectual Property other than pursuant to non-exclusive license
arrangements in the ordinary course of business consistent with past practice;
(d) Exclusive Rights. Enter into or amend any agreements pursuant to
----------------
which any other party is granted exclusive marketing or other exclusive rights
of any type or scope with respect to any of its products, services or
technology;
(e) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of its properties or assets which are material, individually or in
the aggregate, to its business, except for sales of products in the ordinary
course;
(f) Indebtedness. Incur any indebtedness for borrowed money or guarantee
------------
any such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(g) Leases. Enter into any operating lease involving payments in excess
------
of $100,000 per annum;
(h) Payment of Obligations. Pay, discharge or satisfy in an amount in
----------------------
excess of $50,000 in any one case or $100,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Company Financial Statements;
(i) Capital Expenditures. Make any capital expenditures, capital
--------------------
additions or capital improvements, or make any commitments for any of the
foregoing, except in the ordinary course of business consistent with past
practice, and in any event not to exceed $50,000 for any such transaction or
$100,000 in the aggregate of all such transactions;
(j) Insurance. Materially reduce the amount of any insurance coverage
---------
provided by existing insurance policies;
(k) Termination or Waiver. Expressly terminate or waive any right of
---------------------
substantial value;
(l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any
------------------------------------------------
employee benefit or stock purchase or option plan, or hire any new director
level or officer level employee, pay any special bonus or special remuneration
to any employee or director or, other than in the ordinary course consistent
with past practice in connection with scheduled performance reviews, increase
the salaries or wage rates of its employees;
(m) Severance Arrangements. Grant any severance or termination pay to
----------------------
any director, officer or other employee, except payments made pursuant to
written agreements outstanding on the date of this Agreement;
25
<PAGE>
(n) Lawsuits. Commence a lawsuit other than (i) for the routine
--------
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with the Acquiror prior to the
filing of such a suit, or (iii) against the Acquiror or its agents;
(o) Acquisitions. Acquire or agree to acquire by merging, consolidating
------------
or amalgamating with, or by purchasing a material portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business, other than inventory in the ordinary course of
business;
(p) Taxes. Other than in the ordinary course of business, make or change
-----
any material election in respect of Taxes, adopt or change any accounting method
in respect of Taxes, file any material Tax Return or any amendment to a material
Tax Return, enter into any closing agreement, settle any material claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(q) Notices. Fail to give all notices and other information required to
-------
be given to the employees of the Company, any collective bargaining unit
representing any group of employees of the Company, and any applicable
government authority under applicable law (domestic or foreign) in connection
with the transactions provided for in this Agreement;
(r) Revaluation. Revalue any of its assets for financial accounting
-----------
purposes, including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; or
(s) Other. Take or agree in writing or otherwise to take, any of the
-----
actions described in Section 9.2 (a) through (R) above, or any other action that
would materially delay or materially impair the ability of the Company or the
Parent to consummate the Closing.
Section 9.3 No Solicitation. The Company, the Parent and the officers,
directors, employees or other agents of the Company will not, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal or (ii) engage in negotiations with, or disclose any
nonpublic information relating to either of the Company to, or afford access to
the properties, books or records of either of the Company to, any person that
has advised either of the Company that it may be considering making, or that has
made, an Acquisition Proposal. The Company and the Parent shall not, and shall
not permit any of the Company' officers, directors, employees or other
representatives to agree to or endorse any Acquisition Proposal. The Company
will promptly notify the Acquiror after receipt of any Acquisition Proposal or
any notice that any person is considering making a Acquisition Proposal or any
request for nonpublic information relating to either of the Company or for
access to the properties, books or records of either of the Company by any
person that has advised either of
26
<PAGE>
the Company that it may be considering making, or that has made, a Acquisition
Proposal and will keep the Acquiror fully informed of the status and details of
any such Acquisition Proposal notice, request or any correspondence or
communications related thereto and shall provide the Acquiror with a true and
complete copy of such Acquisition Proposal notice or request or correspondence
or communications related thereto, if it is in writing, or a written summary
thereof, if it is not in writing. For purposes of this Agreement, "Acquisition
Proposal" means any offer or proposal for, or any indication of interest in, a
business combination involving either of the Company or the direct or indirect
acquisition of ten percent (10%) or more of the outstanding capital stock or
other equity interests of the Company, or a significant portion of the assets
of, either of the Company, other than the transactions contemplated by this
Agreement.
ARTICLE X
ADDITIONAL AGREEMENTS
---------------------
Section 10.1 Access to Information.
---------------------
(a) The Company shall, and the Parent shall cause the Company to, afford
the Acquiror and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Closing Date
to all of the Company' properties, books, contracts, commitments and records
concerning the business, properties and personnel of the Company as the Acquiror
may reasonably request; provided, however, that neither the Acquiror nor any of
its accountants, counsel or representatives shall be given access to any Tax
Returns filed on a combined, integrated or consolidated basis with the Parent or
any of its affiliates (other than the Company). The Company agree to provide to
the Acquiror and its accountants, counsel and other representatives copies of
internal financial statements, budgets, operating plans and, to the extent they
are available, projections, promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof
until the Closing Date, each of the Acquiror and the Company shall confer with
one or more representatives of the other party to report operational matters of
materiality and the general status of ongoing operations.
No information or knowledge obtained in any investigation pursuant to
this Section 10.1 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the transactions contemplated hereby.
Section 10.2 Public Disclosure. Unless otherwise permitted by this
-----------------
Agreement, the Acquiror and the Company shall consult with each other before
issuing any press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement or the Ancillary Agreements and
the transactions contemplated hereby and thereby, and neither shall issue any
such press release or make any such statement or disclosure without the prior
approval of the other (which approval shall not be unreasonably withheld),
except as
27
<PAGE>
may be required by law or by obligations pursuant to any listing agreement with
any securities exchange or with the NASD.
Section 10.3 Consents; Cooperation.
---------------------
(a) Each of the Acquiror and the Company shall promptly apply for or
otherwise seek, and use its commercially reasonable efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
transactions contemplated hereby, including those required under the HSR Act,
any foreign antitrust laws and any securities regulatory laws. The Company shall
use commercially reasonable efforts to obtain all necessary consents, waivers
and approvals under any of its material contracts for the assignment thereof or
otherwise for the consummation of the transactions contemplated hereby. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act, any other antitrust or fair trade law or any
securities regulatory law.
(b) Each of the Acquiror and the Company shall use commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by this
Agreement under federal, state or foreign statutes, rules, regulations, orders
or decrees. In connection therewith, if any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement, each of the Acquiror and the Company
shall cooperate and use commercially reasonable efforts vigorously to contest
and resist any such action or proceeding and to have vacated, lifted, reversed,
or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent (each an "Order"), that is in effect and
that prohibits, prevents, or restricts consummation of the transactions
contemplated hereby, unless either the Acquiror or the Company decides that
litigation is not in its best interests. Each of the Acquiror and the Company
shall use commercially reasonable efforts to take such action as may be required
to cause the expiration of the notice periods under the HSR Act or other
antitrust laws with respect to such transactions as promptly as possible after
the execution of this Agreement.
(c) Notwithstanding anything to the contrary in this Agreement, (i) the
Acquiror shall not be required to divest any of its businesses, product lines or
assets, or to take or agree to take any other action or agree to any limitation
that could reasonably be expected to have a Material Adverse Effect on the
Acquiror or on the Company after the Closing Date and (ii) the Company shall not
be required to divest any of their businesses, product lines or assets, or to
take or agree to take any other action or agree to any limitation that could
reasonably be expected to have a Material Adverse Effect on the Company.
Section 10.4 Legal Requirements. Each of the Acquiror and the Company
------------------
will take all reasonable actions necessary to comply in all material respects
promptly
28
<PAGE>
with all legal requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made by them in
connection with the taking of any action contemplated by this Agreement.
Section 10.5 Non-competition. During the four (4) year period commencing
---------------
on the Closing Date, the Parent agrees that the Parent, and any Subsidiary of
the Parent (collectively, the "Parent Group") shall not directly engage in any
activity that competes or will compete with the Business. A "Subsidiary" of any
entity shall be any other entity in which such entity, or one or more
Subsidiaries of such entity, or such entity and one or more Subsidiaries
thereof, owns at least 80% of the voting power of all outstanding shares of the
capital stock of such entity.
Section 10.6 Non-solicitation. During the two (2) year period commencing
----------------
on the Closing Date, the Parent agrees that the Parent Group shall not, directly
or indirectly, either as a partner, owner shareholder or in any other capacity
whatsoever, on behalf of any person, firm, corporation, partnership or entity,
recruit, solicit, hire, or assist any other person or party in recruiting,
soliciting, or hiring any employee of the Business.
Section 10.7 COBRA. Parent shall be responsible for providing the
-----
continued health coverage required under Section 4980B of the Code ("COBRA
Coverage") with respect to any employees of the Company or eligible dependents
who incur a qualifying event under Section 4980B of the Code on or before the
Closing Date. Acquiror shall be responsible for providing COBRA Coverage for any
employees of the Company employed by the Acquiror or eligible dependents who,
with respect to their coverage under Acquiror's health plan, incur a qualifying
event under Section 4980B of the Code at any time after the Closing Date.
Section 10.8 Further Assurances. Each of the parties to this Agreement
------------------
shall use its reasonable best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
the Closing under this Agreement. Each party hereto, at the reasonable request
of another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting the Closing and the other transactions contemplated hereby.
ARTICLE XI
CONDITIONS TO THE CLOSING
-------------------------
Section 11.1 Conditions to Obligations of Each Party to Effect the
-----------------------------------------------------
Closing. The respective obligations of each party to this Agreement to
- -------
29
<PAGE>
consummate the Closing shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, by agreement of the Acquiror, the Company and the Parent :
(a) No Injunctions or Restraints; Illegality. No temporary restraining
----------------------------------------
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the Closing shall be in effect, nor shall any proceeding brought by
an administrative agency or commission or other Governmental Entity or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Closing which makes the Closing illegal. In
the event an injunction or other order shall have been issued, each party agrees
to use its reasonable efforts to have such injunction or other order lifted.
Section 11.2 Additional Conditions to Obligations of the Parent and the
----------------------------------------------------------
Company. The obligations of the Parent and the Company to consummate the
- --------
Closing shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing, by the
Parent:
(a) Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Acquiror in this Agreement shall be true and correct in all
material respects (except that any such representations and warranties that are
qualified by their terms by a reference to Material Adverse Effect or
materiality as so qualified shall be true in all respects) on and as of the
Closing Date as though such representations and warranties were made on and as
of such time (except that any such representations and warranties that are made
as of a particular date other than the date of this Agreement shall have been so
true and correct as of such particular date), and the Acquiror shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it at or prior to the Closing.
(b) Regulatory Consents and Approvals. All consents, approvals, waivers
---------------------------------
and actions of, filings with and notices to any Governmental Entity or other
regulatory authority necessary for consummation of or in connection with the
transactions contemplated hereby and required to be obtained by the Acquiror (a)
shall have been timely and duly obtained, made or given by the Acquiror, (b)
shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (c) shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental
Entity or other regulatory authority necessary for the Closing or in connection
with the transactions contemplated hereby, including under the HSR Act and
securities regulatory laws, shall have occurred.
(c) Certificate of the Acquiror. The Parent and the Company shall have
---------------------------
been provided with a certificate executed on behalf of the Acquiror by an
officer of the Acquiror certifying that the conditions set forth in Section
11.2(a) have been fulfilled.
30
<PAGE>
(d) Legal Opinion. The Parent and the Company shall have received a
-------------
legal opinion from the Acquiror's legal counsel, Brobeck, Phleger & Harrison
LLP, in substantially the form of Exhibit 11.2.
------------
(e) Closing Certificates. The Parent and the Company shall have been
--------------------
provided with such certificates and closing documents as are customary for
transactions of the type contemplated hereby and as may be reasonably requested
by the Parent, the Company or their counsel.
(f) Omnibus Amendment Agreement. The Omnibus Amendment Agreement shall
----------------------------
have been duly executed and delivered by the Acquiror and the other parties
thereto.
(g) No Material Adverse Changes. There shall not have occurred any
----------------------------
material adverse change in the condition, (financial or otherwise) properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of the Acquiror and its subsidiaries, taken as a whole.
Section 11.3 Additional Conditions to the Obligations of the Acquiror.
--------------------------------------------------------
The obligations of the Acquiror with respect to the Closing shall be subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, by the Acquiror:
(a) Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Parent and the Company in this Agreement shall be true and
correct in all material respects (except that any such representations and
warranties that are qualified by their terms by a reference to Material Adverse
Effect or materiality as so qualified shall be true and correct in all respects)
on and as of the Closing Date as though such representations and warranties were
made on and as of such time (except that any such representations and warranties
that are made as of a particular date other than the date of this Agreement
shall have been so true and correct as of such particular date), and the Parent
and the Company shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by them at or prior to the Closing.
(b) Regulatory Consents and Approvals. All consents, approvals, waivers
---------------------------------
and actions of, filings with and notices to any Governmental Entity or other
regulatory authority necessary for consummation of or in connection with the
transactions contemplated hereby and required to be obtained by the Parent or
the Company (a) shall have been timely and duly obtained, made or given by the
Company and the Parent, (b) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (c) shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental Entity or other regulatory authority necessary for the Closing
or in connection with the transactions contemplated hereby, including under the
HSR Act and securities regulatory laws, shall have occurred.
31
<PAGE>
(c) Certificate of the Company. The Acquiror shall have been provided
--------------------------
with a certificate executed on behalf of each of the Parent and the Company by
an authorized officer thereof certifying that the conditions set forth in
Section 11.3(a) have been fulfilled.
(d) Legal Opinion. The Acquiror shall have received a legal opinion from
-------------
the Parent's and the Company's legal counsel, Sullivan & Cromwell, in
substantially the form of Exhibit 11.3(d).
---------------
(e) Closing Certificates. The Acquiror shall have been provided with
--------------------
such certificates and closing documents as are customary for transactions of the
type contemplated hereby and as may be reasonably requested by the Acquiror or
its counsel.
(f) Third Party Consents. The Acquiror shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the transactions
contemplated hereby under the Contracts listed on Schedule 7.24 hereto.
(g) Transitional Services Agreement. The Acquiror shall have received a
-------------------------------
fully executed copy of the Transitional Services Agreement, in substantially the
form of Exhibit 11.3(g).
---------------
(h) Omnibus Amendment Agreement. The Omnibus Amendment Agreement shall
---------------------------
have been duly executed and delivered by the Parent, the Company and the other
parties thereto.
(i) Key Employees. Each of Paul O'Brien, J.D. de Haseth, Patti Randall
-------------
and Andy Broding shall have accepted employment with the Acquiror on terms
acceptable to each party.
(j) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition, (financial or otherwise) properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of the Company.
(k) Affidavit of Non-Foreign Status. An affidavit of Seller, in the form
-------------------------------
attached hereto as Exhibit 5.2(b), stating, under penalty of perjury, Seller's
--------------
United States taxpayer identification number and that Seller is not a foreign
person, pursuant to Section 1445(b)(2) of the Code.
32
<PAGE>
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 12.1 Termination. At any time prior to the Closing Date, this
-----------
Agreement may be terminated:
(a) by mutual written consent duly authorized by the Acquiror, the
Parent and the Company;
(b) by the Acquiror, the Parent or the Company, if the Closing shall not
have occurred on or before June 15, 2000 (provided, a later date may be agreed
upon in writing by the parties hereto, and provided further that the right to
terminate this Agreement under this Section 12.1(b) shall not be available to
any party whose action or failure to act has been the cause or resulted in the
failure of the Closing to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement);
(c) by the Acquiror, if any of the Company or the Parent shall
materially breach any representation, warranty, obligation or agreement
hereunder and such breach shall not have been cured within ten (10) business
days of receipt by the Company of written notice of such breach, provided that
the right to terminate this Agreement by the Acquiror under this Section 12.1(c)
shall not be available to the Acquiror where the Acquiror is at that time in
material breach of this Agreement;
(d) by the Parent, if the Acquiror shall materially breach any
representation, warranty, obligation or agreement hereunder and such breach
shall not have been cured within ten (10) days of receipt by the Acquiror of
written notice of such breach, provided that the right to terminate this
Agreement by the Parent under this Section 12.1(d) shall not be available to the
Parent where the Parent or the Company is at that time in material breach of
this Agreement; or
(e) by the Acquiror or by the Parent, if any permanent injunction or
other order of a court or other competent authority preventing the Closing shall
have become final and nonappealable.
Section 12.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 12.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of the Acquiror
or the Company or their respective officers, directors, securityholders or
affiliates, except to the extent that such termination results from the willful
breach by a party hereto of any of its representations, warranties or covenants
set forth in this Agreement; provided that the provisions of Section 12.3
(Expenses) and this Section 12.2 and of Article XIII (but only with respect to
such a willful breach) shall remain in full force and effect and survive any
termination of this Agreement.
Section 12.3 Expenses.
--------
(a) Subject to the other terms hereof , whether or not the Closing
occurs, all costs and expenses incurred in connection with this Agreement and
the
33
<PAGE>
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisers, accountants and legal counsel) shall be paid, in the
case of the expenses and costs of (i) the Company and the Parent, by the Parent
and (ii) the Acquiror, by the Acquiror. The filing fee with respect to HSR Act
filing shall be borne equally by the Company and Acquiror such that the Company
pays an amount equal to one-half of such fee, and Acquiror pays an amount equal
to one-half of such fee.
(b) In the event that the Acquiror shall terminate this Agreement
pursuant to Section 12.1(c) then the Parent shall, or shall cause the Company
to, promptly reimburse the Acquiror for all of the out-of-pocket costs and
expenses incurred by the Acquiror in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel).
(c) In the event that the Parent shall terminate this Agreement pursuant
to Section 12.1(d), the Acquiror shall promptly reimburse the Company for all of
the out-of-pocket costs and expenses incurred by the Company in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).
ARTICLE XIII
INDEMNIFICATION
---------------
Section 13.1 Indemnification.
---------------
(a) Subject to the limitations set forth in this Article XIII, the
Parent and, prior to the Closing, the Company shall jointly and severally
indemnify and hold harmless the Acquiror and its officers, directors, agents and
employees, and each person, if any, who controls or may control the Acquiror
within the meaning of the Securities Act (any person entitled to indemnification
under this Section 13.1(a) (a "Company Indemnified Person") or Section 13.1(b)
(a "Buyer Indemnified Person") is hereinafter referred to as an "Indemnified
Person", and any person required to indemnify such Indemnified Person is
hereinafter referred to as an "Indemnifying Person") from and against any and
all losses, costs, damages, liabilities and expenses arising from claims,
demands, actions, causes of action, including, without limitation, reasonable
legal fees (collectively, "Damages") arising out of any or breach of or default
in connection with any of the representations, warranties, covenants and
agreements given or made by any of the Company or the Parent in this Agreement,
the Ancillary Agreements, the Company Disclosure Schedule or any exhibit or
schedule to this Agreement.
(b) The Acquiror shall indemnify and hold harmless the Parent and its
officers, directors, agents and employees, and each person, if any, who controls
or may control the Parent within the meaning of the Securities Act from and
against any and all Damages arising out of any or breach of or default in
connection with any of the representations, warranties, covenants and agreements
given or made by the Acquiror in
34
<PAGE>
this Agreement, the Ancillary Agreements, the Acquiror Disclosure Schedule or
any exhibit or schedule to this Agreement.
(c) The Acquiror and the Parent each acknowledge that such Damages, if
any, would relate to unresolved contingencies existing at the Closing Date,
which if resolved at the Closing Date would have led to a change in the total
consideration the Acquiror would have agreed to issue and convey hereunder or
the Parent and the Company would have agreed to accept hereunder. If the Closing
does not occur. Notwithstanding any provision to the contrary, if the Closing is
consummated, the Parent shall bear, and the Company shall be released from, all
of the liabilities, obligations and duties pursuant to this Article XIII, it
being understood that the Parent shall remain solely liable thereon.
Section 13.2 Procedure for Indemnification with Respect to Third-Party
---------------------------------------------------------
Claims.
- ------
(a) If an Indemnified Person determines to seek indemnification under
this Article XIII with respect to the existence of a claim giving rise to
Damages ("Claim") resulting from the assertion of liability by third parties or
an Indemnified Person shall give notice to the Indemnifying Person promptly
after such Indemnified Person becomes aware of any claim or of facts upon which
any such claim will be based; the notice shall set forth such material
information with respect thereto as is then reasonably available to such
Indemnified Person. In case any such liability is asserted against such
Indemnified Person, and such Indemnified Person notifies such Indemnifying
Person thereof, such Indemnifying Person will be entitled, if it so elects, by
written notice delivered to such Indemnified Person within twenty (20) days
after receiving such notice, to assume the defense thereof with counsel
reasonably satisfactory to such Indemnified Person. Notwithstanding the
foregoing, (i) such Indemnified Person shall also have the right to employ its
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Person unless it shall reasonably determine
that there is a conflict of interest between such Indemnified Person and
Indemnifying Person with respect to such claim or there are or may be legal
defenses available to such Indemnified Person which are different from or
additional to those available to such Indemnifying Person or a difference of
position or potential difference of position exists between or among such
Indemnifying Person and Indemnified Person that would make such separate
representation advisable in the reasonable opinion of counsel to such
Indemnified Person, in which case the fees and expenses of one such counsel will
be borne by such Indemnifying Person, (ii) such Indemnified Person shall not
have any obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing, and (iii) the rights of such
Indemnified Person to be indemnified hereunder in respect of such claims
resulting from the assertion of liability by third parties shall not be
adversely affected by its failure to give notice pursuant to the foregoing
unless, and, if so, only to the extent that, such Indemnifying Person is
prejudiced thereby. With respect to any assertion of liability by a third party
that results in such claim, the parties hereto shall make available to each
other all relevant information in their possession material to any such
assertion.
35
<PAGE>
(b) In the event that such Indemnifying Person, within twenty (20) days
after receipt of the aforesaid notice of a claim, fails to assume the defense of
such Indemnified Person against such claim, such Indemnified Person shall have
the right to undertake the defense, compromise, or settlement of such action on
behalf of and for the account, expense, and risk of such Indemnifying Person;
provided, however, that such Indemnified Person shall not, without such
Indemnifying Person's prior written consent, settle or compromise any such claim
or consent to entry of any judgment in respect thereof, and such Indemnifying
Person shall have no liability with respect to any such compromise or settlement
thereof effected without its prior written consent.
(c) Notwithstanding anything in this Article XIII to the contrary, such
Indemnified Person shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Person shall not, without such
Indemnified Person's written consent (which consent shall not be unreasonably
withheld), settle or compromise any such claim or consent to entry of any
judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to such Indemnified Person a release from all liability in respect of
such claim.
Section 13.3 Procedure For Indemnification with Respect to Non-Third
-------------------------------------------------------
Party Claims. In the event that an Indemnified Person asserts the existence of a
- ------------
claim giving rise to Damages (but excluding claims resulting from the assertion
of liability by third parties), it shall give written notice to the Indemnifying
Person. Such written notice shall state that it is being given pursuant to this
Section 13.3, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). Such Indemnifying Person, within sixty (60) days after the
mailing of notice by such Indemnified Person, shall give written notice to such
Indemnified Person announcing its intent to contest such assertion. In the event
that such Indemnifying Person contests the assertion of a claim by giving such
written notice to such Indemnified Person within said period, then the parties
shall act in good faith to reach agreement regarding such claim. In the event
that litigation shall arise with respect to any such claim, the prevailing party
shall be entitled to reimbursement of costs and expenses incurred in connection
with such litigation including reasonable attorneys' fees.
Section 13.4 Reductions in Damages.
---------------------
(a) Any amount payable by an Indemnifying Person pursuant to this
Section 13 (after giving effect to Section 13.5) shall be reduced by any net tax
benefit to the Indemnified Person that results from the Damages that are being
indemnified and the receipt of the indemnification payment. For purposes of the
preceding sentence, the "net tax benefit" shall equal all actual U.S. federal,
state, local and foreign income tax deduction arising from the Damages minus any
income or gain recognized as a result of receiving the indemnity payment
multiplied by the maximum marginal effective federal, state or local income tax
rates, whichever are applicable, to such income or gain.
36
<PAGE>
(b) An Indemnifying Person shall not be required to indemnify an
Indemnified Person with respect to any Damages to the extent that indemnity
therefor is available pursuant to any policies of insurance.
Section 13.5 Limitations on Indemnification.
------------------------------
(a) The indemnification obligations of the Parent and the Company, under
Section 13.1, on the one hand, and the indemnification obligations of Acquiror
under Section 13.2, on the other hand, shall be effective only when the
aggregate amount of all Claims by the Buyer Indemnified Persons or the Company
Indemnified Persons, as the case may be, subject to indemnification hereunder
exceeds $250,000 (the "Deductible"), in which case the Indemnifying Persons
shall be liable only for Damages in excess of such amount. In no event shall the
aggregate amount of indemnity payments by the Buyer Indemnified Persons, on the
one hand, or the Company Indemnified Persons, on the other hand, exceed
$15,000,000. In no event shall an indemnity be recoverable from the Indemnifying
Persons with respect to any individual Claim unless the amount thereof equals at
least $10,000, and no Claim in an amount less than $10,000 shall count toward
the deductible.
Section 13.6 Term. The indemnification obligations under Section 13.1
----
and Section 13.2 shall cease and be of no force and effect after the first
anniversary of the Closing Date, except with respect to any Claim for
indemnification hereunder made prior to such business date in writing and
stating with specificity the basis for such Claim; provided that any Claim for
Damages arising out of any breach or default in connection with the
representations and warranties (i) contained in Sections 7.2, 7.13 and Section
8.2 shall survive indefinitely and (ii) contained in Section 7.14 and 8.12 shall
survive until the applicable statutes of limitation in respect thereof has
expired .
Section 13.7 Limited Recourse. Notwithstanding anything to the contrary
----------------
contained herein, it is agreed that no claim of any nature hereunder shall or
may be asserted, and no recourse hereunder shall or may be had, against any
officer, director, employee, shareholder, general partner, limited partner or
affiliate of any Indemnifying Person. To the extent permitted by applicable law,
Parent, Company and Acquiror and each other Indemnified Person hereby expressly
waive, relinquish, release and remise any right that Parent, Company or Acquiror
or such other Indemnified Person might otherwise have to assert or enforce any
claim hereunder against any person or entity, or the assets of any person or
entity, except in a manner consistent with this Section 13.
ARTICLE XIV
GENERAL PROVISIONS
------------------
Section 14.1 Survival. The representations, warranties and covenants of
--------
the parties contained herein shall survive until the first anniversary of the
Closing Date (or, if later, the final resolution of any indemnity claims
hereunder), except that the representations, warranties and covenants (i)
contained in Sections 7.2, 7.13 and 8.2 shall survive indefinitely (ii)
37
<PAGE>
contained in Section 7.l4 and 8.12 shall survive until the applicable statutes
of limitation in respect thereof shall have expired and the provisions of
Sections 12.2 and 12.3 and of Article XIII shall survive in accordance with
their terms.
Section 14.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to the Acquiror, to:
Naviant, Inc.
14 Campus Boulevard
Newtown Square, PA 19073-3279
Attention: Robert L. R. Munden
General Counsel
Facsimile No.: (610) 355-2428
Telephone No.: (610) 355-7040
with a copy (which shall not constitute notice) to:
Brobeck, Phleger & Harrison LLP
701 Pennsylvania Ave., N.W.
Washington, D.C. 20004
Attention: Kevin Lavin, Esq.
Facsimile No.: (202) 220-5200
Telephone No.: (202) 220-6000
(b) if to the Company, to:
SOFTBANK Content Services, Inc.
c/o SOFTBANK Holdings Inc.
300 Delaware Avenue, Suite 909
Wilmington, DE 19801
Attention: Francis Jacobs
Fax: (302) 552-3128
Tel: (302) 552-3104
38
<PAGE>
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell
1888 Century Park East, Suite 2100
Los Angeles, CA 90067
Attention: John L. Savva
Fax: (310) 712-8800
Tel: (310) 712-6650
(c) if to the Parent, to:
SOFTBANK Holdings Inc.
300 Delaware Avenue, Suite 909
Wilmington, DE 19801
Attention: Francis Jacobs
Fax: (302) 552-3128
Tel: (302) 552-3104
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell
1888 Century Park East, Suite 2100
Los Angeles, CA 90067
Attention: John L. Savva
Fax: (310) 712-8800
Tel: (310) 712-6650
Section 14.3 Interpretation. When a reference is made in this Agreement
--------------
to Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrases "the date of this Agreement", "the date hereof", and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 14.5 Entire Agreement; Nonassignability; Parties in Interest.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules, including the Company Disclosure Schedule and the
Acquiror Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
39
<PAGE>
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms, (b) are not
intended to confer upon any other person any rights or remedies hereunder, (c)
shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, and (d) shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Section 14.6 Severability. In the event that any provision of this
------------
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 14.7 Remedies Cumulative. Except as otherwise provided herein,
-------------------
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
Section 14.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York without reference
to such state's principles of conflicts of law.
Section 14.9 Rules of Construction. The parties hereto agree that they
---------------------
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
Section 14.10 Amendment; Waiver. This Agreement may not be changed,
-----------------
amended, terminated, augmented, rescinded, or discharged (other than by
performance), in whole or in part, except by a writing executed by the Acquiror,
the Company and the Parent, and no waiver of any of the provisions or conditions
of this Agreement or any of the rights of a party hereto shall be effective or
binding unless such waiver shall be in writing and signed by the party claimed
to have given or consented thereto. At any time prior to the Closing Date any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Except to the extent that a party hereto
may have otherwise agreed in writing, no waiver by that party of any condition
of this Agreement or breach by the other party of any of its obligations or
representations hereunder or
40
<PAGE>
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 14.11 Consent to Jurisdiction; Service of Process. Any action,
-------------------------------------------
suit or proceeding arising out of or relating to this Agreement may be
instituted in any United States Federal court or any state court located in New
York, New York and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim it may
now or hereafter have that it is not subject personally to the jurisdiction of
such court, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court.
Each party further irrevocably submits to the jurisdiction of such court in any
such action, suit or proceeding, and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with this Agreement from which no appeal
has been taken or is available. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against any
party if given personally or by registered or certified mail, postage prepaid
and return receipt requested, or by personal service on such party. Nothing
contained herein shall be deemed to affect the right of any party to serve
process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction.
Section 14.12 Definitions of Material Adverse Effect. For purposes of
--------------------------------------
this Agreement, "Material Adverse Effect" means, with respect to any entity or
entities (and in the case of the Company, the Business), any event, change,
condition or effect that is, or could be reasonably expected to be, materially
adverse to the condition (financial or otherwise), properties, assets
(including, without limitation, intangible assets), liabilities, business,
operations or results of operations of such entity or entities (and in the case
of the Company, the Business).
<PAGE>
IN WITNESS WHEREOF, the Acquiror, the Parent and the Company have
caused this Agreement to be executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
NAVIANT, INC.
By: __________________________________________
Name:
Title:
SOFTBANK CONTENT SERVICES, INC.
By: __________________________________________
Name:
Title:
SOFTBANK HOLDINGS INC.
By: __________________________________________
Name: Francis Jacobs
Title: Vice President
<PAGE>
EXHIBIT 5.2(A)
<PAGE>
EXHIBIT 5.2(B)
<PAGE>
EXHIBIT 5.2(E)
<PAGE>
EXHIBIT 5.3(C)
<PAGE>
EXHIBIT 7.12(C)
<PAGE>
EXHIBIT 11.2
<PAGE>
EXHIBIT 11.3(D)
<PAGE>
EXHIBIT 21.1
Impco Enterprises, Inc., a Delaware corporation, is a wholly-owned subsidiary of
the Registrant.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 4, 2000, except as to the information in Note 16 which is
as of March 9, 2000, relating to the financial statements of Naviant, Inc.,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Experts".
/s/ PricewaterhouseCoopers LLP
Philadelphia, PA
March 9, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated January 31, 2000, except as to the information in Note 8 which is
of March 9, 2000, relating to the financial statements of SOFTBANK Content
Services, Inc. (d/b/a Softbank Marketing Solution or "SMS") which appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts".
/s/ PricewaterhouseCoopers LLP
Philadelphia, PA
March 9, 2000
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EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated January 21, 2000 relating to the combined carve-out financial
statements of IQ2.net and Austin Registration which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts".
PRICEWATERHOUSECOOPERS LLP
Austin,TX
March 9, 2000
