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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1999
REGISTRATION NO.
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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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DIGITALTHINK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA
BEFORE REINCORPORATION
DELAWARE 7372 94-3244366
AFTER REINCORPORATION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
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DIGITALTHINK, INC.
1098 HARRISON STREET
SAN FRANCISCO, CA 94103
(415) 625-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PETER J. GOETTNER
CHIEF EXECUTIVE OFFICER
DIGITALTHINK, INC.
1098 HARRISON STREET
SAN FRANCISCO, CA 94103
(415) 625-4000
(415) 437-3877 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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MARIO M. ROSATI, ESQ. ADAM D. LEVY ESQ. WILLIAM D. SHERMAN, ESQ.
CHRISTOPHER D. MITCHELL, ESQ. GENERAL COUNSEL JUSTIN L. BASTIAN, ESQ.
JOSEPH D. FUQUA, ESQ. DIGITALTHINK, INC. ROCHELLE A. KRAUSE, ESQ.
WILSON SONSINI 1098 HARRISON STREET MORRISON & FOERSTER LLP
GOODRICH & ROSATI SAN FRANCISCO, CA 94103 755 PAGE MILL ROAD
PROFESSIONAL CORPORATION (415) 625-4000 PALO ALTO, CA 94304
650 PAGE MILL ROAD (650) 813-5600
PALO ALTO, CA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common stock, $0.001 par value........................ $75,000,000 $19,800
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES AND IT IS NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1999
Shares
[DIGITALTHINK LOGO]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We have made application to list
our common stock on The Nasdaq Stock Market's National Market under the symbol
"DTHK."
The underwriters have an option to purchase a maximum of additional
shares of common stock to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS DIGITALTHINK
-------- ------------- ------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
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Delivery of the shares of common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
ROBERTSON STEPHENS
The date of this prospectus is , 2000.
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[ARTWORK]
<PAGE> 4
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY................... 3
RISK FACTORS......................... 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................. 16
USE OF PROCEEDS...................... 16
DIVIDEND POLICY...................... 16
CAPITALIZATION....................... 17
DILUTION............................. 18
SELECTED FINANCIAL DATA.............. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 20
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PAGE
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BUSINESS............................. 29
MANAGEMENT........................... 39
CERTAIN TRANSACTIONS................. 48
PRINCIPAL STOCKHOLDERS............... 50
DESCRIPTION OF CAPITAL STOCK......... 52
SHARES ELIGIBLE FOR FUTURE SALE...... 55
UNDERWRITING......................... 57
NOTICE TO CANADIAN RESIDENTS......... 60
LEGAL MATTERS........................ 61
EXPERTS.............................. 61
ADDITIONAL INFORMATION............... 61
INDEX TO FINANCIAL STATEMENTS........ F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary highlights information that we present more fully
elsewhere in this prospectus. You should read this entire prospectus carefully.
DIGITALTHINK, INC.
We are a leading provider of online learning, or e-learning, solutions. Our
outsourced, Web-based solutions enable customers to deploy knowledge rapidly and
broadly throughout their extended enterprise of employees, business partners and
customers. Our solutions address the strategic business objectives of our
customers by enabling them to increase the productivity of their employees, the
effectiveness of their sales channels and the loyalty and satisfaction of their
customers. We had over 180 customers deploying over 160 online courses in
technology, financial services, healthcare and other industries at November 30,
1999. Customers which have effectively deployed our pre-developed or
custom-tailored courses include Adobe, Cisco Systems, Intel, Hewlett-Packard,
KPMG, Seagate and Sun Microsystems.
Senior business executives are recognizing that a principal source of
competitive advantage in today's knowledge-based economy is the depth and
consistency of employee, partner and customer knowledge. Businesses that
successfully drive knowledge to this extended enterprise can maximize
productivity and sustain a competitive advantage. Recognizing the need to
establish, maintain and extend this advantage, businesses are increasing the
amounts they spend on learning. In 1997, businesses spent approximately $55
billion primarily on in-person, instructor-led training, according to the
Department of Education. A majority of these programs are costly and
ineffective, difficult to deploy across an extended enterprise and do not
provide businesses with the ability to track participants' progress or the
effectiveness of learning programs.
We offer a fully-hosted, Internet-based e-learning solution that
effectively delivers the knowledge necessary to compete in today's dynamic
marketplace. Our integrated e-learning solutions combine powerful Internet
delivery technologies, customized content, dedicated tutors and comprehensive
e-commerce and reporting tools. We host and centrally manage all software and
content. This significantly reduces our customers' learning infrastructure costs
and enables us to rapidly customize and update our courses. As more businesses
adopt online learning solutions, the online corporate learning market is
projected to grow from $550 million in 1998 to more than $7.1 billion in 2002,
according to International Data Corporation.
Our solutions are designed to deliver high-quality Web-based content to
thousands of concurrent participants who can access courses from anywhere, at
anytime through a standard Web browser. This enables our customers to
simultaneously educate large, geographically dispersed groups on new
initiatives, products or processes. Our innovative instructional design
encourages participants to interact with tutors and peers through e-mail and the
Internet. In addition, our solutions allow customers to generate revenue
opportunities by offering branded e-learning solutions to their customers. Our
customers use our Web-based tools to verify course completion and knowledge
acquisition.
We intend to leverage our expertise in course design and delivery to
establish our solution as the e-learning portal for our customers as they
establish and expand their education initiatives. Key elements of our strategy
include:
- enhancing our end-to-end e-learning solutions;
- developing long-term strategic relationships with our customers;
- introducing new courses and leveraging our existing courses across
multiple customers and industries;
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- expanding our sales network of learning resellers, consulting companies,
development partners and Internet portals; and
- delivering our e-learning solutions in strategically targeted
international markets.
We are located at 1098 Harrison Street, San Francisco, California 94103,
and our telephone number is (415) 625-4000. Our corporate Web site is located at
www.digitalthink.com. Statements and information contained on our Web site are
not part of this prospectus. We were incorporated in California in April 1996
and will reincorporate in Delaware prior to the completion of this offering.
------------------
DigitalThink(R), the Internet Learning Solution(TM), Smart Companies Get
It(TM) and the DigitalThink logo are trademarks and service marks of ours. Other
service marks, trademarks and trade names referred to in this prospectus are the
property of their respective owners.
THE OFFERING
Common stock offered............... shares
Common stock to be outstanding
after this offering................ shares
Use of proceeds.................... General corporate purposes, including
working capital.
Proposed Nasdaq National Market
symbol............................. DTHK
The total number of outstanding shares of our common stock above is based
on:
- 4,235,566 shares of our common stock outstanding as of September 30,
1999; and
- automatic conversion of all outstanding shares of preferred stock upon
completion of this offering, including 3,999,617 shares issued in
November 1999, into 22,814,590 additional shares of common stock.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PERIOD FROM YEAR ENDED SIX MONTHS ENDED
APRIL 22, 1996 MARCH 31, SEPTEMBER 30,
(INCEPTION) TO ----------------- ---------------------
MARCH 31, 1997 1998 1999 1998 1999
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STATEMENTS OF OPERATIONS DATA:
Revenues:
Delivered Learning fees........................ $ 5 $ 148 $ 1,034 $ 372 $ 1,450
Learning Solution services..................... 20 52 813 317 1,860
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Total revenues............................ 25 200 1,847 689 3,310
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Total costs and expenses........................... 945 3,855 7,764 3,150 9,539
------ ------- ------- ------- -------
Loss from operations............................... (920) (3,655) (5,917) (2,461) (6,229)
Net loss........................................... $ (888) $(3,469) $(5,751) $(2,414) $(6,069)
====== ======= ======= ======= =======
Basic and diluted loss per common share............ $(0.29) $ (1.27) $ (2.26) $ (0.86) $ (2.14)
====== ======= ======= ======= =======
Shares used in computing loss per share............ 4,010 4,036 4,095 4,083 4,182
====== ======= ======= ======= =======
Pro forma basic and diluted loss per common
share............................................ $ (0.56) $ (0.23) $ (0.39)
======= ======= =======
Shares used in computing pro forma loss per
share............................................ 16,687 14,987 22,946
======= ======= =======
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SEPTEMBER 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4,219 $ 4,219
Working capital............................................. 2,238 2,238
Total assets................................................ 8,951 8,951
Redeemable convertible preferred stock...................... 27,572 --
Accumulated deficit......................................... (24,512) (24,512)
Total stockholders' equity (deficit)........................ (23,992) 29,527
</TABLE>
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
The pro forma balance sheet data reflects the sale of 3,999,617 shares of
preferred stock in November 1999 for a net purchase price of $25.9 million and
the conversion of all outstanding shares of preferred stock into shares of
common stock upon the completion of this offering.
The as adjusted amounts above give effect to the sale of the
shares of common stock in this offering at an assumed initial offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses.
The above information excludes:
- 2,794,758 shares of common stock issuable upon exercise of options
outstanding as of September 30, 1999 at a weighted exercise price of
$0.48 per share;
- 344,676 shares of common stock available for future grant at September
30, 1999 under our 1996 stock plan; and
- 200,000 additional shares of common stock available for issuance under
our 1999 employee stock purchase plan immediately following this
offering.
Unless otherwise specifically stated, information throughout this
prospectus:
- assumes no exercise of the underwriters' over-allotment option; and
- assumes our reincorporation in Delaware before the completion of this
offering and the filing of our amended and restated certificate of
incorporation upon completion of this offering.
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RISK FACTORS
You should consider the risks described below before making an investment
decision. The risks and uncertainties described below are not the only ones
facing our company. Our business, financial condition or results of operations
could be materially adversely affected by any of the following risks. The
trading price of our common stock could decline due to any of the following
risks, and you might lose all or part of your investment.
OUR LIMITED OPERATING HISTORY AND THE NEW AND EMERGING E-LEARNING MARKET MAKES
IT DIFFICULT TO EVALUATE OUR BUSINESS AND FUTURE PROSPECTS.
We commenced operations in April 1996 and did not begin to generate
significant revenue until 1998. We are still in the early stages of our
development, which, when combined with the new and emerging market for Web-based
delivery of learning programs, or e-learning market, make it difficult to
evaluate our business or our prospects. Because of our limited operating
history, we have a limited and unproven ability to predict the trends that may
emerge in the e-learning market and affect our business. The uncertainty of our
future performance, in general, and the uncertainty regarding the acceptance of
e-learning, in particular, increases the risk that we will be unable to build a
sustainable business and that the value of your investment will decline.
WE HAVE A HISTORY OF LOSSES AND A LARGE ACCUMULATED DEFICIT, WE EXPECT FUTURE
LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have experienced losses in each quarter since our inception and expect
that our losses will increase in each quarter at least through the end of fiscal
2001. Our accumulated deficit as of September 30, 1999, was $24.5 million. We
have never achieved a profitable quarter and we expect to continue to incur
increasing quarterly losses as we expand our operations and fund our growth. We
plan to increase our operating expenses to market, sell and support our
e-learning solutions, build infrastructure and hire additional staff. We also
plan to invest heavily to develop and acquire new course offerings with new
areas of expertise, which will increase operating expenses. As a result, we will
need to significantly increase our quarterly revenues to achieve profitability.
If we do not generate sufficient revenues or become profitable within a
timeframe expected by public market analysts or investors, the market price of
our common stock will likely decline. Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly or annual
basis in the future.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS WHICH COULD
ADVERSELY AFFECT OUR STOCK PRICE.
Our revenue and operating results are volatile and difficult to predict.
Our quarterly results have varied in the past and are likely to vary
significantly from quarter to quarter in the future. As a result, in some future
quarter or quarters our operating results may be below the expectations of
public market analysts or investors. In such an event, the price of our common
stock may decline significantly. Some of the factors that may influence the
volatility of our operating results, many of which are outside of our control,
include:
- the lack of market acceptance of e-learning solutions, in general, or of
our products and services, in particular;
- our dependence on a relatively small number of customers for our
revenues, which heightens the impact of any delay in a particular
customer's order on our quarterly revenues;
- the corporate learning budgets of our prospective customers;
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- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for corporate education generally;
- the introduction of new products and services by us or by our
competitors;
- our ability to market and sell our products and services effectively and
within a reasonable and predictable timetable;
- unexpected costs and delays relating to the expansion of operations,
including acquisitions of new course content; and
- the occurrence of technical difficulties with our Web-hosting system or
extended periods of system downtime.
Due to the above factors, revenue and operating results for the foreseeable
future are difficult to forecast and you should not rely on period-to-period
comparisons of results of operations as an indication of our future performance.
Our current and future expense estimates are largely fixed and based, to a
significant degree, on our estimates of future revenue. We will likely be unable
to, or may elect not to, reduce spending quickly enough to offset any unexpected
revenue shortfall. Therefore, any significant shortfall in revenue in relation
to our expectations would cause our quarterly results for a particular period to
decline.
In addition, in accordance with our revenue recognition policy, our ability
to book revenue depends on specific customer acceptance milestones, some of
which are out of our control, and the pace of participant course registrations.
WE HAVE RELIED, AND EXPECT TO CONTINUE TO RELY, ON A LIMITED NUMBER OF CUSTOMERS
FOR THE MAJORITY OF OUR REVENUES, AND ANY DELAY IN RECEIVING REVENUES FROM THESE
CUSTOMERS COULD HARM OUR FINANCIAL PERFORMANCE IN ANY QUARTER.
Each quarter, we derive a significant portion of our revenues from a small
number of customers. As a result, our operating results could suffer if we lost
any of these customers or if revenues from these customers are delayed in any
future fiscal period. For example, in the first two quarters of fiscal 2000,
KPMG LLP and Adobe Systems accounted for approximately 36% of our total
revenues. We expect that we will continue to depend upon a small number of
customers for a significant portion of our revenues.
OUR FUTURE GROWTH DEPENDS ON SUCCESSFUL HIRING AND RETENTION, AND WE MAY BE
UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL WE NEED TO SUCCEED.
The growth of our business and revenues depend in large part upon our
ability to attract and retain sufficient numbers of highly skilled employees,
particularly course content developers, Web designers and technical and sales
personnel. Additionally, we primarily rely on individual third parties to
provide the majority of our tutoring and our ability to adequately support our
courses is directly tied to the availability and competency of these third-party
tutors. Qualified personnel are in great demand throughout education and
Internet-related industries and we require a relatively rare blend of skills.
The demand for qualified personnel is particularly acute in the San Francisco
Bay Area market in which we compete for these personnel due to the large number
of Internet companies and the low unemployment rate in the region. Our failure
to attract and retain sufficient skilled personnel and tutors may limit the rate
at which we can grow, or it may otherwise harm our business and financial
performance.
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IF WE ARE UNSUCCESSFUL IN PROMOTING BRAND AWARENESS, WE MAY BE UNABLE TO GROW
OUR BUSINESS.
The development of our brand within our target markets is critical to
achieving widespread acceptance and market penetration. The e-learning market is
new and evolving and our long-term success is dependent on our ability to be
perceived as a leading provider. We have in the past dedicated limited resources
to marketing, public relations and other brand development activities, and have
only recently hired personnel dedicated to this task. As a result, our efforts
in developing this brand awareness may not be successful. Furthermore, many of
our future sales opportunities will involve the development of private label
e-learning portals branded by our customers. These implementations will only
provide us with a limited branding opportunity. The factors which could prevent
us from successfully developing our DigitalThink brand, including the emergence
of more successful competitors and performance problems that lead to customer
dissatisfaction. If we fail to successfully promote and maintain our brand, our
operating margins and our growth may decline.
OUR BUSINESS WILL SUFFER IF E-LEARNING IS NOT WIDELY ACCEPTED.
The market for e-learning solutions is new and rapidly evolving. We expect
that we will continue to engage in intensive marketing and sales efforts to
educate prospective customers about the benefits of our e-learning solutions.
The Internet is a relatively new means for delivering corporate learning and,
therefore, we have only limited experience regarding its effectiveness relative
to traditional education methods. In addition, there are a number of factors
that could impact the acceptance of our e-learning solutions, which are new and
largely untested compared to more established educational methods, including:
- companies that have historically relied on, or invested in, traditional
educational methods may be reluctant or slow to adopt Web-based
e-learning solutions;
- many of our potential customers have allocated only a limited portion of
their education budgets to e-learning; and
- end users may not use online learning solutions effectively.
If the market for e-learning fails to develop or develops more slowly than we
expect, we will not achieve our growth and revenue targets and the value of our
common stock will likely decline.
THE VARIABILITY AND LENGTH OF OUR SALES CYCLE FOR OUR E-LEARNING SOLUTIONS MAY
MAKE OUR OPERATING RESULTS UNPREDICTABLE AND VOLATILE.
The period between our initial contact with a potential customer and the
first purchase of our solution by that customer typically ranges from three to
nine months, and in some cases can be considerably longer. Additionally, the
initial sales are often only a fraction of the potential total value of the
customer relationship and the full sales potential may not be realized for
several years. Because we rely on large sales for a substantial portion of our
revenues, these long sales cycles can have a particularly significant effect on
our financial performance in any quarter. Factors which may contribute to the
variability and length of our sales cycle include:
- the time required to educate potential customers about the benefits of
our e-learning solutions;
- the time it takes our potential customers to assess the value of online
solutions compared to more traditional educational solutions;
- the time it takes our potential customers to evaluate competitive online
solutions;
- our potential customers' internal budget and approval processes; and
- the extended periods most large corporations require to make purchasing
decisions.
As a result of our lengthy sales cycle, we have only a limited ability to
forecast the timing and size of specific sales. This, in turn, makes it more
difficult to predict quarterly financial performance.
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THE E-LEARNING MARKET IS HIGHLY COMPETITIVE AND WE MAY NOT HAVE ADEQUATE
RESOURCES TO COMPETE EFFECTIVELY, ACQUIRE AND RETAIN CUSTOMERS AND ATTAIN FUTURE
GROWTH.
The e-learning market is intensely competitive, evolving quickly and is
subject to rapid technological change, shifts in customer demands and evolving
learning methodologies. Although the e-learning market is highly fragmented with
no single competitor accounting for a dominant market share, competition is
intense. We compete primarily with:
- third-party suppliers of instructor-led education and learning;
- internal education departments; and
- other suppliers of technology-based learning solutions.
We may not provide solutions that compare favorably with traditional or new
instructor-led techniques or other technology-based learning methodologies. Our
competitors vary in size and in the scope and breadth of the courses and
services they offer. Several of our competitors have longer operating histories
and significantly greater financial, technical and marketing resources. In
addition, larger companies may enter the e-learning market through the
acquisition of our competitors. We anticipate that the lack of significant entry
barriers to the e-learning market will allow other competitors to enter the
market, increasing competition.
To succeed, we must continue to expand our course offerings, upgrade our
technology and distinguish our solution. We may not be able to do so
successfully. Any failure by us to anticipate or respond adequately to changes
in technology and customer preferences, or any significant delays in course
development or implementation, could impact our ability to capture market share.
As competition continues to intensify, we expect the e-learning market to
undergo significant price competition. We also expect to face increasing price
pressures from customers as they demand more value for their learning related
expenditures.
Increased competition or our inability to compete successfully against
current and future competitors could result in reduced operating margins, as
well as loss of market share and reduction in brand recognition.
WE MUST DELIVER COURSES THAT MEET THE NEEDS OF OUR CUSTOMERS OR OUR BUSINESS
WILL SUFFER.
To be competitive, we must develop and introduce on a timely basis new
course offerings which meet the needs of companies seeking to use our e-learning
solutions. Furthermore, the quality of our learning solutions depends in large
part on our ability to frequently update our courses and develop new content as
the underlying subject matter changes. The quality of our courses depends on our
receiving content and cooperation from the following sources:
- customers, who provide us with specific subject matter expertise for
incorporation into many of our courses; and
- third-party content developers, who provide us with the curriculum for
our catalog courses.
If we do not receive materials from the above sources in a timely manner,
we may not be able to develop or deliver specialized courses for our customers
in the time frame they are expecting. Even if we do receive necessary materials
from third parties, if our employees and consultants, upon whom we rely for
instructional planning and Web design expertise, fail to complete their work in
a timely manner, we will be unable to meet customer expectations.
In the past, we have experienced delays in obtaining access to our
customers' expertise. Any prolonged delays, even when caused by our customers,
can damage our reputation and lead to a failure to satisfy a customer's demands.
We do not have exclusive arrangements or long-term contracts with any of our
third-party content developers, and some of these developers may compete
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with us. If one or more of these content developers were to stop working with
us, we would have to rely on our employees or other content developers to
develop our courses. New content or enhancements may not be available from
reliable alternative sources on reasonable terms, or at all. If we need to find
new sources for content, our course development costs could increase and we may
delay the introduction of new courses. In addition, our courses often need to be
updated due to changes in technology, new product introductions and the needs or
demands of our customers, and we may be unable to meet these demands on a timely
basis.
TO REMAIN COMPETITIVE, WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN OUR
INDUSTRY.
The e-learning market is characterized by rapidly changing technologies,
frequent new service introductions, short development cycles and evolving
standards. We must adapt to rapidly changing technologies by maintaining and
improving the performance features and reliability of our courses. We may
experience technical difficulties that could delay or prevent the successful
development, introduction or marketing of new courses and related services. For
instance, adding streaming video capabilities to our courses may pose a serious
technical challenge and could have a negative impact on our ability to develop
and deliver courses on a profitable basis. In addition, any new enhancements to
our courses must meet the requirements of our current and prospective customers
and participants. We could incur substantial costs to modify our services or
infrastructure to adapt to rapid technological change.
THE CONTINUED SERVICES AND LEADERSHIP OF SENIOR MANAGEMENT ARE CRITICAL TO OUR
ABILITY TO MAINTAIN OUR GROWTH AND ANY LOSS OF KEY PERSONNEL COULD ADVERSELY
AFFECT OUR BUSINESS.
Our future success depends to a significant degree on the skills and
efforts of Peter Goettner, one of our founders and our Chairman of the Board,
President and Chief Executive Officer, as well as other key senior sales,
technical and marketing executives. None of these persons are bound by
employment agreements and each would be difficult to replace. If we lose the
services of Mr. Goettner or any other senior executives, and especially if one
or more of these executives joins a competitor or forms a competing company, our
business and our ability to successfully implement our business plan could be
seriously harmed.
WE ARE GROWING RAPIDLY AND IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, WE MAY
NOT BE ABLE TO TAKE ADVANTAGE OF MARKET OPPORTUNITIES, WHICH WOULD SEVERELY
IMPACT OUR ABILITY TO COMPETE.
Our recent rapid growth has placed, and future anticipated growth is likely
to continue to place, a considerable strain on our managerial resources. We have
grown from 33 employees on January 1, 1998 to 167 employees on September 30,
1999. In particular, several members of our senior management joined us within
the last several months, including Michael Pope, our Chief Financial Officer,
and Linda Drumright, our Vice President of Engineering. These individuals have
not previously worked with our existing management team.
We plan to continue to expand our sales and marketing, administration,
content and technology development and tutoring organizations. In order to
manage this growth effectively, we will need to improve our financial and
managerial controls, our reporting systems and procedures. In addition, we will
need to expand, train and manage our work force, which we anticipate will expand
significantly. If we fail to manage our growth effectively, we will not be able
to capitalize on attractive business opportunities and may fail to adequately
support our existing customer base. Should this occur, our reputation and
competitive position could be seriously damaged.
10
<PAGE> 13
IF WE DO NOT DEVELOP OUR INDIRECT SALES CHANNELS, WE WILL BE LESS LIKELY TO
INCREASE OUR REVENUES.
To date, substantially all of our sales have been made through direct sales
efforts. We believe that we will need to diversify our sales efforts if we are
to be successful. If we do not develop indirect sales channels, we may miss
sales opportunities that might be available through these other channels. For
example, domestic and international resellers may be able to reach new customers
more quickly or more effectively than our direct sales force. Although we are
currently investing, and plan to continue to invest, significant resources to
develop these indirect sales channels, we may not succeed in establishing a
channel that can effectively market our e-learning solutions. In addition, we
may not be able to manage conflicts across our various sales channels, and our
focus on increasing sales through our indirect channel may divert management
resources and attention from direct sales.
IN ORDER TO ADDRESS THE EXPECTED GROWTH IN OUR BUSINESS WE MUST CONTINUE TO
IMPROVE THE CAPACITY OF OUR COMPUTER NETWORK; ANY FAILURE OF OUR NETWORK WOULD
DIRECTLY IMPACT OUR ABILITY TO DELIVER COURSES AND WOULD LIKELY LEAD TO
SIGNIFICANT LOSSES AND CUSTOMER DISSATISFACTION.
The continuing and uninterrupted performance of our internal computer
network and Internet course servers is critical to our success. Any system
failure that causes interruptions or delays in our ability to make our courses
accessible to customers could reduce customer satisfaction and, if sustained or
repeated, could reduce the attractiveness of our courses and services. We are
particularly vulnerable to network failures during periods of rapid growth when
our roster of courses and participants can outpace our network capacity. The
continued viability of our business requires us to support multiple participants
concurrently and deliver fast response times with minimal network delays. We are
continuing to add system capacity, but we may not be able to adequately address
network capacity, especially during periods of rapid growth. Any failure to meet
these capacity requirements could lead to additional expenditures, lost business
opportunities and damage to our reputation and competitive position.
In addition, we must protect our various computer systems against damage
from fire, power loss, telecommunications failures, vandalism and other
malicious acts and similar unexpected adverse events. Despite precautions we
have taken, unanticipated problems affecting our systems in the future could
cause interruptions or delays in the delivery of our courses. The failure of our
telecommunications provider or our network infrastructure provider, which
together provide us with our Internet connection, to provide sufficient and
timely data communications capacity and network infrastructure could cause
service interruptions or slower response times, and reduce customer demand for
our courses and services.
ANY FAILURE OF, OR CAPACITY CONSTRAINTS IN, OUR SYSTEMS OR THE SYSTEMS OF THIRD
PARTIES ON WHICH WE RELY COULD ADVERSELY AFFECT OUR BUSINESS.
Our communications hardware and some of our other computer hardware
operations are located at the facilities of Exodus Communications, Inc. in Santa
Clara, California. Unexpected events such as natural disasters, power losses and
vandalism could damage our systems. Telecommunications failures, computer
viruses, electronic break-ins, earthquakes, fires, floods, other natural
disasters or other similar disruptive problems could adversely affect the
operation of our systems. Our insurance policies may not adequately compensate
us for any losses that may occur due to any damages or interruptions in our
systems. Accordingly, we could be required to make capital expenditures in the
event of damage. We do not currently have fully redundant systems or a formal
disaster recovery plan.
Our Web site must accommodate a high volume of traffic and deliver courses
and other information in a timely manner. Our Web site has experienced in the
past, and may experience in the future, slow response times for a variety of
reasons. We periodically experience unscheduled system
11
<PAGE> 14
downtime, which results in our Web site being inaccessible to participants.
Although we have not suffered material losses during these downtimes, if we
experience extended downtime in the future, customers and our course
participants could lose confidence in our services.
WE CURRENTLY INTEND TO EXPAND INTERNATIONALLY AND, AS A RESULT, WE COULD BECOME
SUBJECT TO NEW RISKS.
Our strategy includes international expansion of our business. This will
require significant management attention and financial resources and could harm
our financial performance by increasing our costs. We have very limited
experience in marketing, selling and distributing courses internationally. We
currently have no employees located outside of the United States. We could
become subject to new risks as we expand internationally, including:
- little or no protection of our intellectual property rights in some
foreign countries;
- difficulties in staffing and managing international operations;
- our inability to develop content localized for international
jurisdictions;
- protectionist laws and business practices that favor local competition;
- multiple, conflicting and changing governmental laws and regulations;
- slower adoption of e-learning solutions;
- different learning styles;
- longer sales and payment cycles;
- greater difficulties in collecting accounts receivable;
- fluctuations in currency exchange rates;
- political and economic instability;
- potentially adverse tax consequences; and
- increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries.
If we are unable to successfully enter or compete in international markets,
our growth may be slowed.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS AND
OUR INTERNET DOMAIN NAME COULD LEAD TO UNAUTHORIZED USE OF OUR COURSES OR
RESTRICT OUR ABILITY TO MARKET OUR COURSES.
Our success depends, in part, on our ability to protect our proprietary
rights and technology. We rely on a combination of copyrights, trademarks,
service marks, trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. Despite our efforts to protect
these rights, unauthorized parties may attempt to duplicate or copy our courses
or our delivery technology or obtain and use information that we regard as
proprietary. In addition, the laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United States. As
a consequence, effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our courses and
services are made available.
We have registered the trademark DigitalThink and we own the domain name
digitalthink.com. It is possible, however, that third parties could acquire
trademarks or domain names that are substantially similar or conceptually
similar to our trademarks or domain names. This could decrease the value of our
trademarks or domain names and could hurt our business. The regulation of domain
12
<PAGE> 15
names in the United States and in foreign countries is subject to change. The
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. As a result, we may not
acquire or maintain exclusive rights to our domain names in the United States or
in other countries in which we conduct business.
We may from time to time encounter disputes over rights and obligations
concerning intellectual property. We obtain the content for many of our courses
from our customers and it is possible that the use of this content may subject
us to the intellectual property claims of third parties. Although we generally
seek indemnification from our customers to protect us from these types of
claims, we may not be fully protected from extensive damage claims or claims for
injunctive relief. In addition, our customers may assert that some of the
courses we develop for our general catalog or under contract with other
customers may improperly use their proprietary content. Our involvement in any
litigation to resolve intellectual property ownership matters would require us
to incur substantial costs and divert management's attention and resources. In
addition, we cannot predict the effect of a failure to prevail in any litigation
of this kind.
OUR FUTURE GROWTH DEPENDS ON THE CONTINUED USE, AND POPULARITY, OF THE INTERNET.
Our business depends on the continued growth and acceptance of the Internet
by our customers, prospective customers and their customers, employees and
partners. A number of factors may inhibit Web usage, including inadequate
network infrastructure, security concerns, inconsistent quality of service and
lack of availability of cost-effective, high-speed service. As Internet usage
grows, the communications infrastructure may not be able to support the demands
placed on it by this growth and its performance and reliability may decline. In
addition, Web sites have experienced interruptions in their service as a result
of outages and other delays occurring throughout the Internet network
infrastructure. If these outages or delays frequently occur in the future,
Internet usage, as well as the usage of our Web site, could grow more slowly or
decline. In this event, our e-learning solutions would be less attractive and
our future growth prospects would be impaired.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND DAMAGE OUR FINANCIAL PERFORMANCE.
Although we currently are not in negotiation with any parties and have no
contracts or letters of intent relating to any acquisition or investment, we may
acquire or make investments in complementary businesses, technologies, services
or products if appropriate opportunities arise. If we acquire a company, we
could have difficulty integrating that company's personnel, operations and
technology with our business. In addition, the key personnel of the acquired
company may decide not to work for us. If we make other types of acquisitions,
we could have difficulty in integrating the acquired products, services or
technologies into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees, increase our expenses and
adversely affect our results of operations due to the amortization of goodwill.
Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders.
FUTURE REGULATION OF THE INTERNET COULD REDUCE THE VALUE OF OUR E-LEARNING
SOLUTIONS.
Laws and regulations that apply to the Internet may become more prevalent
in the future. The laws governing the Internet remain largely unsettled. Our
business model could be damaged if regulations were enacted that restricted our
ability to collect or use course registration information about our
participants. The governments of foreign countries may also attempt to regulate
electronic commerce. New laws could dampen the growth in use of the Internet
generally and decrease the acceptance of the Internet as a commercial medium. In
addition, existing laws such as those governing intellectual property and
privacy may be interpreted to apply to the Internet. The federal
13
<PAGE> 16
government, state governments or other governmental authorities could also adopt
or modify laws or regulations relating to the Internet. In 1998, the United
States government enacted a three-year moratorium prohibiting states and local
governments from imposing new taxes on electronic commerce transactions. Upon
expiration of this moratorium, if it is not extended, states or other
governments might levy sales or use taxes on electronic commerce transactions.
An increase in the taxation of electronic commerce transactions might also make
the Internet a less attractive medium for education for our customers.
WE MAY REQUIRE ADDITIONAL FUNDING AND OUR PROSPECTS OF OBTAINING THIS FUNDING
ARE UNCERTAIN.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 12
months. We may need to raise additional funds, however, to fund more rapid
expansion, to develop new course categories, to enhance existing services, to
respond to competitive pressures or to acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of our
stockholders will be reduced and such securities may have rights, preferences or
privileges senior to those of our stockholders. Additional financing may not be
available on terms favorable to us, or at all. If adequate funds are not
available, or are not available on acceptable terms, our ability to fund our
expansion, take advantage of unanticipated opportunities, develop or enhance our
services or otherwise respond to competitive pressures would be significantly
limited.
POTENTIAL SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.
If our stockholders sell substantial amounts of our common
stock -- including shares issued upon the exercise of outstanding options -- in
the public market following this offering, the market price of our common stock
could fall. 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. The shares sold in this offering will be freely tradable
immediately upon completion of this offering. In addition, on the 181st day
after completion of this offering, a large number of shares held by existing
stockholders will be freely tradable. Sales of these shares could cause the
market price of our common stock to decline. For a more detailed discussion of
when shares will become freely tradable, see "Shares Eligible for Future Sale."
PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN OUR CONTROL, EVEN IF THIS WOULD BE BENEFICIAL TO
STOCKHOLDERS.
Provisions of our amended and restated certificate of incorporation, bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. These provisions
include:
- a classified board of directors, in which our board is divided into three
classes with three year terms with only one class elected at each annual
meeting of stockholders, which means that a holder of a majority of our
common stock will need two annual meetings of stockholders to gain
control of the board;
- a provision which prohibits our stockholders from acting by written
consent without a meeting;
- a provision which permits only the board of directors, the president or
the chairman to call special meetings of stockholders; and
- a provision which requires advance notice of items of business to be
brought before stockholders meetings.
14
<PAGE> 17
In addition, amending any of the above provisions will require the vote of
the holders of 66 2/3% of our outstanding common stock.
OUR EXISTING STOCKHOLDERS HOLD A MAJORITY OF OUR STOCK AND WILL BE ABLE TO
CONTROL MATTERS REQUIRING STOCKHOLDER APPROVAL.
Immediately after the closing of this offering, approximately % of our
outstanding capital stock will be owned by our directors and executive officers
or their affiliated entities. As a result, these stockholders, acting together,
would be able to control all matters requiring approval by the stockholders,
including the election of all directors and approval of significant corporate
transactions.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value of
$ per share. If the holders of outstanding options exercise those options,
you will incur further dilution. For more information on the calculation of the
amount of this dilution, see "Dilution."
OUR SECURITIES HAVE NO PRIOR MARKET AND THE PRICE OUR COMMON STOCK MAY DECLINE
AFTER THIS OFFERING.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in DigitalThink may not be sufficient to
lead to the development of a trading market and even if it does, that market may
never become highly liquid. The initial public offering price for the shares
will be determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
OUR STOCK PRICE COULD BE VOLATILE AND COULD DECLINE FOLLOWING THIS OFFERING.
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. Investors may not be able to resell their
shares at or above the initial public offering price. In addition, our results
of operations during future fiscal periods following the completion of this
offering may fail to meet the expectations of stock market analysts and
investors. In such event, the market price of our stock could fall.
15
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "forecasts," "predicts," "intend," "potential" or
"continue" or the negative of such terms or other comparable terminology. In
addition, these forward-looking statements include, but are not limited to,
statements regarding the following: (1) our ability to compete effectively in
the e-learning market, (2) our plans to develop new products, and (3) our
business strategies and plans. These statements are only predictions.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ million from
the sale of the shares of common stock -- approximately $ million if the
underwriters exercise their over-allotment option in full -- at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
We expect to use the net proceeds from this offering for general corporate
purposes, including working capital, increased technical capabilities and the
development of new courses. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in interest-bearing, investment-grade
securities.
A portion of the net proceeds may be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, we may
evaluate potential acquisitions of these businesses, products or technologies.
We have no current plans, agreements or commitments, and are not currently
engaged in any negotiations regarding any such transaction.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, to support the development
of our business and do not anticipate paying any cash dividends in the
foreseeable future.
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<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization at September 30, 1999 on
the following three bases:
- on an actual basis;
- on a pro forma basis to reflect the automatic conversion of all
outstanding preferred stock, including 3,999,617 shares of preferred
stock issued in November 1999 for net proceeds of $25.9 million, into
22,814,590 shares of common stock; and
- on a pro forma as adjusted basis to reflect the sale of shares of our
common stock at an assumed public offering price of $ per share,
after deducting estimated underwriting discounts and commissions and
estimated offering expenses, and the receipt of the net proceeds.
The capitalization information set forth in the table below is qualified by
and should be read in conjunction with our Financial Statements and related
Notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------
PRO
FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable convertible preferred stock, $0.001 par
value: 25,000,000 shares authorized, 18,814,973 shares
issued and outstanding (actual); no shares authorized,
issued and outstanding (pro forma and pro forma as
adjusted).............................................. $ 27,572 $ -- $ --
======== ======== ========
Stockholders' equity (deficit):
Preferred stock, $0.001 par value: none authorized,
issued and outstanding (actual); 10,000,000 shares
authorized, no shares issued or outstanding (pro
forma and pro forma as adjusted).................. -- -- --
Common stock, $0.001 par value: 51,500,000 shares
authorized, 4,235,566 shares issued and
outstanding (actual); 100,000,000 shares
authorized, 27,050,156 shares issued and
outstanding (pro forma); 100,000,000 shares
authorized, shares issued and
outstanding (pro forma as adjusted)............... $ 2,399 $ 55,918 $ --
Deferred stock compensation.......................... (1,879) (1,879) (1,879)
Accumulated deficit.................................. (24,512) (24,512) (24,512)
-------- -------- --------
Total stockholders' equity (deficit)......... (23,992) 29,527
-------- --------
Total capitalization......................... $ 3,580 $ 29,527
======== ========
</TABLE>
The above information excludes:
- 2,794,758 shares of common stock issuable upon exercise of options
outstanding as of September 30, 1999 at a weighted exercise price of
$0.48 per share;
- 344,676 shares of common stock available for future grant at September
30, 1999 under our 1996 stock plan; and
- 200,000 additional shares of common stock available for issuance under
our 1999 employee stock purchase plan immediately following this
offering.
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<PAGE> 20
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value, which equals total assets less
intangible assets and total liabilities, by the number of outstanding shares of
common stock.
At September 30, 1999, our pro forma net tangible book value, after giving
effect to the automatic conversion of all outstanding shares of preferred stock
into common stock upon the closing of this offering was approximately $
million, or approximately $ per share of common stock. After giving effect
to our sale of shares of common stock in this offering at an assumed
public offering price of $ per share, less estimated underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible book
value at September 30, 1999 would have been approximately $ , or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $ per share to purchasers of common
stock in this offering, or % of the initial offering price per share.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at
September 30, 1999.................................... $ 1.09
Increase per share attributable to this offering.......
------
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table shows on a pro forma as adjusted basis at September 30,
1999, after giving effect to the sale of the shares of common stock at
an assumed initial public offering price of $ per share, less estimated
underwriting discounts and commissions and estimated offering expenses, and
conversion of all preferred stock into common stock, for the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price paid per share by existing stockholders and by new investors
purchasing common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % % $
New investors........................ % % $
------- --- --------
Total........................... 100% 100%
======= === ========
</TABLE>
The foregoing discussion and table are based on actual shares outstanding
on September 30, 1999. The foregoing discussion assumes no exercise of any stock
option outstanding as of September 30, 1999. As of September 30, 1999, there
were options outstanding to purchase 2,794,758 shares of common stock at a
weighted average exercise price of $0.48 per share. To the extent any of these
options are exercised, there will be further dilution to investors.
18
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data as of March 31, 1998 and 1999 and
September 30, 1999 and for the period ended March 31, 1997, the years ended
March 31, 1998 and 1999 and the six months ended September 30, 1999 are derived
from the Financial Statements included elsewhere in this prospectus, which have
been audited by Deloitte & Touche LLP, independent auditors. The financial data
for the six months ended September 30, 1998 is derived from unaudited financial
statements included elsewhere in this prospectus. The financial data as of March
31, 1997 is derived from audited financial statements not included in this
prospectus. We have prepared the unaudited information on the same basis as the
audited financial statements and have included all adjustments, consisting of
only normal recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results. When you read this
selected financial data, it is important that you also read the Financial
Statements and related Notes included in this prospectus, as well as the section
of this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Our historical results are not necessarily
indicative of our future results.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED SIX MONTHS ENDED
APRIL 22, 1996 MARCH 31, SEPTEMBER 30,
(INCEPTION) TO ----------------- -----------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Delivered Learning fees................ $ 5 $ 148 $ 1,034 $ 372 $ 1,450
Learning Solution services............. 20 52 813 317 1,860
------- ------- ------- ------- -------
Total revenues.................... 25 200 1,847 689 3,310
Costs and expenses:
Content production and development..... 262 925 2,018 627 2,487
Web delivery and customer support...... 29 363 855 348 804
Sales and marketing.................... 188 1,400 2,970 1,334 3,416
Research and development............... 299 665 1,005 490 1,365
General and administrative............. 157 419 622 258 774
Depreciation and amortization.......... 10 83 236 93 251
Stock-based compensation............... -- -- 58 -- 442
------- ------- ------- ------- -------
Total costs and expenses.......... 945 3,855 7,764 3,150 9,539
------- ------- ------- ------- -------
Interest and other income................ 32 186 166 47 160
------- ------- ------- ------- -------
Net loss................................. $ (888) $(3,469) $(5,751) $(2,414) $(6,069)
======= ======= ======= ======= =======
Accretion of redeemable convertible
preferred stock........................ $ 278 $ 1,669 $ 3,518 $ 1,092 $ 2,869
======= ======= ======= ======= =======
Loss attributable to common
stockholders........................... $(1,166) $(5,138) $(9,269) $(3,506) $(8,938)
======= ======= ======= ======= =======
Basic and diluted loss per common
share.................................. $ (0.29) $ (1.27) $ (2.26) $ (0.86) $ (2.14)
======= ======= ======= ======= =======
Shares used in computing loss per
share.................................. 4,010 4,036 4,095 4,083 4,182
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
1997 1998 1999 SEPTEMBER 30, 1999
------- ------- -------- ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 680 $ 2,862 $ 9,455 $ 4,219
Working capital............................. 608 2,615 8,353 2,238
Total assets................................ 786 3,580 11,330 8,951
Redeemable convertible preferred stock...... 1,870 9,329 24,583 27,572
Accumulated deficit......................... (1,166) (6,305) (15,574) (24,512)
Total stockholders' deficit................. (1,161) (6,298) (15,505) (23,992)
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this prospectus,
the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and
similar expressions as they relate to us are included to identify
forward-looking statements. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading provider of online learning, or e-learning, solutions. We
were founded in April 1996. In fiscal 1997, we invested in both course content
development and research and development as we built our technology and course
offerings, releasing our first course in the later part of fiscal 1997. Since
fiscal 1998, we have made significant investments in course content development,
sales and marketing activities, research and development and Web delivery and
customer support. We have also experienced significant headcount increases
during this period. We grew from 40 employees on March 31, 1998 to 167 employees
as of September 30, 1999. Our revenues increased from approximately $200,000 in
the year ended March 31, 1998 to $1.8 million in the year ended March 31, 1999.
In the first six months of fiscal 1999, we have generated revenues of $3.3
million.
SOURCES OF REVENUE AND REVENUE RECOGNITION POLICY
We deliver our e-learning solutions through a catalog of existing courses
and through customized content tailored for the specific needs of our customers
and their partners and customers. Customized e-learning solutions have accounted
for, and we expect will continue to account for, a significant portion of our
total revenues.
We generate revenues from two sources, Delivered Learning fees and Learning
Solution services. Delivered Learning fees are generated from participants
registering for courses included in our course catalog as well as registrations
for courses developed by our Learning Solutions group. Our contracts typically
limit the period of time over which participants can register for and complete
an online course. We begin recognizing Delivered Learning fees when a
participant registers for a course. These fees are recognized ratably over the
term of the course, which is typically six months.
A significant portion of our revenues are derived from contracts that
require tailored e-learning solutions developed by our Learning Solutions group.
Typically, Learning Solution service revenues are generated from implementation
services, course content development, instructional plan design and release of
the course for access by participants. Learning Solution service revenues are
recognized as development progresses based on percentage of completion.
Delivered Learning fees and Learning Solution service revenues are each
recognized only when collection is probable and there is evidence that we have
completed our obligation. If a contract includes both Delivered Learning fees
and Learning Solution services, the revenues are apportioned consistent with the
terms of the contract and recognized in accordance with the policies detailed
above.
We have a limited operating history, which makes it difficult to forecast
future operating performance. Although our revenues have grown in recent
quarters, this growth rate may not be sustainable. In addition, we have never
been profitable and expect to incur significant net losses in the foreseeable
future as we substantially increase our content production and development,
sales and marketing, research and development and general and administrative
expenses. Net losses have
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increased in each of the last five quarters and we expect this trend will
continue at least through the first half of 2002. As of September 30, 1999, we
had an accumulated deficit of $24.5 million. In addition, we derive a
significant portion of our revenues from a limited number of customers and the
percentage of our revenues from any one customer can be material. Sales to our
largest two customers comprised 36% of our revenues in the first six months of
fiscal 2000. In fiscal 1999, no customer accounted for more than 10% of our
revenues. However, our five largest customers accounted for 40% of our revenues
in this period.
Stock-Based Compensation
Deferred stock compensation represents the difference between the estimated
fair value of the common stock for accounting purposes and the option exercise
price at the date of grant. We recorded deferred stock compensation of
approximately $389,000 in fiscal 1999 and $2.0 million in the six months ended
September 30, 1999 in connection with stock options granted during these
periods. This amount is amortized over the four year vesting period of the
options using the multiple option approach. Approximately $58,000 of stock-based
compensation expense was recorded during fiscal 1999 and approximately $442,000
was recorded in the six months ended September 30, 1999. Based on options
granted in October and November 1999, we expect to record additional deferred
stock compensation of $6.8 million. Based on options granted through November
30, 1999, we expect to record stock-based compensation expense of approximately
$1.6 million in the quarter ended December 31, 1999 and approximately $1.3
million in the quarter ended March 31, 2000. We expect that stock-based
compensation expense recorded in quarters after March 31, 2000 will decrease
sequentially. No stock-based compensation was recorded in fiscal 1998 or 1997.
See Note 6 of Notes to Financial Statements.
Net Operating Loss Carryforwards
From inception through September 30, 1999, we incurred net losses for
federal and state income tax purposes and have not recognized any income tax
provision or benefit. As of September 30, 1999, we had $15.4 million of federal
and $12.5 million of state net operating loss carryforwards to offset future
taxable income which expire in varying amounts through 2020 and 2005,
respectively. Given our limited operating history and losses incurred to date,
coupled with difficulty in forecasting future results, a full valuation
allowance has been recorded. Furthermore, as a result of changes in our equity
ownership from our preferred stock offerings and this offering, utilization of
net operating losses and tax credits may be subject to substantial annual
limitations. This is due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. The annual limitation may
result in the expiration of net operating losses and tax credits before
utilization. See Note 4 of Notes to Financial Statements.
HISTORICAL RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES
Revenues increased from approximately $689,000 in the six months ended
September 30, 1998 to $3.3 million for the six months ended September 30, 1999.
In the six months ended September 30, 1999, Delivered Learning fees represented
44% of revenues, and Learning Solution services represented 56% of revenues.
This is compared to the six months ended September 30, 1998, during which
Delivered Learning fees represented 54% of revenues and Learning Solution
services represented 46% of revenues. Delivered Learning fees increased from
approximately $372,000 in the six months ended September 30, 1998 to $1.4
million in the six months ended September 30, 1999 as both the number of
customers registering for courses and the number of courses we offered
increased. We expect that the number of courses and customers will continue to
increase as our content
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development projects progress. Learning Solution service revenues increased from
approximately $317,000 in the six months ended September 30, 1998 to $1.9
million in the six months ended September 30, 1999 as the number of projects and
the dollar size of projects increased. We expect both Delivered Learning fees
and Learning Solutions services will continue to account for a similarly
significant portion of our total revenues in the near term.
We market our products primarily through our direct sales force in the
United States. We also market our products through indirect channels including
learning resellers, consulting firms, customer/development partners and internet
portal partners. Internationally, we primarily use resellers. To date,
international revenues have not been material.
COSTS AND EXPENSES
Content Production and Development
Content production and development expenses include course development
personnel related costs, content acquisition costs, royalties paid to authors
and copy editing. Content production and development expenses increased from
approximately $627,000 in the six months ended September 30, 1998 to $2.5
million in the six months ended September 30, 1999. This increase was due to
higher content acquisition related fees and additional headcount primarily
engaged in course development. All content production and development expenses
have been expensed as incurred. Management believes that continued investment in
content development and acquisition is essential to expand our business. As a
result, we expect these content expenses to increase substantially in future
periods.
Web Delivery and Customer Support
Web delivery and customer support expenses include personnel related costs,
maintenance and facility costs required to operate our Web site. Web delivery
and customer support expenses increased from approximately $348,000 in the six
months ended September 30, 1998 to approximately $804,000 in the six months
ended September 30, 1999. This increase was attributable to increased personnel
and equipment related charges required to scale the capacity of our Web site. In
addition, expenses increased as our course offerings and customer base expanded.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel related costs,
commissions, advertising and other promotional expenses, and travel and
entertainment expenses. Sales and marketing expenses increased from $1.3 million
in the six months ended September 30, 1998 to $3.4 million in the six months
ended September 30, 1999. This increase reflects the costs associated with the
hiring of additional personnel and increased promotional activities. We expect
sales and marketing expenses will continue to increase as we continue to expand
our sales and marketing efforts, establish additional sales territories and
increase our promotional activities.
Research and Development
Research and development expenses consist primarily of personnel related
costs related to our product development efforts, exclusive of content
development. Research and development expenses increased from approximately
$490,000 in the six months ended September 30, 1998 to $1.4 million in the six
months ended September 30, 1999. This increase was due to the hiring of
additional research and development employees. Management believes that
continued investment in research and development is essential to our future
success and expects these expenses to increase substantially in future periods.
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General and Administrative
General and administrative expenses consist primarily of personnel related
costs, occupancy costs and professional service fees. General and administrative
expenses increased from approximately $258,000 in the six months ended September
30, 1998 to approximately $774,000 in the six months ended September 30, 1999.
This increase was due to an increase in personnel related costs, higher
occupancy costs and fees related to professional services. Management expects
general and administrative expenses to increase substantially in the future as
we expand our staff and incur additional costs to support the expected growth of
our business.
Deferred Stock Compensation
During the six months ended September 30, 1999, stock-based compensation
expense totaled approximately $442,000. No stock-based compensation expense was
incurred in the six months ended September 30, 1998.
Net Loss
The net loss increased from $2.4 million in the six months ended September
30, 1998 to $6.1 million in the six months ended September 30, 1999.
FISCAL YEARS ENDED MARCH 31, 1997, 1998, AND 1999
REVENUES
Revenues increased from $25,000 in fiscal 1997 to $200,000 in fiscal 1998
to $1.8 million in 1999. In fiscal 1997, Delivered Learning fees accounted for
19% of revenues and Learning Solutions services accounted for 81% of revenues.
In fiscal 1998, Delivered Learning fees accounted for 74% of revenues and
Learning Solutions services accounted for 26% of revenues. In fiscal 1999,
Delivered Learning fees accounted for 56% of revenues and Learning Solutions
services accounted for 44% of revenues. Delivered Learning fees increased from
approximately $5,000 in fiscal 1997 to approximately $148,000 in fiscal 1998 to
$1.0 million in fiscal 1999. These absolute dollar increases resulted from
increased course registration in existing courses and in courses we introduced
during the periods. Learning Solution services increased from approximately
$20,000 in fiscal 1997 to approximately $52,000 in fiscal 1998 to approximately
$813,000 in fiscal 1999. These absolute dollar increases were attributable to an
increase in the number of learning solutions developed for, and released to, a
larger base of customers.
COSTS AND EXPENSES
Content Production and Development
Content production and development expenses increased from approximately
$262,000 in fiscal 1997 to approximately $925,000 in fiscal 1998 to $2.0 million
in fiscal 1999. These increases resulted from the hiring of additional personnel
and the increased costs related to the acquisition of course content required to
expand the breadth of the our product offerings.
Web Delivery and Customer Support
Web delivery and customer support expenses increased from approximately
$29,000 in fiscal 1997 to approximately $363,000 in fiscal 1998 to approximately
$855,000 in fiscal 1999. These increases resulted from the expansion of capacity
and capability for our Web site, as well as the hiring of additional tutors to
support our expanded product offerings.
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Sales and Marketing
Sales and marketing expenses increased from approximately $188,000 in
fiscal 1997 to $1.4 million in fiscal 1998 to $3.0 million in fiscal 1999. These
increases resulted from higher personnel related expenses, recruiting fees,
travel expenses, commissions, increased marketing expenses, including
tradeshows, public relations, advertising and other promotional activities.
Research and Development
Research and development expenses increased from approximately $299,000 in
fiscal 1997 to approximately $665,000 in fiscal 1998 to $1.0 million in fiscal
1999. These increases resulted from higher personnel related costs as we
increased our staff to improve the feature set and scalability of our
technology.
General and Administrative
General and administrative expenses increased from approximately $157,000
in fiscal 1997 to approximately $419,000 in fiscal 1998 to approximately
$622,000 in fiscal 1999. These increases resulted from the addition of finance,
executive, information systems and administrative personnel to support the
growth of our business.
Stock-Based Compensation
Stock-based compensation expense was approximately $58,000 for fiscal 1999.
No stock-based compensation expense was incurred in fiscal 1997 or fiscal 1998.
Net Loss
Our net loss increased from approximately $888,000 in fiscal 1997 to $3.5
million in fiscal 1998 to $5.8 million in fiscal 1999.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly results of
operations for the six most recent quarters ended September 30, 1999. You should
read the following table in conjunction with our Financial Statements and
related Notes included elsewhere in this prospectus. We have prepared this
unaudited information on the same basis as our audited financial statements.
This table includes all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and operating results for the quarters presented. You should not draw
any conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
-------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Delivered Learning fees............... $ 148 $ 224 $ 313 $ 349 $ 458 $ 992
Learning Solution services............ 135 182 155 341 716 1,144
------- ------- ------- ------- ------- -------
Total revenues................. 283 406 468 690 1,174 2,136
------- ------- ------- ------- ------- -------
Costs and expenses:
Content production and development.... 303 324 479 912 990 1,497
Web delivery and customer support..... 146 202 222 285 318 486
Sales and marketing................... 623 711 703 933 1,351 2,065
Research and development.............. 219 271 225 290 443 922
General and administrative............ 120 138 166 198 288 486
Depreciation and amortization......... 44 49 61 82 108 143
Stock-based compensation.............. -- -- 3 55 143 299
------- ------- ------- ------- ------- -------
Total costs and expenses....... 1,455 1,695 1,859 2,755 3,641 5,898
------- ------- ------- ------- ------- -------
Interest and other income............... 30 17 27 92 92 68
------- ------- ------- ------- ------- -------
Net loss................................ $(1,142) $(1,272) $(1,364) $(1,973) $(2,375) $(3,694)
======= ======= ======= ======= ======= =======
</TABLE>
The trends discussed in the comparisons of operating results for the six
months ended September 30, 1998 and 1999, and fiscal 1997, 1998 and 1999 apply
to the comparison of results of operations for our six most recent quarters
ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through
private placements of equity securities. Through November 30, 1999, we have
raised $45.2 million through equity financing which includes the sale of 4.0
million shares of series D preferred stock for net proceeds of $25.9 million in
November 1999. See Notes 5, 6 and 11 of Notes to Financial Statements.
Net cash used in operating activities totaled approximately $806,000 for
fiscal 1997, $3.2 million for fiscal 1998, $4.6 million for fiscal 1999 and $4.5
million for the six months ended September 30, 1999. Cash used in operating
activities resulted from net operating losses in each of the periods, offset in
part by increases in deferred revenue. Deferred revenue increased from
approximately $245,000 at March 31, 1998 to $1.2 million at March 31, 1999 to
$3.1 million at September 30, 1999.
Net cash used in investing activities totaled approximately $111,000 in
fiscal 1997, approximately $398,000 in fiscal 1998, approximately $544,000 in
fiscal 1999, and approximately $869,000 for the six months ended September 30,
1999. These increases resulted from the acquisition of capital assets, including
hardware for our Web site and computer and office equipment. In the remainder of
fiscal 2000, we expect to have an increased level of capital expenditure
resulting from tenant improvements required for our new facilities.
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Net cash provided by financing activities totaled $1.6 million for fiscal
1997, $5.8 million in fiscal 1998, $11.7 million in fiscal 1999 and
approximately $129,000 for the six months ended September 30, 1999. These
increases resulted from the proceeds received from the issuance of preferred
stock.
We believe that our available cash resources together with the net proceeds
of this offering will be sufficient to finance our presently anticipated
operating losses and working capital requirement for at least the next 12
months. Our future liquidity and capital requirements will depend on numerous
factors. The rate of expansion of our operations in response to potential growth
opportunities and competitive pressures will affect our capital requirements as
will funding of continued net losses and substantial negative cash flows.
Additionally, we may need additional capital to fund acquisitions of
complementary businesses, products and technologies. Our forecast of the period
of time through which our financial resources will be adequate to support
operations is a forward-looking statement that involves risks and uncertainties.
Actual resources sought may differ materially. We may seek to sell additional
equity or debt securities or secure a bank line of credit. The sale of
additional equity or other securities could result in additional dilution to our
stockholders. Arrangements for additional financing may not be available in
amounts or on terms acceptable to us, if at all.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
or hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions of operations for any
company using such computer programs or hardware, including, among other things,
a temporary inability to process research data, send invoices or engage in
normal business activities. As a result, many companies' computer systems may
need to be upgraded or replaced in order to avoid "Year 2000" issues.
State of Readiness
We completed an assessment of our information technology systems for year
2000 problems in September 1999. Our internal technology group conducted a
review of our internally developed systems and coordinated a program to assess
and document all other systems.
We are a relatively new enterprise and therefore a majority of the computer
hardware and software we use to operate our business has been acquired or
created internally within the past three years. While this itself is not
protection against Year 2000 issues, it is a factor to consider when comparing
the efforts required to achieve Year 2000 readiness against other enterprises
with older legacy systems.
Our approach was to prioritize a comprehensive list of all systems on the
basis of their importance to the operation of our business. Working from this
list, we would:
- obtain documentation from third party vendors as to their Year 2000
compliance testing and recommendations;
- devise a review and testing plan for all internal systems;
- conduct the review and testing;
- assess any necessary follow-on actions or remediation required; and
- execute the measures identified.
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We have completed execution of this process against all software we have
developed for use in course development and commercial software used in
financial operations and in support of standard employee daily activities. In
some cases, the process resulted in the determination that the system had no
date processing and therefore was not deemed to be a risk. In other cases,
systems were subjected to a detailed software code review and a "smoke test"
consisting of running the system with the date manually set beyond December 31,
1999.
We have not replaced any of our systems based on the results of our
assessment.
Budget
To date we have incurred expenses of less than $100,000. These costs have
been included in the operating expenses. We do not expect the remaining planned
work to exceed $25,000.
Reasonably Likely Worst Case Scenario
If we, our customers, our providers of hardware and software, or our
third-party computer network providers fail to remedy any Year 2000 issues, the
reasonably likely worst case scenario would be the interruption of our ability
to develop and deliver our courses, which could have a material adverse effect
on our business, financial conditions and results of operations. Presently we
are unable to quantitatively estimate the duration and extent of any such
interruption, or estimate the effect such interruption may have on our future
revenue.
Contingency Plans
We do not believe that we will need to implement a Year 2000 contingency
plan. We expect to complete our Year 2000 compliance activities in December
1999. The effort required to complete these activities is minimal. Therefore, we
believe that we can complete the planned work within this timeframe.
Additionally, we plan on implementing a company-wide system shutdown on December
31, 1999 and a controlled startup by the information technology organization on
January 2, 2000 prior to the opening of business on January 3, 2000. This will
allow us to immediately identify and address any issues.
MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors.
Interest Rate Risk
As of September 30, 1999, we had cash and cash equivalents of $4.2 million,
consisting of cash and highly liquid short-term investments with original
maturities of three months or less at the date of purchase. As of September 30,
1999, we also had $1.8 million of restricted cash related to our long-term lease
of facilities in San Francisco. We have invested the proceeds of our recent
series D preferred stock financing in similar investments. These investments may
be subject to interest rate risk and will decrease in value if market rates
increase. A hypothetical increase in market interest rates of 10% from the
market rates in effect at September 30, 1999 would cause the fair value of these
investments to decrease by an immaterial amount. Declines in interest rates over
time will result in lower interest income.
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Foreign Currency and Exchange Rate Risk
All of our revenues recognized to date have been denominated in U.S.
dollars and are primarily from the United States. However, an increasing portion
of our future revenue may be derived from international customers. Revenues from
these customers may be denominated in the local currency of the applicable
countries. As a result, our operating results could become subject to
significant foreign currency fluctuations based upon changes in exchange rates
in relation to the U.S. dollar. Furthermore, if we engage in business outside
the United States, changes in exchange rates relative to the U.S. dollar could
make us less competitive in international markets. Although we will continue to
monitor our foreign currency exposure, and may use financial instruments to
limit this exposure, there can be no assurance that exchange rate fluctuations
will not have a materially negative impact on our business.
Equity Price Risk
We do not own any equity investments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which requires an enterprise to report by major components
and as a single total, the change in its net assets during the period from
nonowner sources; and SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, which establishes annual and interim reporting
standards for an enterprise's business segments and related disclosures about
its products, services, geographic areas and major customers. We had no items of
other comprehensive income to report through September 30, 1999. We currently
operate in one reportable segment under SFAS No. 131. Adoption of these
statements did not impact our financial position, results of operations or cash
flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for us in fiscal 2002. We
do not believe that adoption of this statement will have a material impact on
our financial position or results of operations.
In December 1999, the Staff of the Securities Exchange Commission provided
new guidance on accounting for convertible preferred stock issued prior to
filing for an initial public offering of common stock. We are currently
evaluating the impact this guidance may have on our financial position or
results of operations.
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BUSINESS
The following Business section contains forward-looking statements relating
to future events or our future financial performance, which involves risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of several factors, including
those set forth in "Risk Factors" and elsewhere in this prospectus.
DIGITALTHINK OVERVIEW
We are a leading provider of online learning, or e-learning, solutions. Our
solutions address the strategic business objectives of our customers by enabling
them to increase employee productivity, sales channel effectiveness and customer
loyalty and satisfaction. We host and centrally manage all software and content,
significantly reducing our customers' learning infrastructure costs and enabling
us to rapidly update or customize our courses. Our Web-based solutions are
designed to deliver content on new initiatives, products or processes to large,
geographically dispersed groups who can access courses from anywhere, at anytime
through a standard Web browser. Our innovative instructional design also
encourages participants to interact with tutors through e-mail and the Internet.
In addition, our solutions allow customers to generate revenue opportunities by
offering branded e-learning solutions to their customers. Our solutions also
include Web-based tracking and reporting and tools that our customers use to
track participants' progress and the effectiveness of learning programs.
We have sold our solution to over 180 customers deploying over 160 online
courses in technology, financial services, healthcare and other industries at
November 30, 1999. Customers which have effectively deployed our pre-developed
or custom-tailored courses include Adobe, Cisco Systems, Intel, Hewlett-Packard,
KPMG, Seagate and Sun Microsystems.
INDUSTRY BACKGROUND
Today's businesses face rapidly changing environments characterized by
increasing competition, economic globalization and technological change. To
compete effectively, businesses must improve business processes, reduce
operating costs, extend barriers to entry and shorten product development
cycles. The adoption of the Internet as a business platform has accelerated
these trends, rewarding speed and penalizing laggards in nearly every industry.
Senior executives at leading companies realize that in this environment a
principal source of competitive advantage is the depth, consistency and currency
of knowledge possessed by their "extended enterprise" of employees, business
partners and customers. Learning has evolved from being viewed as a cost center
to an integral part of implementing business strategies successfully. Employees
who know more about a company's business perform more effectively. Partners who
understand the benefits of a company's services make better distributors or
resellers. Customers who learn to use all of a product's features are more loyal
and less expensive to support. Driving knowledge to the extended enterprise
effectively reduces the time-to-market of new products and services, improves
the productivity of sales channels and reduces customer support costs, resulting
in increased operating efficiency and higher profitability.
In an attempt to address today's competitive business challenges,
businesses are investing increasing amounts on learning and skills development.
In 1997, the Department of Education estimated that in the United States alone
business spent nearly $55 billion annually on learning programs. These
investments, however, have yielded uncertain results and in many cases have
failed to address and satisfy strategic business objectives. To date, investment
in learning has consisted
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primarily of in-person, instructor-led training programs. Traditional
methodologies tend to be inadequate because they are:
- Difficult to deploy across an organization and its extended
enterprise. Businesses find it very difficult to effectively deliver
up-to-date content in a timely and consistent manner to large,
geographically-dispersed groups. The traditional solution of scheduling
corporate education programs at specific times in single locations
results in logistical challenges and opportunity costs that lower
participation rates and limit a company's ability to extend knowledge
throughout the extended enterprise.
- Difficult to customize and update. Instructor-led content is typically
prepared far in advance, updated at fixed intervals and delivered using a
standardized curriculum. This content cannot be rapidly updated to
incorporate the latest information on new products, strategies and
processes or repurposed for specific uses or customers.
- Difficult to personalize on a large scale. Instructor-led corporate
education programs are not designed to address the learning needs of
individual participants, significantly impairing the effectiveness of the
learning experience. For example, classroom sessions are often unable to
accommodate personal interaction with instructors.
- Unable to track and monitor learning effectiveness. Most businesses are
unable to track and certify levels of competency or make real-time
modifications to learning programs to increase the relevance or
effectiveness of instruction. Lacking data on participants' performance,
businesses are generally unable to correlate learning investments with
business results.
- Costly and slow. Traditional educational initiatives require lengthy
periods of time to implement. As a result, businesses are unable to
continuously educate their extended enterprise on new products,
strategies and processes in a timely manner, significantly reducing the
impact of any new business initiative. Ongoing education programs also
require prolonged absences of valuable employees, resulting in
significant opportunity costs due to lost work.
In response to these limitations, many businesses are seeking more
effective learning solutions. The Internet is transforming the corporate
learning marketplace by offering innovative ways to design and deliver
knowledge. According to International Data Corporation, the online corporate
learning market is projected to grow from $550 million in 1998 to more than $7.1
billion in 2002. By leveraging the Internet, businesses can instantly and
simultaneously deploy content to a broad, global audience. This content can be
easily and continuously accessed, modified and refreshed and learning programs
can be enhanced as participants use e-mail and chat rooms to establish
interactive relationships with instructors and peers. Web-based technologies can
also offer real-time tracking of participant performance.
Internal training organizations and external corporate learning providers
are geared to instructor-led training and their set of skills is limited to
classroom scheduling and instruction. To compete effectively in the e-learning
market, these organizations would need to develop a broad range of competencies,
including technology development, content creation, Web-hosting and on-line
community management. Companies are seeking outsourced and integrated e-learning
solutions as a means of more effectively educating their extended enterprise.
THE DIGITALTHINK SOLUTION
We are a leading provider of corporate e-learning solutions that address
the strategic imperative of knowledge. Executives of leading companies use our
solutions to improve competitiveness by driving knowledge throughout the
extended enterprise. Our integrated solutions combine powerful Internet delivery
technologies, customized content, dedicated tutors and comprehensive e-commerce
and reporting tools. We offer a fully outsourced, e-learning portal that can be
easily deployed across
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the extended enterprise to thousands of participants. We deliver over 160 high
quality courses to more than 180 companies in a number of industries, including
high technology, financial services, healthcare, government, retail and
manufacturing. The advantages of our solutions include:
Innovative Delivery Model. We deliver outsourced solutions that overcome
the shortcomings of traditional learning methods. We are a completely Web-based,
e-learning company that hosts and centrally manages all software and content.
This reduces customer costs, enables the rapid deployment, customization and
refreshing of content and provides the tools necessary to support and track
participant performance and progress.
Powerful e-Commerce Capability. Our e-commerce tools enable our customers
and partners to develop revenue generating businesses around our e-learning
solutions. Learning portals and the e-learning environment can be branded for
specific customers. Using our Web-based tools, our customers can register and
bill on-line their customers and partners in their extended enterprise.
High-Quality Content. We offer courses from our catalog of delivered
learning titles, custom courseware or a combination of both. Our staff of
trained instructional designers works with leading content experts to create our
courses. We work with our customers to create and continually update content so
that it remains aligned with their business needs. All of our courses adhere to
established precepts of adult learning theory in order to ensure that
instruction is engaging and informative for students.
Web-Based Instructional Design. Courses designed for our e-learning
environment leverage the unique communications and interactive capabilities of
the Internet. This Web-based approach results in an engaging and compelling
student experience, enhanced by the use of Internet technologies such as Java,
discussion boards, on-line labs, simulations, e-mail and chat rooms.
Interactive Tutor Support. Our courses are interactive, self-paced and can
be accessed at anytime. The learning experience benefits from quick responses
from tutors and direct interaction via e-mail and the Internet. Participants are
required to complete exercises and can ask questions or solicit more feedback
from the tutor.
Robust and Scalable Technology Framework. Participants have access to our
courses at anytime from anywhere using standard Web browser software. Our open,
standards-based solution allows participants to access courses online without
any proprietary plug-ins or other software. Our technology can easily expand to
support our customers as they deploy learning throughout their extended
enterprises.
Enterprise Tracking and Reporting Tools. We offer Web-based tools that are
used by our customers to track and monitor each participant's progress in order
to ensure course completion and knowledge acquisition. Managers can assess the
performance of their employees and correlate this information with business
results to evaluate the effectiveness of any course.
STRATEGY
Our objective is to be the leading provider of e-learning solutions. Key
elements of our strategy include:
Enhance our e-learning solutions. We believe that our customers will make
significant investments in outsourced e-learning solutions. We intend to
continually add functionality and features to enhance our end-to-end e-learning
solutions to meet our customers' evolving needs. For example, we plan to
integrate our software more closely with the back-office systems of our
customers to facilitate our customers' ability to correlate learning data with
organizational and performance metrics. We also plan to devote significant
resources expanding the breadth of our course offerings and improving the
reporting and tracking features of our solutions.
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Develop long-term strategic relationships with our customers. We believe
that e-learning solutions will become increasingly critical to businesses'
ability to compete successfully. As a preferred provider of e-learning
solutions, we become a strategic partner for our customers. We plan to extend
our presence within our customers' enterprises by helping our customers
understand the value and applicability of our solutions to a broad range of
operational initiatives. In addition, we will continue to develop new solutions
that are aligned with our customers' evolving business objectives.
Expand our course offerings. We intend to continually introduce new courses
and leverage our existing courses across multiple customers and industries. In
many instances, we will modify content developed for existing customers in order
to provide similar courses to customers in different industries. This approach
allows us to generate additional revenue opportunities while leveraging previous
course development efforts.
Leverage development partner and reseller relationships. We plan to grow
both our direct and indirect sales channels to better service our existing
markets and penetrate new markets such as healthcare, life sciences, consumer
products, telecommunications and government. As a key element of this plan, we
will expand our network of learning resellers, consulting companies, development
partners and Internet portals.
Expand our international presence. As the rate of Internet adoption
accelerates overseas, we believe that significant international market demand
will exist for e-learning solutions, especially in Europe and Asia. To that end,
we have begun delivering our e-learning solutions in strategically targeted
international locations, using courseware and tutor support in English. We plan
to expand our reach into both Europe and Asia by developing direct and indirect
sales channels and curriculum support capabilities in these regions.
CUSTOMER BENEFITS AND CASE STUDIES
Our customers can use our e-learning solutions to compress the learning
cycle, increase knowledge throughout the extended enterprise, enhance brand
equity and customer service and reduce operational costs. The following case
studies illustrate these benefits:
KPMG CONSULTING -- one of the world's largest consulting operations, with
worldwide revenue of over $3 billion in 1998.
<TABLE>
<S> <C>
Challenge: Accelerate the application of new Internet technologies and
skills for 22,000 worldwide employees.
Realizing that learning must keep pace with the rate of
Solution: technological change, KPMG chose our e-learning solution to
provide its consultants with a comprehensive e-engineering
curriculum. From a single learning portal hosted by us, KPMG
staff can register for our e-learning courses, access online
white papers, and place requests for additional learning
materials which are then shipped by a fulfillment house.
Student progress and performance levels are automatically
tracked by our reporting system, allowing KPMG to validate
proficiency levels and ensure that consultant delivery
quality and competence standards are met.
</TABLE>
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<PAGE> 35
ADOBE SYSTEMS -- a leading provider of graphic design, publishing and
imaging software for Web and print production, and the second largest desktop
software company in the world.
<TABLE>
<S> <C>
Challenge: Improve the quality and efficiency of Adobe's sales and
customer support organizations.
We provide Adobe with a fully outsourced virtual corporate
Solution: university that is used to deliver product knowledge to
Adobe's sales force, resellers and customer support
personnel. In addition, we are hosting course content and a
training management system from third-party vendors in order
to create a comprehensive learning solution that requires no
technical or systems support by Adobe personnel. Courses are
available to Adobe employees and partners worldwide, and
enable Adobe to track employees' skills and certify the
actual knowledge levels attained by both Adobe's and its
partners' employees.
</TABLE>
NEW HORIZONS COMPUTER LEARNING CENTERS -- the world's largest information
technology training company, with more than 2.4 million students taught
worldwide in 1999.
<TABLE>
<S> <C>
Challenge: Enable the leading classroom-based information technology
training company to provide branded e-learning courses to
its clients.
We have partnered with New Horizons to resell a full catalog
Solution: of more than 130 of our information technology courses, each
of which is delivered in a New Horizons branded learning
environment. Course hosting and tutor support are provided
by us, allowing New Horizons to concentrate on sales and
marketing of its e-learning offering instead of investing in
technology and courseware development. Our solutions enable
New Horizons to provide its worldwide network of franchised
training centers with full student registration and
reporting capabilities, while simultaneously monitoring
course sales by each individual New Horizons location.
</TABLE>
CUSTOMERS
As of September 30, 1999 we have sold courses to over 180 customers. Our
customers use our e-learning solutions to address employee transformation, sales
channel optimization and customer education. The following customers, which are
listed in alphabetical order within each category, each have accounted for more
than $50,000 of our revenues since we began selling our e-learning solutions in
fiscal 1998.
<TABLE>
<S> <C>
WORKFORCE TRANSFORMATION SALES CHANNEL OPTIMIZATION
Amdahl Corporation 3Com Corporation
Bowne & Co., Inc. Adobe Systems Incorporated
Complete Business Solutions, Inc. Cisco Systems, Inc.
Deutsche Bank - Bankers Trust Hewlett-Packard Company
KPMG LLP Seagate Technology Inc.
Media One Group, Inc.
New Horizons Computer Learning CUSTOMER EDUCATION
Centers, Inc. Charles Schwab & Co., Inc.
Ryder TRS Intel Corporation
Silicon Graphics, Inc. J.P. Morgan & Co. Incorporated
Sun Microsystems, Inc. Lawson Software
The Alliance for Employee Growth Optimark Technologies, Inc.
and Development, Inc. Texas Instruments Incorporated
</TABLE>
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CONTENT AND COURSES
We currently offer our customers more than 130 self-paced courses from our
Delivered Learning catalog. Each course consists of twelve to twenty hours of
student work, including lessons, quizzes, interactive applets, simulations, and
hands-on participant exercises which are graded and commented upon by our tutors
before being returned via email to participants. All of our courses have been
designed to take advantage of our e-learning environment and leverage Internet
technologies, such as e-mail and discussion boards, in order to provide
participants with an engaging learning experience and extensive interaction with
our tutors. In addition to pre-developed courses, we develop customized content
for our customers. These customized courses incorporate the significant domain
knowledge of our clients and can be rapidly redesigned for other customers in
the same industry. We typically retain all intellectual rights to our content
and can reuse it for other customers. In a few cases, however, we have agreed
not to sell that content to third parties.
PRODUCTS AND TECHNOLOGY
Our e-learning environment consists of technologies that we have designed
and created to function as an integrated solution. By employing standard
Internet technologies and a hosted content delivery model, we are able to
provide our customers with a high quality, efficient means to educate their
extended enterprise.
Content Delivery System
We host the e-learning environments of our customers. By centralizing all
infrastructure and hosting requirements, our customers derive the following
significant benefits:
- customers do not need to install or manage any software;
- content can be updated and infrastructure technology can be improved
continuously without impacting our clients and at a minimal cost to us;
- customers avoid the need to make significant investments in technology
infrastructure such as servers, databases, technical staff or technical
support; and
- participants can access course content at anytime, from anywhere, through
the use of a standard modem and browsers.
System Architecture
Our e-learning architecture is designed to scale rapidly to provide large
student populations with tutor-supported e-learning content. In addition, we
have developed our content delivery system using standard Internet technologies
such as Java and HTML, facilitating the delivery of our content to our
customers' Web browsers. We utilize a single code base to deliver content. As a
result, any improvement made in our software for one customer automatically
benefits all other customers.
Our content is stored in a database as structured "learning elements." We
have developed a templating system that automatically controls the graphical
presentation, or "look & feel", of a course, as well as course navigation. This
content storage and delivery approach allows us to personalize the content for
individuals in each course and minimizes content or formatting errors. In
addition, this structure enables the rapid customization of course content for
different customers. Our technology was not ported from a legacy application,
nor was it an adaptation of a previously existing
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learning delivery system. The following diagram depicts the architecture of our
end-to-end e-learning solutions.
[Description of Content Delivery System Architecture]
Course Enrollment Options
Our customers can choose several different methods to allow participants to
access our courses. Enrollments can be managed by authorized personnel using our
corporate administration system. Alternatively, participants can self-enroll
using an intranet or Internet e-commerce option. Our system can also be
integrated with third-party enterprise software applications to allow automated
enrollments using a training management or other back-office systems.
Tracking and Reporting System
Each participant's learning activities are fully tracked in our database.
This comprehensive tracking ability allows a participant to start a course at
work, and continue at home or while traveling. Regardless of their location, our
system recognizes each participant, tracks their course progress and records
their performance. Using only a standard Web browser, managers can run both
standardized and custom reports on participant enrollments and progress, gaining
visibility into the learning status of their extended enterprise.
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Course Tutoring
Our technology allows us to increase the efficiency and scalability of our
tutoring resources. The ability of tutors worldwide to interact with
participants through standard Internet communication methodologies significantly
increases the pool of tutor candidates we can recruit. In addition, our database
system allows multiple tutors to support the same course as grading and exercise
submissions can be accessed and responded to by any tutor. Duplication of tutor
work is prevented by our message queuing technology.
Collaboration Tools
We host and make available to our customers proprietary and third-party
collaboration tools, currently include instant messaging software, e-mail
solutions, chat rooms and discussion boards. These collaboration tools are
designed to create a learning environment that fosters collaboration between
peers and a high degree of interaction between participants and tutors.
Testing and Assessment
Our system offers comprehensive testing and assessment capabilities, which
can be customized for specific learning solutions and customers. Assessment and
testing capabilities include multiple choice, multiple answer quizzes with
randomized question sets, tutor-scored and commented exercises, and interactive
testing applets and simulations.
Full Integration with Corporate Infrastructures
Our e-learning solutions can be fully integrated with our customers'
corporate information technology systems, including their Web sites and
intranets. As a result, course participants do not necessarily realize that they
are accessing content hosted from our servers. Our integration layer provides
adapters for training management systems. We design our course content to be
compatible with our customer's security concerns and bandwidth limitations. As a
result, it is highly unusual for participants at our corporate clients to be
unable to access our courses.
Scalable Architecture
Our system has been designed to scale rapidly and to consistently deliver
content to large numbers of participants. We use extensive load testing to
measure our system capacity and identify potential bottlenecks. Our delivery
system has scaled to support more than 150,000 seats of learning delivered
worldwide. Constant improvements to our system architecture continue to increase
system capacity well beyond the current demands.
High-Availability Systems
Our systems have been designed to maximize availability, with redundancy
built in to avoid points of failure. We have also implemented redundant network
connections to the Internet, a load-balanced redundant web server and a
highly-redundant storage array to safeguard our information. In addition,
locating our Web servers with Exodus, a leading Web-hosting firm, provides us
with backup power, constant monitoring, physical security, seismic resistance,
fire suppression and climate control systems.
SALES AND MARKETING
We sell our e-learning solutions primarily through our own direct sales
organization. We also sell through learning resellers, consulting firms,
customer/development partners and Internet portal partners. Our direct sales
organization focuses on developing long-term relationships with major
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<PAGE> 39
corporate customers while our e-commerce Web site sells directly to consumers
and individual buyers. Our learning resellers, including New Horizons, PPI
Canada, Hungry Minds, Training Net, Net Learning and BlueU., create a leveraged
distribution model to reach large customer bases, international markets and
consumers. Consulting firm partners, including KPMG and Cambridge Technology
Partners jointly sell e-learning solutions. With development partners and
customers, including Lawson Software and Microsoft, we enter into revenue
sharing relationships to jointly develop and sell e-learning solutions to their
customers and channels. Our Internet portal partners, including Intraware and
Fatbrain, resell our courses as components of their solution offerings targeted
at specific industries.
COMPETITION
The e-learning market is evolving quickly and is subject to rapid
technological change, shifts in customer demands and evolving learning
methodologies. To succeed, we must continue to expand our course offerings,
upgrade our technology and distinguish our solution. As competition continues to
intensify, we expect the e-learning market to undergo significant price
competition. We expect to face increasing price pressures from competitors as
our potential customers demand more value for their education budgets.
The e-learning market is highly fragmented with no single competitor
accounting for a dominant market share, and competition is intense. In addition
to competing with other suppliers of technology-based learning solutions, we
also compete with third-party suppliers of instructor-led education and learning
and internal education departments.
Our competitors vary in size and in the scope and breadth of the courses
and services they offer. Several of our competitors have longer operating
histories and significantly greater financial, technical and marketing
resources. In addition, larger companies may enter the e-learning market through
the acquisition of our competitors. We anticipate that the lack of significant
entry barriers to the e-learning market will allow other competitors to enter
the market, increasing competition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success depends, in part, on our ability to protect our proprietary
rights and technology. We rely on a combination of copyrights, trademarks,
service marks, trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. We have registered the trademark
DigitalThink and we own the domain name digitalthink.com. It is possible,
however, that third parties could acquire trademarks or domain names that are
substantially similar or conceptually similar to our trademarks or domain names.
This could decrease the value of our trademarks or domain names and could hurt
our business. The regulation of domain names in the United States and in foreign
countries is subject to change. The relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear.
We obtain the content for many of our courses from our customers and often
also receive the right to resell this content to other customers. It is possible
that the use of this content may subject us to the intellectual property claims
of third parties. Although we generally seek indemnification from our customers
to protect us from these types of claims, we may not be fully protected from
extensive damage claims or claims for injunctive relief. In addition, our
customers may assert that some of the courses we develop for our general catalog
or under contract with other customers may improperly use their proprietary
content. Our involvement in any litigation to resolve intellectual property
ownership matters would require us to incur substantial costs and divert
management's attention and resources. In addition, we cannot predict the effect
of a failure to prevail in any litigation of this kind.
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EMPLOYEES
As of September 30, 1999, we employed 167 persons. Of these employees,
there were 78 in course development, 46 in sales and marketing, 21 in research
and development, 12 in Web delivery and customer support and 10 in general and
administration. Each of our employees was granted options to purchase shares of
our common stock upon joining us.
Our success will depend in large part upon our ability to attract and
retain employees. We face competition in this regard from other companies, but
we believe that we maintain good relations with our employees. None of our
employees are members of organized labor groups.
FACILITIES
We are currently leasing a total of approximately 51,000 square feet of
office space in two locations in San Francisco, California. We believe that our
current San Francisco facilities will meet our space requirements for at least
the next 12 months. The lease for our principal San Francisco facility expires
in October 2009.
LEGAL PROCEEDINGS
We are not presently a party to any material legal proceeding.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of November 30, 1999, certain
information concerning our executive officers, directors and other key
management personnel:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter J. Goettner......................... 35 President, Chief Executive Officer, Chairman of
the Board
Umberto Milletti.......................... 34 General Manager of Products
Steven C. Zahm............................ 35 Vice President
Michael W. Pope........................... 33 Vice President, Chief Financial Officer
Todd A. Clyde............................. 35 Vice President, Learning Solutions
Michael W. Lodato......................... 35 Vice President, Marketing and Business
Development
J. Adriaan Theron......................... 51 Vice President, Sales
Linda T. Drumright........................ 39 Vice President, Engineering
Lyle J. Nevels............................ 36 Vice President, Operations
Paul J. Pastrone.......................... 39 Vice President, Global Business Development
Adam D. Levy.............................. 37 General Counsel
Samuel D. Kingsland(1)(2)................. 30 Director
Steven L. Eskenazi(1)..................... 37 Director
William H. Lane, III(1)(2)................ 61 Director
E. Follett Carter(1)(2)................... 57 Director
</TABLE>
- -------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Peter J. Goettner has served as our President, Chief Executive Officer and
Chairman of our Board of Directors since he co-founded DigitalThink in April
1996. From January 1996 to April 1996, Mr. Goettner was developing the business
and financing plan for DigitalThink. From December 1993 to December 1995, Mr.
Goettner served as Director of Marketing for Knowledge Revolution, a developer
of educational and engineering software. Mr. Goettner holds a B.S. in Computer
Engineering from the University of Michigan and an M.B.A. from the Haas School
of Business at the University of California at Berkeley.
Umberto Milletti is one of our co-founders and has served as our General
Manager of Products since April 1996. From March 1993 to March 1996, Mr.
Milletti was Director of Product Development at Knowledge Revolution. Mr.
Milletti holds a B.S. in Electrical Engineering from Tufts University and an
M.S. in Electrical Engineering and Computer Science from the University of
California at Berkeley.
Steven C. Zahm is one of our co-founders and has served as our Vice
President since April 1996. From November 1992 to March 1996, Mr. Zahm was
Director of Digital Media/High-Tech Consulting at Prophet Brand Strategy, a
strategic management consulting firm. Mr. Zahm holds a B.A. in History and
Economics from Stanford University and an M.B.A. from the Haas School of
Business at the University of California at Berkeley.
Michael W. Pope has served as our Vice President, Chief Financial Officer
since October 1999. From June 1992 to October 1999, Mr. Pope served in various
positions at Dionex Corporation, a
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manufacturer and marketer of chromatography systems and related products for
chemical analysis, most recently as Chief Financial Officer from April 1994 to
October 1999. Mr. Pope holds a B.A. in Quantitative Economics from Stanford
University and an M.B.A. from the Haas School of Business at the University of
California at Berkeley.
Todd A. Clyde has served as our Vice President, Learning Solutions since
March 1998. From September 1986 to March 1998, Mr. Clyde held several positions
with Andersen Consulting, most recently as Senior Manager. Mr. Clyde holds a
B.A. in Management Science from the University of California at San Diego.
Michael W. Lodato has served as our Vice President, Marketing and Business
Development since April 1999. From October 1996 to April 1999, Mr. Lodato held
several positions at Siebel Systems, a sales and customer support software
developer, including Senior Director, Strategic Accounts and Senior Director,
Product Marketing. From June 1994 to October 1996, Mr. Lodato was a Director,
Enterprise Architecture and Strategy at Sybase, Inc., a database software
provider. Mr. Lodato holds a B.A. in Management Science, from the University of
California at San Diego.
J. Adriaan Theron has served as our Vice President, Sales since March 1999.
From January 1997 to February 1999, Mr. Theron was the Vice President of Sales
and Marketing for Plexus Technology, a division of BancTec, Inc., a systems
integration and services company. From August 1995 to December 1996, Mr. Theron
served as Vice President of Marketing and Regional Sales Manager of SQL
Financials International, an e-commerce software company. From 1993 to July
1995, Mr. Theron was the Corporate Vice President, Sales and Marketing for
Learnsoft Corporate Training, Inc., a provider of technical training. Mr. Theron
attended Pretoria University in South Africa.
Linda T. Drumright has served as our Vice President, Engineering since
October 1999. From August 1998 to October 1999, Ms. Drumright served as Vice
President, Budgeting, Planning and Forecasting Application Product Development
for Hyperion Solutions Corporation, a developer of enterprise analytic
application software. Prior to that, from July 1997 to August 1998, she was the
Senior Director of the Tools and Applications Division at Arbor Software Corp.,
a database software developer, and from June 1990 to July 1997, she held several
technical positions, including Senior Manager, at Sybase, Inc. Ms. Drumright
holds a B.A. in Computer Science from the University of California at Berkeley.
Lyle J. Nevels has served as our Vice President, Operations since June 1999
and Director of Support Operations from May 1998 to May 1999. From April 1996 to
April 1998, Mr. Nevels was Director, Customer Satisfaction Center at AutoDesk,
Inc., a developer of design and drafting software and multimedia tools. Prior to
that, from November 1983 to March 1996, Mr. Nevels held various senior
management positions at Apple Computer for over 13 years, most recently as
Senior Manager of Licensing Operations. Mr. Nevels holds a B.S. in
Organizational Behavior from the University of San Francisco.
Paul J. Pastrone has served as our Vice President, Global Business
Development since July 1999. From January 1998 to July 1999, Mr. Pastrone was
Vice President and Research Director of Software, Systems and Internet at
Gartner Group, Inc., a market research organization. From September 1988 to
December 1997, Mr. Pastrone was a Senior Vice President at International Data
Corporation, a market research organization. Mr. Pastrone received a B.A. from
the University of California at Berkeley and an M.A. in International Business
Relations from the Fletcher School of Law & Diplomacy.
Adam D. Levy has served as our General Counsel since October 1999. From
September 1994 through October 1999, Mr. Levy was an Associate at the law firm
of Wilson Sonsini Goodrich and Rosati. Mr. Levy holds a B.A. in Economics from
Haverford College and a J.D. from Georgetown University.
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Samuel D. Kingsland has been a member of our board of directors since
August 1996. Mr. Kingsland is a founding member of H & Q Venture Associates,
LLC, a venture capital firm formed in July 1998. From 1991 to July 1998, Mr.
Kingsland held several positions, most recently as Principal, within the venture
capital group of Hambrecht & Quist, Inc., an investing banking firm. Mr.
Kingsland is a director of several private companies. Mr. Kingsland received a
B.A. from Dartmouth College.
Steven L. Eskenazi has been a member of our board of directors since June
1997. Since March 1997, Mr. Eskenazi has been a General Partner of the Walden
Group, a venture capital firm. From February 1990 to March 1997, Mr. Eskenazi
was Managing Director in charge of New Media Research for Deutsche Banc Alex.
Brown, an investment banking company. Mr. Eskenazi also serves on the board of
several private companies. Mr. Eskenazi holds a B.S. in Applied Mathematics from
Union College and an M.B.A. from the Amos Tuck School of Management at Dartmouth
College.
William H. Lane, III has been a member of our board of directors since
February 1999. Since 1996, Mr. Lane has been the President of Canyon Vista,
Inc., a management consulting company. Mr. Lane retired from Intuit Inc., a
financial software company, in July 1996, having served as its Vice President,
Chief Financial Officer, Secretary and Treasurer from January 1994 to April
1996. Mr. Lane served in a similar capacity at ChipSoft, Inc., a tax preparation
software company, from July 1991 until its acquisition by Intuit in December
1993. Mr. Lane is also a director of public companies Cyberian Outpost, Inc.,
MetaCreations Corp. and International Microcomputer Software, Inc. and several
private companies. Mr. Lane holds an A.B. from Columbia University.
E. Follett Carter has been a member of our board of directors since June
1999. From October 1995 to his retirement in October 1999, Mr. Carter was the
President of Gartner Group Distribution, a subsidiary of the Gartner Group,
Inc., and Gartner Group's Chief Marketing Officer. From October 1993 to October
1995, Mr. Carter was the Executive Vice President, Sales and Marketing for the
Gartner Group, Inc. Mr. Carter is also a director of several private companies.
Mr. Carter holds a B.A. from Case Western Reserve University and an M.B.A. from
Columbia University.
BOARD OF DIRECTORS
Our bylaws currently authorize five directors. Our certificate of
incorporation and bylaws that become effective upon the completion of this
offering provide that our board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. The
Class I directors, Messrs. Kingsland and Eskenazi, will stand for reelection at
the 2000 annual meeting of stockholders. The Class II directors, Messrs. Lane
and Carter, will stand for reelection at the 2001 annual meeting of
stockholders. The Class III director, Mr. Goettner, will stand for reelection at
the 2002 annual meeting of stockholders. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This staggered classification of the board of directors may have
the effect of delaying or preventing changes in control or management. There are
no family relationships among any of our directors, officers or key employees.
Committees
Our compensation committee consists of Messrs. Kingsland, Eskenazi, Lane
and Carter. The compensation committee makes recommendations regarding our
various incentive compensation and benefit plans and determines salaries for our
executive officers and incentive compensation for our employees and consultants.
Our audit committee consists of Messrs. Carter, Kingsland and Lane. The
audit committee makes recommendations to the board of directors regarding the
selection of our independent auditors,
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reviews the results and scope of the audit and other services provided by our
independent auditors and reviews and evaluates our control functions.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee was, at any time since
our formation, one of our officers or employees. None of our executive officers
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.
Compensation
We do not currently pay any cash compensation to our directors for their
services, although we reimburse them for certain expenses in connection with
attending our board and committee meetings. We do not provide additional
compensation for committee participation or special assignments of the board of
directors. On two occasions, we have granted our outside directors options to
purchase shares of our common stock under the 1996 Stock Plan. In July 1999, we
granted Mr. Carter an option to purchase 40,000 shares of our common stock at a
per share exercise price of $1.50. In October 1999, we granted Mr. Lane an
option to purchase 40,000 shares of our common stock at a per share exercise
price of $1.50.
EXECUTIVE OFFICERS
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed.
Compensation
The following table sets forth the compensation paid by us during the
fiscal year ended March 31, 1999, to our Chief Executive Officer and to our four
other most highly compensated executive officers who earned more than $100,000
during our last fiscal year. This prospectus refers to these executives as the
Named Executive Officers.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- ------- ------------
<S> <C> <C> <C>
Peter J. Goettner.................................... $100,000 $ 9,385 150,000
President, Chief Executive
Officer and Chairman of the Board of Directors
Todd A. Clyde........................................ 75,000 59,653 225,000
Vice President, Learning Solutions
Steven C. Zahm....................................... 100,000 6,009 125,000
Vice President
Umberto Milletti..................................... 100,000 10,224 125,000
General Manager of Products
Lyle J. Nevels....................................... 76,666 32,714 70,000
Vice President, Operations
</TABLE>
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Option Grants in Last Fiscal Year
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended March 31, 1999.
All of these options were awarded under our 1996 Stock Plan. Options generally
vest over four years from the date of grant. Percent of total options granted in
fiscal 1999 is based on an aggregate of 1,461,250 options granted in the year
ended March 31, 1999 to our employees, directors and consultants, including the
Named Executive Officers. Options were granted at an exercise price equal to the
fair market value per share of common stock on the grant date as determined by
our board of directors. The potential realizable value is calculated based on
the term of the option at its time of grant (10 years). In accordance with the
rules of the Securities and Exchange Commission, the following table also sets
forth the potential realizable value over the term of the options (the period
from the grant date to the expiration date) based on assumed rates of stock
appreciation of 5% and 10% compounded annually. These amounts do not represent
our estimate of future stock price performance. Actual realizable values, if
any, of stock options will depend on the future performance of the common stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED FOR OPTIONS TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION ---------------------
NAME GRANTED 1999 PRICE DATE 5% 10%
---- ---------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Goettner............. 75,000 5.13% $ 0.075 4/1/08 $ 3,538 $ 8,965
75,000 5.13 0.25 1/12/09 11,792 29,883
Todd A. Clyde................. 100,000 6.84 0.075 4/1/08 4,717 11,953
125,000 8.55 0.50 2/9/09 39,306 99,609
Steven C. Zahm................ 50,000 3.42 0.075 4/1/08 2,358 5,977
75,000 5.13 0.25 1/12/09 11,792 29,883
Umberto Milletti.............. 50,000 3.42 0.075 4/1/08 2,358 5,977
75,000 5.13 0.25 1/12/09 11,792 29,883
Lyle J. Nevels................ 50,000 3.42 0.075 5/13/08 2,358 5,977
20,000 1.37 0.25 1/12/09 3,144 7,969
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
None of the Named Executive Officers exercised options during the fiscal
year ended March 31, 1999. The following table sets forth the number and value
of securities underlying unexercised options held at March 31, 1999. The "Value
of Unexercised In-the-Money Options at March 31, 1999" is based on a value of
$0.50 per share, the fair market value of our common stock as of March 12, 1999,
as determined by the board of directors, less the per share exercise price,
multiplied by the
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<PAGE> 46
number of shares issued upon exercise of the option. All options were granted
under our 1996 Stock Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT MARCH 31, 1999 MARCH 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter J. Goettner......................... 3,125 146,875 $ 781 $ 49,844
Todd A. Clyde............................. 27,604 197,396 10,625 31,875
Steven C. Zahm............................ 3,125 121,875 781 39,219
Umberto Milletti.......................... 102,083 222,917 45,026 84,974
Lyle J. Nevels............................ 833 69,167 208 26,042
</TABLE>
STOCK PLANS
1996 Stock Plan
Our 1996 stock plan was adopted by the board of directors in May 1996 and
approved by our stockholders in May 1996. In October 1999, the 1996 Stock Plan
was amended to increase the number of shares of common stock reserved for
issuance thereunder to 6,375,000 shares. As of November 30, 1999, options to
purchase an aggregate of 4,125,832 shares were outstanding, 517,315 shares of
common stock had been purchased pursuant to exercises of stock options and stock
purchase rights and 1,731,957 shares were available for future grant.
The number of shares reserved for issuance under the 1996 stock plan will
increase, beginning in fiscal year 2001, by an annual increase equal to the
lesser of 2.0 million shares, 5.0% of the outstanding shares on the date of the
annual increase, or a lesser amount determined by our board of directors.
Our 1996 stock plan provides for the grant of incentive stock options (as
defined in Section 422 of the Internal Revenue Code) to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. This plan may be administered by the board
of directors or a committee appointed by the board. The option administration
committee may make final and binding determinations regarding the terms and
conditions of the awards granted, including the exercise price, the number of
shares subject to the award and the exercisability thereof, forms of agreement
for use under the plan and interpretation of plan terms.
The exercise price of incentive stock options granted under the 1996 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant. However, for any employee holding more than 10% of the voting
power of all classes of our stock, the exercise price will be no less than 110%
of the fair market value. The exercise price of nonqualified stock options for
any person holding more than 10% of the voting power of all classes of our
stock, including the stock of any parent or subsidiary, the exercise price will
be no less than 110% of the fair market value. For any other service provider,
the exercise price of a non-qualified option will be no less than 85% of the
fair market value. The maximum term of options granted under the 1996 stock plan
is ten years, except that options granted to officers, directors and consultants
share a maximum term of five years.
An optionee whose relationship with us or any related corporation ceases
for any reason, other than death or total and permanent disability, may exercise
options in the three-month period following such cessation, or such other period
of time as determined by the administrator, unless such options terminate or
expire sooner, or for nonstatutory stock options, later, by their terms. The
three-month period is extended to twelve months for terminations due to death or
total and permanent disability. In the event of our merger, sale or
reorganization into another corporation which results in a change of control,
the successor company may either assume outstanding options or issue substitute
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<PAGE> 47
options. If any options are not assumed or substituted, the options will
terminate. The 1996 stock plan will terminate in November 2006, unless sooner
terminated by the board of directors.
The board of directors may also grant stock purchase rights to employees
and consultants under the 1996 stock plan. Such grants are made pursuant to a
restricted stock purchase agreement, and the price to be paid for the shares
granted thereunder is determined by the administrator. We are generally granted
a repurchase option exercisable on the voluntary or involuntary termination of
the purchaser's employment with us for any reason, including death or
disability. The repurchase price shall be the original purchase price paid by
the purchaser. The repurchase option shall lapse at a rate determined by the
administrator. Once the stock purchase right has been exercised, the purchaser
shall have the rights equivalent to those of a stockholder.
1999 Employee Stock Purchase Plan
Our board of directors adopted our 1999 employee stock purchase plan in
December 1999. This plan provides our employees with an opportunity to purchase
our common stock through accumulated payroll deductions.
A total of 200,000 shares of common stock has been reserved for issuance
under the purchase plan. In addition, the purchase plan provides for annual
increases in the number of shares available for issuance under the purchase plan
on the first day of each fiscal year, beginning with fiscal 2001, equal to the
lesser of 1% of the outstanding shares of common stock on the first day of the
fiscal year or 400,000 shares or such lesser amount as may be determined by the
board.
The board of directors or a committee appointed by the board administers
the purchase plan. The board or its committee has full and exclusive authority
to interpret the terms of the purchase plan and determine eligibility.
Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted an
option to purchase stock under the purchase plan if such an employee:
- immediately after grant owns stock possessing five percent or more of the
total combined voting power or value of all classes of our capital stock,
or
- whose rights to purchase stock under all employee stock purchase plans of
ours accrues at a rate which exceeds $25,000 worth of stock for each
calendar year.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, contains consecutive, overlapping
24-month offering periods. Each offering period includes four six-month purchase
periods. The offering periods generally start on the first trading day on or
after May 1 and November 1 of each year, except for the first such offering
period, which will commence on the first trading day on or after the effective
date of this offering and will end on the last trading day on or before November
1, 2001.
The purchase plan permits participants to purchase common stock through
payroll deductions of up to 10% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation. The
maximum number of shares a participant may purchase during a single offering
period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning or end of the offering
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<PAGE> 48
period. If the fair market value at the end of a purchase period is less than
the fair market value at the beginning of the offering period, participants will
withdraw from the current offering period following the exercise and will
automatically re-enroll in a new offering period. Participants may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us.
A participant may not transfer rights granted under the purchase plan other
than by will, the laws of descent and distribution or as otherwise provided
under the purchase plan.
The purchase plan provides that, if we merge with or into another
corporation or sell substantially all of our assets, a successor corporation may
assume or substitute for each outstanding purchase right. If the successor
corporation refuses to assume or substitute for the outstanding purchase rights,
the offering period then in progress will be shortened, and a new exercise date
will be set.
The purchase plan will terminate in 2009. However, the board of directors
has the authority to amend or terminate the purchase plan, except that, subject
to some exceptions described in the purchase plan, no such action may adversely
affect any outstanding rights to purchase stock under the purchase plan.
401(k) PLAN
In April 1997, our board of directors adopted a Retirement Savings and
Investment Plan covering our full-time employees located in the United States.
This plan is intended to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended, so that contributions to this plan by employees, and
the investment earnings thereon, are not taxable to employees until withdrawn.
Pursuant to this plan, employees may elect to reduce their current compensation
by up to the lesser of 20% of their annual compensation or the statutorily
prescribed annual limit ($10,000 in 1999) and to have the amount of such
reduction contributed to this plan. We do not currently make additional matching
contributions on behalf of plan participants.
CHANGE OF CONTROL AGREEMENTS
We have entered into a change of control agreement with Michael Pope, our
chief financial officer. In the event of a change in our control and the actual
termination of Mr. Pope's employment or Mr. Pope's resignation following a
reduction in his responsibilities or compensation or a relocation of his place
of employment, the vesting of all outstanding stock options issued to Mr. Pope
will be accelerated. Mr. Pope will not be entitled to accelerated vesting if we
terminate his employment for cause, which includes acts of dishonesty or willful
misconduct.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for the following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
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<PAGE> 49
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors, executive
officers and controller, in addition to the indemnification provided for in our
bylaws. These agreements, among other things, provide for indemnification of our
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in our rights, arising out
of such person's services as a director or executive officer to us, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
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<PAGE> 50
CERTAIN TRANSACTIONS
PURCHASES OF STOCK
We sold 1,544,400 shares of our common stock to Peter J. Goettner, our
President and CEO, at a per share price of $0.001, in May 1996. We sold
1,069,200 shares of our common stock to Umberto Milletti, our General Manager of
Products, at a per share price of $0.001, in May 1996. We sold 1,346,400 shares
of our common stock to Steven C. Zahm, our Vice President, at a per share price
of $0.001, in May 1996.
We sold an aggregate of 3,184,000 shares of our Series A preferred stock,
at a per share price of $0.50, in August 1996. We sold an aggregate of 7,726,668
shares of our Series B preferred stock, at a per share price of $0.75, in June
1997. We sold an aggregate of 7,904,306 shares of our Series C and Series C-1
preferred stock, at a per share price of $1.50, in November 1998, February 1999
and June 1999. We sold an aggregate of 3,999,617 shares of our Series D
preferred stock, at a per share price of $6.50, in November 1999. The following
executive officers, directors or holders of more than five percent of our voting
securities purchased preferred stock in these financings in the amounts set
forth below.
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------
PREFERRED STOCKHOLDER SERIES A SERIES B SERIES C SERIES D
--------------------- -------- --------- --------- --------
<S> <C> <C> <C> <C>
TI Ventures, L.P................................ 666,667 1,333,334 777,778 307,693
Adobe Ventures, L.P............................... 666,666 1,333,334 777,778 307,693
H&Q Digital Think Investors, L.P................ 666,667 1,333,334 598,748 274,231
Walden Media Ventures........................... -- 2,000,000 500,000 200,000
Torstar Corporation............................. -- -- 2,000,000 76,923
Peter J. Goettner............................... 30,000 -- -- --
William H. Lane, III............................ 50,000 20,000 -- 3,077
E. Follett Carter............................... -- -- 80,000 --
Michael W. Pope................................. -- -- -- 15,385
</TABLE>
Samuel D. Kingsland, one of our directors, is a Manager of the General
Partner of TI Ventures, L.P., a Limited Partner of the General Partner of Adobe
Ventures, L.P., and a Manager of the General Partner of H&Q Digital Think
Investors, L.P., each of which is a greater than 5% stockholder. H&Q Digital
Think Investors, L.P. includes shares held by Hambrecht & Quist Employee Venture
Fund, L.P. II. Mr. Kingsland disclaims beneficial ownership of the securities
held by each of these entities.
Steven L. Eskenazi, one of our directors, is a General Partner of The
Walden Group. The Walden Group has shares held by Walden Media and Information
Technology Fund, L.P., Walden-SBIC, L.P., Walden EDB Partners, L.P., Walden EDB
Partners II, L.P. and Walden Technology Ventures II, L.P. Mr. Eskenazi disclaims
beneficial ownership of the securities held by each of these entities.
Each share of our preferred stock will convert into one share of common
stock upon the completion of this offering.
Investor Rights Agreement. The preferred stockholders described above have
entered into an agreement with us, pursuant to which these and other preferred
stockholders will have registration rights with respect to their shares of
common stock following this offering. Upon the completion of this offering, all
shares of our outstanding preferred stock will be automatically converted into
an equal number of shares of common stock.
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<PAGE> 51
We have entered into indemnification agreements with our directors and
officers for the indemnification of and advancement of expenses to these persons
to the full extent permitted by law. We also intend to execute these agreements
with our future directors and officers.
On various occasions during 1999 and the two preceding fiscal years, we
granted the following options to purchase our common stock to the following
executive officers, directors and stockholders who beneficially own five percent
or more of our securities:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAME DATE OF GRANT OPTIONS PRICE/SHARE
- -------------------------------------------------------- ------------- --------- -----------
<S> <C> <C> <C>
Peter J. Goettner....................................... 4/1/98 75,000 $ .075
1/12/99 75,000 .25
10/15/99 600,000 1.50
Umberto Milletti........................................ 6/19/97 200,000 .05
4/1/98 50,000 .075
1/12/99 75,000 .25
Steven C. Zahm.......................................... 4/1/98 50,000 .075
1/12/99 75,000 .25
Michael W. Pope......................................... 10/27/99 275,000 1.50
Todd A. Clyde........................................... 4/1/98 100,000 .075
2/9/99 125,000 .50
10/15/99 75,000 1.50
J. Adriaan Theron....................................... 3/12/99 250,000 .50
Lyle J. Nevels.......................................... 5/13/98 50,000 .075
1/12/99 20,000 .25
6/11/99 50,000 .75
William H. Lane, III.................................... 11/21/96 5,000 .05
10/15/99 40,000 1.50
E. Follet Carter........................................ 7/12/99 40,000 1.00
</TABLE>
In February 1999, we entered into an agreement with Adobe Systems
Incorporated for the provision of custom course services relating to project
management, development of course content, production of courseware and delivery
of online courses via the Internet. The agreement will continue until February
16, 2002 unless terminated earlier.
In 1997, we entered into an agreement with Texas Instruments Incorporated
for the provision of services relating to project management resources and
development of course syllabus for a Texas Instrument's course of instruction
for delivery worldwide via the Internet. The agreement will continue until
December 31, 2002 unless terminated earlier.
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of November 30, 1999, by the following
individuals or groups:
- each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
- each Named Executive Officer;
- each of our directors; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder on this table
is c/o DigitalThink, Inc., 1098 Harrison Street, San Francisco, California
94103. Except as otherwise noted, and subject to applicable community property
laws, to the best of our knowledge, the persons named in this table have sole
voting and investing power with respect to all of the shares of common stock
held by them.
This table lists applicable percentage ownership based on 27,333,706 shares
of common stock outstanding as of November 30, 1999, as adjusted to reflect the
conversion of all outstanding shares of preferred stock upon the closing of this
offering, and also lists applicable percentage ownership based on
shares of common stock outstanding after completion of this offering. Options to
purchase shares of our common stock that are exercisable within 60 days of
November 30, 1999 are deemed to be beneficially owned by the persons holding
these options for the purpose of computing percentage ownership of that person,
but are not treated as outstanding for the purpose of computing any other
person's ownership percentage.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
TI Ventures, L.P.............................. 3,085,472 11.3
H&Q Venture Associates, LLC
One Bush Street
San Francisco, CA 94104
H&Q Digital Think Investors, L.P.(1).......... 2,872,980 10.5
H&Q Venture Associates, LLC
One Bush Street
San Francisco, CA 94104
The Walden Group(2)........................... 2,700,000 9.9
750 Battery Street, Suite 700
San Francisco, CA 94111
Attn: Joanna Tieu
Adobe Ventures, L.P.(3)....................... 3,085,471 11.3
H&Q Venture Associates, LLC
One Bush Street
San Francisco, CA 94104
Torstar Corporation........................... 2,076,923 7.6
One Young Street, Sixth Floor
Toronto, Canada M5E1P9
Attn: David Wetherald
Samuel D. Kingsland(4)........................ 9,043,923 33.1
H&Q Venture Associates, LLC
One Bush Street
San Francisco, CA 94104
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Steve L. Eskenazi(5).......................... 2,700,000 9.9
The Walden Group
1910 Jackson Street
San Francisco, CA 94109
Peter J. Goettner(6).......................... 1,663,462 6.1 %
Steve C. Zahm(7).............................. 1,408,525 5.1
Umberto Milletti(8)........................... 1,238,992 4.5
E. Follett Carter............................. 80,000 *
Todd A. Clyde(9).............................. 79,166 *
William H. Lane, III.......................... 78,077 *
Lyle J. Nevels(10)............................ 33,135 *
Michael W. Pope............................... 15,385 *
All directors and executive officers as a
group (10 persons).......................... 16,340,665 59.1 %
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 12,799 held by Hambrecht & Quist Employee Venture Fund, LP II.
(2) Includes 1,550,000 shares held by Walden Media Information Technology Fund,
L.P., 220,000 shares held by Walden EDB Partners, L.P., 17,600 shares held
by Walden EDB Partners II, L.P., 765,727 shares held by Walden-SBIC, L.P.
and 146,673 shares held by Walden Technology Ventures II, L.P.
(3) Includes 2,307,693 shares held by Adobe Ventures, L.P. and 777,778 shares
held by Adobe Ventures II, L.P.
(4) Includes 3,085,472 shares held by TI Ventures, L.P., 2,307,693 shares held
by Adobe Ventures, L.P., 777,778 shares held by Adobe Ventures II, L.P.,
2,860,181 shares held by H&Q DigitalThink Investors, L.P. and 12,799 shares
held by Hambrecht & Quist Employee Venture Fund, L.P. II. Mr. Kingsland
disclaims beneficial ownership of such shares.
(5) Includes 1,550,000 shares held by Walden Media Information Technology Fund,
L.P., 220,000 shares held by Walden EDB Partners, L.P., 17,600 shares held
by Walden EDB Partners II, L.P., 765,727 shares held by Walden-SBIC, L.P.
and 146,673 shares held by Walden Technology Ventures II, L.P. Mr. Eskenazi
disclaims beneficial ownership of such shares.
(6) Includes 89,062 stock options exercisable within 60 days of November 30,
1999 and 75,000 shares beneficially owed by the Goettner-Shmunes 1999
Children's Trust UTA Dated July 26, 1999.
(7) Includes 40,625 stock options exercisable within 60 days of November 30,
1999 and 100,000 shares held by the Zahm Children's Trust Dated September
3, 1999.
(8) Includes 161,792 stock options exercisable within 60 days of November 30,
1999, 839,200 shares held by the Umberto Milletti and Julie Milletti Trust
Dated March 10, 1999 and 200,000 shares held by the Vincent Vitiello,
Trustee of the Milletti Children's Trust UTA Dated August 13, 1999.
(9) Includes 20,833 stock options exercisable within 60 days of November 30,
1999.
(10) Includes 8,417 stock options exercisable within 60 days of November 30,
1999.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of up to 100,000,000 shares of common
stock, $0.001 par value, and authorizes the issuance of 10,000,000 shares of
undesignated preferred stock, no par value. From time to time, our board of
directors may establish the rights and preferences of the preferred stock. As of
November 30, 1999, 4,519,115 shares of common stock were issued and outstanding
and held by 149 stockholders, and 22,814,590 shares of preferred stock were
issued and outstanding and held by 93 stockholders. Upon the closing of this
offering, all outstanding shares of preferred stock will convert into an
aggregate of 22,814,590 shares of common stock. The following is a summary
description of our capital stock. We encourage you to refer to our certificate
of incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and applicable provisions of
Delaware law for a more complete description.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared time to time by the board of directors out
of funds legally available for that purpose. See "Dividend Policy." In the event
of a liquidation, dissolution or winding up of DigitalThink, the holders of
common stock are entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by the rights of the holders of shares of any series
of preferred stock that we may designate in the future.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the 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 the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in our control without further action by
the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
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<PAGE> 55
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After this offering, holders of shares of common stock (the
"registrable securities") or their transferees are entitled to certain rights
with respect to the registration of such shares under the Securities Act. These
rights are provided under the terms of an agreement between DigitalThink and the
holders of the registrable securities. Beginning 180 days following the date of
this prospectus, holders of at least 30% of the registrable securities may
require on no more than two occasions, that we use our best efforts to register
the registrable securities for public resale. We are obligated to register these
shares only if the outstanding registrable securities have an anticipated public
offering price of at least $10,000,000. Also, holders of registrable securities
may require, no more than once during any six-month period, that we register
their shares for public resale on Form S-3 or similar short-form registration if
the value of the securities to be registered is at least $1,000,000.
Furthermore, in the event we elect to register any of our shares of common stock
for purposes of effecting any public offering, the holders of registrable
securities are entitled to include their shares of common stock in that
registration, but we may reduce the number of shares proposed to be registered
in view of market conditions. These registration rights have been waived with
respect to this offering. DigitalThink will bear all expenses in connection with
any registration, other than underwriting discounts and commissions. All
registration rights will terminate five years following the consummation of this
offering provided that the aggregate proceeds of such registration exceed
$15,000,000 at a per share issuance price of at least $8.00 per share, or with
respect to each holder of registrable securities, at such time as the holder is
entitled to sell all of the holder's then held shares in any 90-day period under
Rule 144 of the Securities Act.
CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:
- our acquisition by a tender offer;
- our acquisition by a proxy contest; or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to first negotiate with our board. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure outweighs the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
Classified Board
Our board of directors is divided into three classes. The directors in each
class will serve for a three-year term, with our stockholders electing one class
each year. 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 us, because it generally makes it more difficult for stockholders to
replace a majority of the directors.
Restrictions on Persons able to call Stockholder Meetings
Under our bylaws, only the board of directors, the chairman of the board
and the president may call special meetings of stockholders.
53
<PAGE> 56
Advance Notification Of Stockholder Nominations And Proposals Required
Our bylaws establish advance notice procedures for stockholder proposals
and the nomination of candidates for election as directors, other than
nominations made by or at the direction of the board of directors or a committee
of the board.
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
its affiliates and 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 the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Stockholder Action By Written Consent Eliminated
Our certificate of incorporation eliminates the right of stockholders to
act by written consent without a meeting.
No Cumulative Voting
Our certificate of incorporation and bylaws do not provide for cumulative
voting in the election of directors.
Undesignated Preferred Stock
The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change our control.
These and other provisions may have the effect of deferring hostile takeovers or
delaying changes in our control or management.
Amendment of Charter Provisions Require Supermajority Vote
The amendment of any of the above provisions would require approval by
holders of at least 66 2/3% of the outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
54
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options,
in the public market following this offering could adversely affect market
prices prevailing from time to time and could impair our ability to raise
capital through sale of our equity securities. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of certain contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock based upon shares outstanding as of November 30, 1999, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options that do not expire prior to completion of this offering. Of
these shares, the shares sold in this offering will be freely tradable
without restriction under the Securities Act, except for any shares purchased by
our "affiliates" as Rule 144 under the Securities Act defines that term. The
remaining shares of common stock held by existing stockholders are
"Restricted Shares" as Rule 144 defines that term. All such Restricted Shares
are subject to lock-up agreements providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell or otherwise
dispose of any common stock or any securities that are convertible into common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Credit Suisse First Boston Corporation. As a result of
these lock-up agreements, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701, none of these shares will be
resellable until 181 days after the date of this prospectus. Beginning 181 days
after the date of this prospectus, approximately Restricted Shares
will be eligible for sale in the public market, all of which are subject to
volume limitations under Rule 144, except shares eligible for sale
under Rule 144(k) and shares eligible for sale under Rule 701 (subject
in some cases to repurchase rights in favor of DigitalThink). In addition, as of
September 30, 1999, there were outstanding options to purchase
preferred stock convertible into shares of common stock, some of which
will be exercised prior to this offering. All such options and warrants are
subject to lock-up agreements. Credit Suisse First Boston Corporation may, in
their sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned Restricted
Shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding which will
equal approximately 250,000 shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about DigitalThink. Under Rule 144(k), a person who is not deemed to have been
an affiliate of DigitalThink at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years including the holding period of any prior owner except an affiliate,
is entitled to sell such shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
55
<PAGE> 58
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of or
consultant to DigitalThink who purchased shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, all Rule 701 shares are subject
to lock-up agreements and will only become eligible for sale at the earlier of
the expiration of the 180-day lock-up agreements or no sooner than 90 days after
the offering upon obtaining the prior written consent of Credit Suisse First
Boston Corporation.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock plans. As of November 30, 1999, options to
purchase a total of 4,125,832 shares were outstanding and 1,731,957 shares were
reserved for future grant under our stock plans. Common stock issued upon
exercise of outstanding vested options or issued pursuant to our Employee Stock
Purchase Plan, other than common stock issued to our affiliates, is available
for immediate resale in the open market.
Also, beginning six months after the date of this offering, holders of
Restricted Shares will be entitled to certain rights with respect to
registration of such shares for sale in the public market. See "Description of
Capital Stock -- Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by affiliates,
immediately upon the effectiveness of such registration.
56
<PAGE> 59
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000 we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Hambrecht & Quist LLC and BancBoston Robertson Stephens Inc. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Hambrecht & Quist LLC.......................................
BancBoston Robertson Stephens Inc...........................
---------
Total.............................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us............. $ $ $ $
Expenses payable by us............... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
Hambrecht & Quist LLC, one of the underwriters, may be deemed to be our
affiliate. The offering is, therefore, being conducted in accordance with the
applicable provisions of Rule 2720 of the National Association of Securities
Dealers, Inc. Conduct Rules. Rule 2720 requires that the initial public offering
price of the shares of common stock not be higher than that recommended by a
"qualified independent underwriter" meeting certain standards. Accordingly,
Credit Suisse First Boston Corporation is assuming the responsibilities of
acting as the qualified independent underwriter in pricing the offering and
conducting due diligence. The initial public offering price of the shares of
common stock is no higher than the price recommended by Credit Suisse First
Boston Corporation.
57
<PAGE> 60
We and our executive officers, directors and other of our security holders
have agreed that we will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
shares of common stock or securities convertible into or exchangeable or
exercisable for any common stock, or publicly disclose the intention to make any
offer, sale, pledge disposition or filing without the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this prospectus, except in the case of issuances pursuant to the exercise of
employee stock options outstanding on the date hereof. We can, however, issue
stock pursuant to the exercise of currently outstanding options.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have made application to list the shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "DTHK."
H&Q Digital Think Investors, L.P. and Hambrecht & Quist Employee Venture
Fund, LP II, affiliates of Hambrecht & Quist LLC, one of the representatives of
the underwriters, holds shares of preferred stock of DigitalThink that will
convert into 2,872,980 shares of common stock upon the closing of the offering.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:
- the information in this prospectus and otherwise available to the
underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with Regulation
M under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions.
58
<PAGE> 61
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
59
<PAGE> 62
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
60
<PAGE> 63
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters with this offering will be passed upon for the
underwriters by Morrison & Foerster, LLP, Palo Alto, California. As of the date
of this prospectus, WS Investments, an investment partnership composed of
current and former members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially owned an aggregate of
63,000 shares of common stock of DigitalThink. Mario M. Rosati, our secretary
and a member of our board of directors from our inception through February 1999,
is a member of Wilson Sonsini Goodrich & Rosati. Mr. Rosati owns 7,000 shares of
DigitalThink's common stock.
EXPERTS
The Financial Statements of DigitalThink, Inc. at March 31, 1998 and 1999
and September 30, 1999, and for each of the three years in the period ended
March 31, 1999 and the six months ended September 30, 1999 included in this
prospectus and the related Financial Statement schedule included elsewhere in
the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
DigitalThink has 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 hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to DigitalThink and our
common stock, reference is made to the registration statement and the exhibits
and schedules filed as a part thereof. Statements contained in this prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete. In each instance, reference is made to the copy of such
contract or document filed as an exhibit to the registration statement, and each
such statement is qualified in all respects by such reference. Copies of the
registration statement, including exhibits and schedules thereto, may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., or obtained at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Securities and Exchange Commission maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
61
<PAGE> 64
DIGITALTHINK, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of March 31, 1998 and 1999 and September
30, 1999.................................................... F-3
Statements of Operations for the Period from April 22, 1996
(Inception) Through March 31, 1997, the Years Ended March
31, 1998 and 1999 and Six Months Ended September 30,
1999...................................................... F-4
Statements of Shareholders' Deficit for the Period from
April 22, 1996 (Inception) Through March 31, 1997, the
Years Ended March 31, 1998 and 1999 and Six Months Ended
September 30, 1999........................................ F-5
Statements of Cash Flows for the Period from April 22, 1996
(Inception) Through March 31, 1997, the Years Ended March
31, 1998 and 1999 and Six Months Ended September 30,
1999...................................................... F-6
Notes to Financial Statements for the Period from April 22,
1996 (Inception) Through March 31, 1997, the Years Ended
March 31, 1998 and 1999 and Six Months Ended September 30,
1999...................................................... F-7
</TABLE>
F-1
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of DigitalThink, Inc.
We have audited the accompanying balance sheets of DigitalThink, Inc. as of
March 31, 1998 and 1999 and September 30, 1999, and the related statements of
operations, shareholders' deficit and cash flows for the period from April 22,
1996 (inception) through March 31, 1997, the years ended March 31, 1998 and 1999
and the six months ended September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of DigitalThink, Inc. at March 31, 1998 and
1999 and September 30, 1999, and the results of its operations and its cash
flows for the period from April 22, 1996 (inception) through March 31, 1997, the
years ended March 31, 1998 and 1999 and the six months ended September 30, 1999
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
December 2, 1999
F-2
<PAGE> 66
DIGITALTHINK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA
-------------------------- SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 1999
----------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................. $ 2,862,350 $ 9,455,050 $ 4,218,678
Restricted cash.................................. -- -- 1,800,000
Accounts receivable, net of allowance for
doubtful accounts of $10,000, $75,108 and
$135,108, respectively......................... 250,698 1,115,423 1,381,014
Prepaid expenses and other current assets........ 51,139 34,395 208,720
----------- ------------ ------------
Total current assets...................... 3,164,187 10,604,868 7,608,412
Property and equipment, net........................ 384,743 698,469 1,304,551
Other assets....................................... 31,500 26,500 37,866
----------- ------------ ------------
Total assets.............................. $ 3,580,430 $ 11,329,837 $ 8,950,829
=========== ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable................................. $ 78,430 $ 374,906 $ 861,705
Accrued liabilities.............................. 225,886 711,210 1,409,744
Deferred revenues................................ 244,711 1,165,343 3,099,421
----------- ------------ ------------
Total current liabilities................. 549,027 2,251,459 5,370,870
----------- ------------ ------------
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock:
Redeemable convertible preferred stock -- no par
value; shares authorized: 25,000,000:
Series A, 6,600,000 shares designated;
3,184,000 issued and outstanding (none pro
forma) (aggregate liquidation value of
$1,592,000).................................. 2,337,568 2,921,960 3,264,843 --
Series B, 8,000,000 shares designated;
7,726,668 issued and outstanding in (none pro
forma) (aggregate liquidation value of
$5,795,001).................................. 6,991,625 8,710,780 9,765,517 --
Series C, 9,333,334 shares designated;
7,824,305 issued and outstanding at March 31,
1999 and 7,904,305 at September, 30, 1999
(none pro forma) (aggregate liquidation value
of $11,856,458).............................. -- 12,950,447 14,541,378 --
----------- ------------ ------------ ------------
Total redeemable convertible preferred
stock................................... 9,329,193 24,583,187 27,571,738 --
Shareholders' equity (deficit):
Common stock -- no par value; shares authorized:
51,500,000; issued and outstanding: 4,057,000
in 1998, 4,130,848 at March 31, 1999, 4,235,566
at September 30, 1999 and 23,050,539 pro
forma.......................................... 6,810 400,414 2,399,389 $ 29,971,127
Deferred stock compensation...................... -- (331,681) (1,879,470) (1,879,470)
Accumulated deficit.............................. (6,304,600) (15,573,542) (24,511,698) (24,511,698)
----------- ------------ ------------ ------------
Total shareholders' equity (deficit)...... (6,297,790) (15,504,809) (23,991,779) 3,579,959
----------- ------------ ------------ ------------
Total liabilities, redeemable convertible
preferred stock and shareholders' equity
(deficit)............................... $ 3,580,430 $ 11,329,837 $ 8,950,829 $ 8,950,829
=========== ============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 67
DIGITALTHINK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 22,
1996 SIX MONTHS SIX MONTHS
(INCEPTION) YEARS ENDED MARCH 31, ENDED ENDED
TO MARCH 31, ------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1998 1999
------------ ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Delivered Learning fees......... $ 4,751 $ 147,679 $ 1,033,888 $ 371,983 $ 1,449,410
Learning Solution services.... 20,000 52,500 812,667 317,500 1,860,213
----------- ----------- ----------- ----------- -----------
Total revenues........ 24,751 200,179 1,846,555 689,483 3,309,623
Costs and expenses:
Content production and
development................ 261,564 925,487 2,018,364 627,142 2,487,211
Web delivery and customer
support.................... 29,030 363,271 854,490 348,217 804,021
Sales and marketing........... 187,915 1,399,897 2,970,092 1,334,339 3,415,623
Research and development...... 299,128 664,922 1,005,069 490,069 1,364,485
General and administrative.... 157,142 418,511 622,475 257,908 773,917
Depreciation and
amortization............... 10,351 83,086 235,750 92,676 250,959
Stock-based compensation...... -- -- 57,582 -- 442,453
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 945,130 3,855,174 7,763,822 3,150,351 9,538,669
----------- ----------- ----------- ----------- -----------
Loss from operations............ (920,379) (3,654,995) (5,917,267) (2,460,868) (6,229,046)
Interest and other income....... 32,251 185,715 165,861 46,596 159,589
----------- ----------- ----------- ----------- -----------
Net loss........................ $ (888,128) $(3,469,280) $(5,751,406) $(2,414,272) $(6,069,457)
=========== =========== =========== =========== ===========
Accretion of redeemable
convertible preferred stock... $ 278,055 $ 1,669,137 $ 3,517,536 $ 1,091,252 $ 2,868,699
----------- ----------- ----------- ----------- -----------
Loss attributable to common
shareholders.................. $(1,166,183) $(5,138,417) $(9,268,942) $(3,505,524) $(8,938,156)
=========== =========== =========== =========== ===========
Basic and diluted loss per
common share.................. $ (0.29) $ (1.27) $ (2.26) $ (0.86) $ (2.14)
=========== =========== =========== =========== ===========
Shares used in basic and diluted
loss per common share......... 4,010,353 4,035,909 4,095,116 4,082,522 4,182,426
=========== =========== =========== =========== ===========
Pro forma basic and diluted loss
per common share (Note 1)..... $ (0.56) $ (0.23) $ (0.39)
=========== =========== ===========
Shares used in pro forma basic
and diluted loss per common
share (Note 1)................ 16,686,553 14,986,523 22,945,515
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 68
DIGITALTHINK, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- DEFERRED STOCK ACCUMULATED
SHARES AMOUNT COMPENSATION DEFICIT TOTAL
--------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, April 22, 1996
(inception).......................... -- $ -- $ -- $ -- $ --
Issuance of founders' common stock
for cash in May 1996 at $0.001 per
share.............................. 3,960,000 3,960 3,960
Issuance of founders' common stock
for no consideration in May 1996... 40,000 -- --
Exercise of stock options............ 27,000 1,350 1,350
Accretion for redemption value on
Series A preferred stock........... (278,055) (278,055)
Net loss............................. (888,128) (888,128)
--------- ---------- ----------- ------------ ------------
Balances, March 31, 1997............. 4,027,000 5,310 -- (1,166,183) (1,160,873)
Exercise of stock options............ 30,000 1,500 1,500
Accretion for redemption value on
Series A and B preferred stock..... (1,669,137) (1,669,137)
Net loss............................. (3,469,280) (3,469,280)
--------- ---------- ----------- ------------ ------------
Balances, March 31, 1998............. 4,057,000 6,810 -- (6,304,600) (6,297,790)
Exercise of stock options............ 73,848 4,341 4,341
Accretion for redemption value on
Series A, B and C preferred
stock.............................. (3,517,536) (3,517,536)
Deferred stock compensation.......... 389,263 (389,263) --
Amortization of deferred stock
compensation....................... 57,582 57,582
Net loss............................. (5,751,406) (5,751,406)
--------- ---------- ----------- ------------ ------------
Balances, March 31, 1999............. 4,130,848 400,414 (331,681) (15,573,542) (15,504,809)
Exercise of stock options............ 104,718 8,733 8,733
Accretion for redemption value of
Series A, B and C preferred
stock.............................. (2,868,699) (2,868,699)
Deferred stock compensation.......... 1,990,242 (1,990,242) --
Amortization of deferred stock
compensation....................... 442,453 442,453
Net loss............................. (6,069,457) (6,069,457)
--------- ---------- ----------- ------------ ------------
Balances, September 30, 1999......... 4,235,566 $2,399,389 $(1,879,470) $(24,511,698) $(23,991,779)
========= ========== =========== ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 69
DIGITALTHINK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 22,
1996
(INCEPTION) SIX MONTHS SIX MONTHS
THROUGH YEARS ENDED MARCH 31, ENDED ENDED
MARCH 31, ------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1998 1999
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (888,128) $(3,469,280) $(5,751,406) $(2,414,272) $(6,069,457)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization........ 10,351 83,086 235,750 92,676 250,959
Amortization of deferred stock
compensation....................... -- -- 57,582 -- 442,453
Changes in assets and liabilities:
Restricted cash.................... -- -- -- -- (1,800,000)
Accounts receivable................ (1,502) (249,196) (864,725) (237,982) (265,591)
Prepaid expenses and other current
assets.......................... (3,377) (47,762) 16,744 29,005 (174,325)
Accounts payable................... 40,498 37,932 296,476 37,128 486,799
Accrued liabilities................ 16,645 209,241 485,324 142,022 698,534
Deferred revenue................... 20,000 224,711 920,632 277,089 1,934,078
---------- ----------- ----------- ----------- -----------
Net cash used in operating
activities.................... (805,513) (3,211,268) (4,603,623) (2,074,334) (4,496,550)
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.... (108,343) (369,837) (549,476) (137,912) (857,189)
Other assets........................... (3,116) (28,384) 5,000 5,000 (11,366)
---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities.................... (111,459) (398,221) (544,476) (132,912) (868,555)
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowing................ 137,000 -- -- -- --
Proceeds from sale of preferred
stock................................ 1,455,000 5,790,001 11,736,458 -- 120,000
Proceeds from sale of common stock..... 5,310 1,500 4,341 2,558 8,733
---------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities.................... 1,597,310 5,791,501 11,740,799 2,558 128,733
---------- ----------- ----------- ----------- -----------
Net increase in cash and equivalents..... 680,338 2,182,012 6,592,700 (2,204,688) (5,236,372)
Cash and equivalents, beginning of
period................................. -- 680,338 2,862,350 2,862,350 9,455,050
---------- ----------- ----------- ----------- -----------
Cash and equivalents, end of period...... $ 680,338 $ 2,862,350 $ 9,455,050 $ 657,662 $ 4,218,678
========== =========== =========== =========== ===========
Supplemental disclosure of cash flow
information --
Conversion of loans payable to
preferred stock...................... $ 137,000 $ -- $ -- $ -- $ --
========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 70
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- DigitalThink, Inc. (the Company) was incorporated in
California on April 22, 1996 to provide Web-based training courses and training
delivery technology. The Company completed the development of its delivery
technology and initial content, and began substantial sales and marketing
efforts in fiscal year 1998.
Unaudited Interim Financial Information -- The interim financial
information for the six months ended September 30, 1998 is unaudited and has
been prepared on the same basis as the audited financial statements. In the
opinion of management, such unaudited information includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the interim information.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. Actual results could
differ from those estimates.
Cash and Equivalents -- The Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months or less to be
cash equivalents.
Concentration of Credit Risk -- Accounts receivable are unsecured, and the
Company is at risk to the extent that such amounts become uncollectible. At
September 30, 1999, three accounts represented 14%, 10% and 10% of gross
accounts receivable, respectively.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation is computed using the straight line method over estimated useful
lives of three to four years.
Revenue Recognition -- Tuition payments (delivered learning fees) allow
access to courses served by the Company for a fixed period, typically six
months. Revenues for courses are recognized ratably over this access period.
Revenues for custom course development (learning solutions services) are
recognized as development progresses based on percentage of completion.
Royalty payments to course authors are expensed as incurred as the
recoverability of such royalties against future revenues is uncertain. Royalty
expenses are included in content production and development expenses in the
accompanying financial statements.
Research and development expenses are charged to operations as incurred.
Income Taxes -- The Company accounts for income taxes using an asset and
liability approach. Deferred tax liabilities are recognized for future taxable
amounts and deferred tax assets are recognized for future deductions and
operating loss carryforwards, net of a valuation allowance to reduce net
deferred tax assets to amounts that are more likely than not to be realized.
Stock-Based Awards -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Loss per Common Share -- Basic loss per common share excludes dilution and
is computed by dividing loss attributable to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted loss per
common share reflects the potential dilution that could
F-7
<PAGE> 71
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. Common share equivalents are excluded from the
computation in loss periods as their effect would be antidilutive.
Pro Forma Net Loss per Common Share -- Pro forma basic and diluted loss per
common share is computed by dividing loss attributable to common shareholders by
the weighted average number of shares outstanding for the period and the
weighted average number of common shares resulting from the assumed conversion
of outstanding shares of redeemable convertible preferred stock.
Unaudited Pro Forma Information -- The unaudited pro forma balance sheet
information assumes that the conversion upon closing of an initial public
offering of each share of preferred stock to one share of common stock had
actually occurred at September 30, 1999. Estimated proceeds from the common
shares to be issued as a result of such initial public offering are excluded.
Recently Issued Accounting Standards -- In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, which requires an
enterprise to report by major components and as a single total, the change in
its net assets during the period from nonowner sources; and SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
establishes annual and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services, geographic areas
and major customers. The Company had no items of other comprehensive income to
report through September 30, 1999. The Company currently operates in one
reportable segment under SFAS No. 131. Adoption of these statements did not
impact the Company's financial position, results of operations or cash flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for the Company in fiscal
2002. The Company does not believe that adoption of this statement will have a
material impact on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------- SEPTEMBER 30,
1998 1999 1999
-------- --------- -------------
<S> <C> <C> <C>
Furniture and fixtures.............................. $ 25,133 $ 28,164 $ 28,164
Computer hardware and software...................... 434,807 954,443 1,780,558
Leasehold improvements.............................. 18,239 45,048 76,122
Accumulated depreciation............................ (93,436) (329,186) (580,293)
-------- --------- ----------
Property and equipment, net......................... $384,743 $ 698,469 $1,304,551
======== ========= ==========
</TABLE>
F-8
<PAGE> 72
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
3. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------- SEPTEMBER 30,
1998 1999 1999
-------- --------- -------------
<S> <C> <C> <C>
Payroll and related expenses........................ $ 70,612 $ 204,955 $ 530,140
Royalties........................................... 22,500 78,279 200,901
Deferred rent....................................... -- 10,000 173,861
Other............................................... 132,774 417,976 504,842
-------- --------- ----------
Total accrued liabilities................. $225,886 $ 711,210 $1,409,744
======== ========= ==========
</TABLE>
4. INCOME TAXES
No income taxes were provided for any of the periods presented due to the
Company's net losses.
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------- SEPTEMBER 30,
1998 1999 1999
----------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Accruals and reserves........................... $ 150,546 $ 90,755 $ 188,239
Net operating losses and tax credits carried
forward.................................... 1,565,235 3,789,381 5,975,439
Depreciation.................................. 4,461 2,544 --
----------- ----------- ----------
Total gross deferred tax asset before
valuation allowance................. 1,720,242 3,882,680 6,163,678
Valuation allowance............................. (1,720,242) (3,882,680) 6,097,436
----------- ----------- ----------
-- -- 66,242
Deferred tax liabilities -- depreciation........ -- -- (66,242)
----------- ----------- ----------
Net deferred tax asset.......................... $ -- $ -- $ --
=========== =========== ==========
</TABLE>
At September 30, 1999, the Company had available federal and California
state net operating loss carryforwards of approximately $15.4 million and $12.5
million, respectively, to offset future taxable income through 2020 and 2005,
respectively. At March 31, 1998 and 1999 and September 30, 1999, the net
deferred tax assets have been fully reserved due to the uncertainty surrounding
the realization of such benefits.
Current tax laws impose substantial restrictions on the utilization of net
operating loss and credit carryforwards in the event of an "ownership change,"
as defined by the Internal Revenue Code. If there should be an ownership change,
the Company's ability to utilize its carryforwards could be limited.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In July 1996, the Company issued 2,910,000 shares of Series A preferred
stock for cash at $0.50 per share. In December 1996, 274,000 shares of Series A
preferred stock were issued upon conversion of $137,000 of convertible notes. In
June 1997, the Company issued 7,726,668 shares of Series B preferred stock for
$0.75 per share. In December 1998 and March 1999, the Company issued
F-9
<PAGE> 73
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
7,824,305 shares of Series C preferred stock for $1.50 per share. In July 1999,
the Company issued 80,000 shares of Series C preferred stock for $1.50 per
share.
Significant terms of the outstanding Series A, Series B and Series C
preferred stock are as follows:
- Shares are redeemable at the option of the holders of a majority of the
outstanding preferred shares beginning on July 19, 2001 if the Company
has not completed a public offering of more than $15,000,000 of Company
stock for not less than $5.00 per share. The redemption price of Series A
preferred stock is $0.50 per share plus a 25% compound annual rate of
return from July 19, 1996 (as adjusted for any stock dividends,
combinations, or splits). The redemption price of Series B preferred
stock is $0.75 per share plus a 25% compound annual rate of return from
June 1, 1997. The redemption price of Series C preferred stock is $1.50
per share plus a 25% compound annual rate of return from October 30,
1998. Series B and Series C preferred stock are also redeemable at the
option of each of the shareholders in accordance with the terms above, in
the event that the Company enters into a substantial new business, as
defined by the Company's board. The redemption value is being accreted
over the redemption period.
- Each share is convertible into one share of common stock at the option of
the shareholder. Such shares will be converted automatically upon an
underwritten public offering of the Company's common stock meeting
certain criteria.
- Each share has voting rights equivalent to the number of shares of common
stock into which it is convertible.
- Shareholders of Series A, Series B and Series C preferred stock are
entitled to dividends of $0.04, $0.06 and $0.12 per share per annum,
respectively, as declared by the board of directors. No dividends have
been declared or paid.
- In the event of liquidation, dissolution or winding up of the Company,
shareholders of Series B and Series C preferred stock are entitled to
receive $0.75 and $1.50 per share, respectively, plus any declared but
unpaid dividends prior to any distribution to holders of Series A
preferred stock or common stock. Holders of Series A preferred stock are
entitled to receive $0.50 per share plus any declared but unpaid
dividends prior to any distribution to the common shareholders.
6. SHAREHOLDERS' DEFICIT
Common Stock
Upon inception of the Company, the Company issued 3,960,000 shares of
common stock to founders for cash at $0.001 per share, resulting in proceeds of
$3,960. The Company also issued 40,000 shares of common stock to a founding
board member of the Company for no consideration.
Stock Option Plan
The Company's stock option plan provides for the grant of up to 3,375,000
incentive or nonstatutory stock options to officers, employees, directors and
consultants. Options vest over four years and expire over terms up to ten years.
F-10
<PAGE> 74
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
A summary of option activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Balances, April 1, 1996..................................... -- $ --
Granted (weighted average fair value of $0.013)............. 285,500 0.050
Exercised................................................... (27,000) 0.050
---------
Balances, March 31, 1997 (10,000 shares exercisable at a
weighted average exercise price of $0.05 per share)....... 258,500 0.050
Granted (weighted average fair value of $0.014)............. 843,000 0.067
Canceled.................................................... (81,367) 0.050
Exercised................................................... (30,000) 0.050
---------
Balances, March 31, 1998 (72,501 shares exercisable at a
weighted average exercise price of $0.054 per share)...... 990,133 0.065
Granted (weighted average fair value of $0.03).............. 1,461,250 0.289
Canceled.................................................... (192,486) 0.093
Exercised................................................... (73,848) 0.059
---------
Balances, March 31, 1999 (397,626 shares exercisable at
weighted average exercise price of $0.074 per share)...... 2,185,049 0.230
Granted (weighted average fair value of $2.53).............. 839,300 0.950
Canceled.................................................... (124,873) 0.260
Exercised................................................... (104,718) 0.080
---------
Balances, September 30, 1999 (578,909 shares exercisable at
a weighted average exercise price of $0.09 per share)..... 2,794,758 $0.483
=========
</TABLE>
At September 30, 1999, 344,676 shares were available for future grant under
the Plan.
The following table summarizes information as of September 30, 1999
concerning options outstanding:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
EXERCISE OPTIONS CONTRACTUAL LIFE
PRICES OUTSTANDING (YEARS) EXERCISABLE
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.050................................... 294,374 7.59 197,897
0.075................................... 734,445 8.46 284,084
0.250................................... 433,768 9.21 63,396
0.500................................... 737,350 9.45 28,792
0.750................................... 224,875 9.66 4,146
1.000................................... 92,700 9.76 --
1.500................................... 277,246 9.83 594
--------- -------
2,794,758 578,909
========= =======
</TABLE>
F-11
<PAGE> 75
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), requires the disclosure of pro forma net
income had the Company adopted the fair value method. Under SFAS 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the minimum value pricing method with the following weighted
average assumptions: expected life, 4 years in 1998, 2.7 years in 1999 and 2.5
years for the six months ended September 30, 1999; average risk-free interest
rate, 6% in 1998, 5% in 1999 and 5.5% for the six months ended September 30,
1999; and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach, and forfeitures are recognized as
they occur.
If the computed minimum values of the Company's stock-based awards to
employees had been amortized to expense over the vesting period of the awards as
specified under SFAS No. 123, loss attributable to common shareholders and basic
and diluted loss per share on a pro forma basis (as compared to such items as
reported) would have been:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED
------------------------- SEPTEMBER 30,
1998 1999 1999
----------- ----------- -------------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(3,469,280) $(5,751,406) $(6,069,457)
Pro forma..................................... $(3,473,029) $(5,756,522) $(6,072,016)
Basic and diluted net loss per share:
As reported................................... $ (1.27) $ (2.26) $ (2.14)
Pro forma..................................... $ (1.27) $ (2.26) $ (2.14)
</TABLE>
At September 30, 1999, the Company had reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of outstanding preferred stock................ 18,814,973
Issuance under stock option plan......................... 3,139,434
----------
Total.......................................... 21,954,407
==========
</TABLE>
Stock-Based Compensation
During the six months ended September 30, 1999, the Company issued 839,300
common stock options at a weighted average price of $0.95 per share, which was
less than the deemed weighted average fair value of $3.36 per share.
Accordingly, the Company recorded $1,990,242 as the value of such options.
Stock-based compensation of $442,453 was amortized to expense in the six months
F-12
<PAGE> 76
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
ended September 30, 1999 and at September 30, 1999, the Company had $1,879,470
in deferred stock compensation related to such options, which will be amortized
to expense through fiscal 2004.
During fiscal 1999, the Company issued 966,500 common stock options at a
weighted average price of $.39 per share, which were at prices less than the
fair value of its common stock. The weighted average fair value of the common
stock was $.79 per share. Accordingly, the Company recorded $389,263 as the
value of such options in 1999. Stock-based compensation of $57,582 was amortized
to expense in fiscal 1999 and at March 31, 1999 the Company had $331,681 in
deferred stock compensation related to such options.
During fiscal 1997 and 1998, the Company issued common stock options at
exercise prices equal to the fair value of its common stock. Accordingly, no
stock-based compensation was recorded for those periods.
7. NET LOSS PER SHARE
For the period from April 22, 1996 (inception) to March 31, 1997, fiscal
1998 and 1998 and the six months ended September 30, 1999, the Company had
securities outstanding which could potentially dilute basic earnings per share
in the future, but were excluded in the computation of diluted net loss per
share in the periods presented, as their effect would have been antidilutive.
Such outstanding securities consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------- SEPTEMBER 30,
1997 1998 1999 1999
--------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Redeemable convertible preferred stock......... 3,184,000 10,910,668 18,734,973 18,814,973
Stock options.................................. 258,500 990,133 2,185,049 2,794,758
--------- ---------- ---------- ----------
Total........................................ 3,442,500 11,900,801 20,920,022 21,609,731
========= ========== ========== ==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
During fiscal years 1998 and 1999 and the six months ended September 30,
1999, the Company incurred legal expenses of $28,600, $123,000 and $53,000 with
a firm of which a board member is a partner.
During the six months ended September 30, 1999, the Company generated
revenues of $369,000, $187,000, $107,000 and $74,000 from four customers who are
investors in the Company. Related accounts receivable totaled $361,000 at
September 30, 1999.
9. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) retirement plan (the Plan) that covers
substantially all employees of the Company. The Plan provides for voluntary
salary reduction contributions of up to 20% of eligible participants' annual
compensation. The Company has not provided matching contributions for any of the
periods presented.
10. COMMITMENTS
The Company leases its principal office facilities under operating leases.
The Company entered into a ten-year lease in June 1999. This lease requires the
Company to maintain $1.8 million on
F-13
<PAGE> 77
DIGITALTHINK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM APRIL 22, 1996 (INCEPTION) THROUGH MARCH 31, 1997, YEARS ENDED
MARCH 31, 1998 AND 1999 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
deposit with a bank which is included in restricted cash in the accompanying
balance sheet. As of September 30, 1999, future minimum payments under
facilities operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
MARCH 31,
------------------
<S> <C>
Remainder of 2000....................................... $ 489,036
2001.................................................... 1,218,572
2002.................................................. 1,166,072
2003.................................................. 1,166,072
2004.................................................. 1,166,072
Thereafter.............................................. 7,342,128
-----------
Total......................................... $12,547,952
===========
</TABLE>
Rent expense under operating leases was $103,211, $141,694 and $292,646 for
the years ended March 31, 1998 and 1999 and the six months ended September 30,
1999, respectively.
11. SUBSEQUENT EVENTS
In November 1999, the Company completed a Series D preferred stock offering
of 3,999,617 shares at $6.50 per share, resulting in net proceeds of $25.9
million. Also in November 1999, the number of shares available for grant under
the stock option plan was increased by 3,000,000 shares.
On December 2, 1999, the Company adopted its 1999 Employee Stock Purchase
Plan (ESPP). Under the ESPP, 200,000 shares of common stock have been reserved
for issuance, with an annual increase in the number of shares reserved on the
first day of each fiscal year. Under the ESPP, eligible employees may purchase
shares of the Company's common stock through payroll deductions of up to 10% of
the participant's compensation.
F-14
<PAGE> 78
LOGO
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by
DigitalThink in connection with the registration of the common stock hereunder.
All of the amounts shown are estimates except for the SEC registration fee, NASD
filing fee and the Nasdaq National Market listing fees.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
SEC Registration Fee........................................ $19,800
NASD Filing Fee............................................. *
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Transfer Agent and Registrar Fees and Expenses.............. *
Miscellaneous Expenses...................................... *
--------
Total............................................. *
========
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our Amended and Restated Certificate of Incorporation and our
Amended and Restated Bylaws provide for indemnification of our directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the Delaware General Corporation Law. We have also entered into
agreements with our directors and executive officers that require DigitalThink
among other things to indemnify them against certain liabilities that may arise
by reason of their status or service as directors and executive officers to the
fullest extent permitted by Delaware law. We have also purchased directors and
officers liability insurance, which provides coverage against certain
liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Within the last three years, and through September 30, 1999, we have
issued and sold the following unregistered securities:
(1) Since our inception, we issued and sold an aggregate of 4,000,000
shares of common stock to the founding officers and directors of
DigitalThink and to certain other individuals at a purchase price of $0.001
per share.
(2) Since our inception, we have granted options to purchase 3,429,050
shares of common stock to employees, directors and consultants under our
1996 stock plan at exercise prices ranging from $0.05 to $1.50 per share.
Of the 3,429,050 shares granted, 2,794,758 remain outstanding, 235,566
shares of common stock have been purchased pursuant to exercises of stock
options and 398,726 shares have been canceled and returned to the 1996
stock plan.
II-1
<PAGE> 80
(3) In August 1996, we sold 3,184,000 shares of Series A preferred
stock at a price of $0.50 per share to 27 investors.
(4) In June 1997, we sold an aggregate of 7,726,668 shares of Series B
preferred stock at a price of $0.75 per share to 19 investors.
(5) In November 1998, February 1999 and June 1999 we sold an aggregate
of 7,690,972 shares of Series C preferred stock at a price of $1.50 per
share to 15 investors.
(6) In February 1999, we sold an aggregate of 213,334 shares of Series
C-1 preferred stock at a price of $1.50 per share to 1 investor.
(7) In November 1999, we sold an aggregate of 3,999,617 shares of
Series D preferred stock at a price of $6.50 per share to 29 investors.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each 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 securities issued in such transactions. All
recipients had adequate access, through their relationship with DigitalThink, to
information about us.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1(a) Amended and Restated Certificate of Incorporation, as in
effect upon filing of the registration statement
3.1(b) Certificate of Incorporation to be filed upon completion of
the offering
4.1* Specimen certificate for common stock
4.2(a) Bylaws of the registrant as currently in effect
4.2(b) Bylaws of the registrant as in effect upon completion of the
offering
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Restated Investor Rights Agreement dated November 10, 1999
10.2 1996 Stock Plan and forms of agreements thereunder
10.3 1999 Employee Stock Purchase Plan
10.4 Form of Director and Executive Officer Indemnification
Agreement
10.5 Standard Industrial/Commercial Single Tenant Lease dated
June 18, 1998
between DigitalThink and Bruce J. Cardinal, Trustee of the
Robert J.
Cardinal Trust, for office space located at 1064 & 1098
Harrison
Street, San Francisco, California, and addenda and inserts
thereto
10.6 DigitalThink Custom Course Agreement dated March 3, 1999
between
DigitalThink and Adobe Systems Incorporated
10.7 DigitalThink Course Agreement dated March August 19, 1999
between DigitalThink and KPMG LLP
23.1 Consent of Deloitte & Touche LLP, independent accountants
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
23.2 Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
(i) Schedule II. Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by DigitalThink for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of DigitalThink, we have 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 DigitalThink of expenses incurred or paid by a director, officer
or controlling person of DigitalThink in the successful defense of any action,
suit or proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
DigitalThink is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
We hereby undertake that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by DigitalThink pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(b) 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-3
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
DigitalThink has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Francisco, State of California, on the 9th day of December, 1999.
DIGITALTHINK, INC.
By: /s/ PETER J. GOETTNER
---------------------------------------
Peter J. Goettner
President & Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Peter J. Goettner, Michael W. Pope and
Adam D. Levy and each of them, his attorneys-in-fact, each with the 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 in all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, 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 such attorneys-in-fact and agents or any of them, 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 on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PETER J. GOETTNER President, Chief Executive Officer December 9, 1999
- ------------------------------------------ and Chairman of the Board of
Peter J. Goettner Directors (principal executive
officer)
/s/ MICHAEL W. POPE Vice President, Chief Financial December 9, 1999
- ------------------------------------------ Officer (principal financial and
Michael W. Pope accounting officer)
/s/ E. FOLLETT CARTER Director December 9, 1999
- ------------------------------------------
E. Follett Carter
/s/ STEVE L. ESKENAZI Director December 9, 1999
- ------------------------------------------
Steve L. Eskenazi
/s/ SAMUEL D. KINGSLAND Director December 9, 1999
- ------------------------------------------
Samuel D. Kingsland
/s/ WILLIAM H. LANE, III Director December 9, 1999
- ------------------------------------------
William H. Lane, III
</TABLE>
II-4
<PAGE> 83
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Shareholders of DigitalThink, Inc.
We have audited the financial statements of DigitalThink, Inc. as of March
31, 1998 and 1999 and September 30, 1999 and for each of the three years in the
period ended March 31, 1999 and the six months ended September 30, 1999, and
have issued our report thereon dated December 2, 1999 (included elsewhere in
this registration statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
December 2, 1999
San Jose, California
S-1
<PAGE> 84
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Period from April 22, 1996 (inception)
through March 31, 1997
Allowance for doubtful accounts.............. $ -- $ -- $ -- $ --
Year ended March 31, 1998
Allowance for doubtful accounts.............. $ -- $10,000 $ -- $ 10,000
Year ended March 31, 1999
Allowance for doubtful accounts.............. $10,000 $72,000 $(6,892) $ 75,108
Six months ended September 30, 1999
Allowance for doubtful accounts.............. $75,108 $60,000 $ -- $135,108
</TABLE>
S-2
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1(a) Amended and Restated Certificate of Incorporation, as in
effect upon filing of the registration statement
3.1(b) Certificate of Incorporation to be filed upon completion of
the offering
4.1* Specimen certificate for common stock
4.2(a) Bylaws of the registrant as currently in effect
4.2(b) Bylaws of the registrant as in effect upon completion of the
offering
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Restated Investor Rights Agreement dated November 10, 1999
10.2 1996 Stock Plan and forms of agreements thereunder
10.3 1999 Employee Stock Purchase Plan
10.4 Form of Director and Executive Officer Indemnification
Agreement
10.5 Standard Industrial/Commercial Single Tenant Lease dated
June 18, 1998
between DigitalThink and Bruce J. Cardinal, Trustee of the
Robert J.
Cardinal Trust, for office space located at 1064 & 1098
Harrison
Street, San Francisco, California, and addenda and inserts
thereto
10.6 DigitalThink Custom Course Agreement dated March 3, 1999
between
DigitalThink and Adobe Systems Incorporated
10.7 DigitalThink Course Agreement dated March August 19, 1999
between
DigitalThink and KPMG LLP
23.1 Consent of Deloitte & Touche LLP, independent accountants
23.2 Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1(a)
RESTATED ARTICLES OF INCORPORATION
DIGITALTHINK, INC.
The undersigned, Peter Goettner and Mario M. Rosati, hereby certify
that:
ONE: They are the duly elected President and Secretary, respectively, of
the corporation.
TWO: The Articles of Incorporation of the corporation shall be amended
and restated to read in full as follows:
I.
The name of this corporation is DigitalThink, Inc.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
This corporation is authorized to issue three classes of stock to be
designated, respectively, "Class A Common Stock," "Class B Common Stock"
(collectively referred to as "Common Stock"), and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is 79,433,334
shares. 50,000,000 shares shall be Class A Common Stock. 1,500,000 shares shall
be Class B Common Stock. 27,933,334 shares shall be Preferred Stock.
The series of Preferred Stock are as follows:
(1) 3,300,000 shares of Series A-1 Preferred Stock (the "Series A-1
Preferred");
(2) 3,300,000 shares of Series A-2 Preferred Stock (the "Series A-2
Preferred");
(3) 8,000,000 shares of Series B Preferred Stock (the "Series B
Preferred");
(4) 8,000,000 shares of Series C Preferred Stock (the "Series C
Preferred");
(5) 1,333,334 shares of Series C-1 Preferred Stock (the "Series C-1
Preferred"); and
(6) 4,000,000 shares of Series D Preferred Stock (the "Series D
Preferred").
<PAGE> 2
The Series A-1 Preferred, the Series A-2 Preferred and any additional
series that the corporation's board of directors may so designate pursuant to
Section 4(e)(ii) of Article IV are hereafter collectively referred to as the
"Series A Preferred."
The Series C Preferred and Series C-1 Preferred are hereafter
collectively referred to as the "Series C Preferred Stock" and shall be
identical in all respects, except that the Series C-1 Preferred Stock shall have
no voting rights (except as otherwise expressly provided herein) and shall only
be convertible into Class B Common Stock and the Series c preferred stock shall
have voting rights and shall only be convertible into Class A Common Stock.
IV.
The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and Preferred Stock are as follows:
1. Dividend Provisions. The holders of shares of Series A Preferred,
Series B Preferred, Series C Preferred Stock and Series D Preferred shall be
entitled to receive dividends, out of any assets legally available therefor, and
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) on the Common Stock of this
corporation, on a parity basis with each other, at the rate of $0.04, $0.06,
$0.12 and $0.52 per share per annum, respectively (as adjusted for any stock
dividends, combinations, stock splits, recapitalizations or the like) or, if
greater (as determined on a per annum basis and on an as converted basis), an
amount equal to that paid on any other outstanding shares of this corporation.
Such dividends shall be payable when, as and if declared by the board of
directors, and shall not be cumulative, and no right shall accrue to holders of
Common Stock or Preferred Stock by reason of the fact that dividends on said
shares are not declared in any prior period. Dividends payable to the holders of
Preferred Stock shall be payable in preference and priority to any payment of
any dividend on the Common Stock.
2. Liquidation Preference.
(a) Series B, Series C and Series D Preferred Preference. In the
event of any liquidation, dissolution or winding up of this corporation, either
voluntary or involuntary, the holders of Series B Preferred, Series C Preferred
Stock and Series D Preferred, on a pari passu basis, shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Series A Preferred or Common Stock by reason
of their ownership thereof, an amount per share equal to $0.75 for each
outstanding share of Series B Preferred, $1.50 for each outstanding share of
Series C Preferred Stock and $6.50 for each outstanding share of Series D
Preferred (as adjusted for any stock dividends, combinations, stock splits,
recapitalizations or the like), plus an amount equal to any declared but unpaid
dividends on such share up to the date fixed for distribution. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series B Preferred, Series C Preferred Stock and Series D
Preferred shall be insufficient to permit the payment to such holders of the
full aforesaid preferential amounts, then, the entire assets and funds of this
corporation legally available for distribution shall be distributed ratably
- 2 -
<PAGE> 3
among the holders of the Series B Preferred, Series C Preferred Stock and Series
D Preferred in proportion to the full preferential amount each such holder is
otherwise entitled to receive.
(b) Series A Preferred Preference. After the preference is fully
paid to the holders of Series B Preferred, Series C Preferred Stock and Series D
Preferred pursuant to Section 2(a), the holder of Series A Preferred shall be
entitled to receive prior and in preference to any distribution of any of the
assets of this corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to $0.50 for each outstanding share
of Series A Preferred (as adjusted for any stock dividends, combinations or
splits), plus an amount equal to any declared but unpaid dividends on such share
up to the date fixed for distribution. If, after the full distribution to the
holders of Series B Preferred, Series C Preferred Stock and Series D Preferred,
the assets and funds thus distributed among the holders of the Series A
Preferred shall be insufficient to permit the payment to such holders of the
full aforesaid preferential amounts, then, the entire assets and funds of this
corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
(c) Remaining Assets. After payment has been made to the holders
of Series D Preferred, Series C Preferred Stock, Series B Preferred and Series A
Preferred of the full amounts to which they shall be entitled pursuant to
Sections 2(a) and 2(b), the remaining assets of the corporation available for
distribution to shareholders shall be distributed pro rata among the holders of
Common Stock.
(d) Mergers. An (i) acquisition of this corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected primarily for the purposes of changing the domicile of the
corporation) that results in the transfer of 50% or more of the outstanding
voting power of this corporation, or (ii) sale, transfer or other disposition of
all or substantially all of the assets of the corporation shall each be deemed
to be a liquidation, dissolution or winding up of the corporation as those terms
are used in Section 2. The corporation shall give holders of shares of Preferred
Stock notice of any such transaction set forth in this Section 2(d) not later
than the earlier of 20 days prior to the shareholders' meeting called to approve
the transaction or 20 days prior to the closing of such transaction (such notice
shall be deemed given upon the earlier of actual receipt thereof or deposit
thereof in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the corporation). The
corporation shall also notify the holders of Preferred Stock in writing of the
final approval of such transaction.
(e) Valuation of Consideration. If any assets of the corporation
distributed to shareholders in connection with any liquidation, dissolution or
winding up of the corporation are other than cash, then the value of the
non-cash assets shall be deemed to be their fair market value, except that any
securities to be distributed to shareholders in a liquidation, dissolution or
winding up of the corporation shall be valued as follows:
- 3 -
<PAGE> 4
(i) if traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) if actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending three (3) business days prior to the closing; and
(iii) if there is no active public market, the value shall
be the fair market value thereof as mutually determined by the corporation and
the holders of not less than a majority of the voting power of all then
outstanding shares of Preferred Stock, provided that if the corporation and the
holders of a majority of the voting power of all then outstanding shares of
Preferred Stock are unable to reach agreement, then by independent appraisal by
an investment banker hired and paid by the corporation, but acceptable to the
holders of a majority of the voting power of all then outstanding shares of
Preferred Stock.
3. Redemption Rights.
(a) Redemption at the Option of the Preferred Holders. Each
series of Preferred Stock shall be redeemable in whole or in part at the option
of each of the holders of outstanding shares of such series at any time and from
time to time after July 19, 2001 if the Company has not completed a public
offering of more than $15,000,000 of Company stock for not less than $8.00 per
share (subject to proportionate adjustment for future stock dividends,
combinations, stock splits, recapitalizations or the like). Such redemption
right may be exercised by giving at least 90 days' notice prior to the date of
commencement of the redemption (the "Redemption Date") by certified or
registered mail, postage prepaid, to the corporation at its principal office.
After receipt of such notice of a redemption pursuant to this Section 3(a), the
corporation shall, to the extent it may lawfully do so, redeem all of the
outstanding shares of Preferred Stock requested to be redeemed in six equal
installments, each payable on the last day of each calendar quarter (commencing
with the first calendar quarter ending after the 90 day notice period). The
Redemption Price per share of the Series A Preferred shall be $0.50 plus a 25%
compound annual rate of return from July 19, 1996, plus all declared but unpaid
dividends. The Redemption Price per share of the Series B Preferred shall be
$0.75 plus a 25% compound annual rate of return from June 1, 1997, plus all
declared but unpaid dividends. The Redemption Price per share of the Series C
Preferred Stock shall be $1.50 plus a 25% compound annual rate of return from
October 30, 1998, plus all declared but unpaid dividends. The Redemption Price
per share of the Series D Preferred shall be $6.50 plus a 25% compound annual
rate of return from November 1, 1999, plus all declared but unpaid dividends.
The Redemption Price of the Preferred Stock shall be proportionately adjusted
for any stock dividends, combinations, stock splits, recapitalizations or the
like. Any redemption of only a part of a series of the outstanding Preferred
Stock to be redeemed by the corporation pursuant to this Section 3 shall be pro
rata (based on the number of shares of such series then owned by each holder
requesting redemption) as among all holders of such series of Preferred Stock
requesting redemption.
(b) Notice Regarding Redemption. At least thirty (30) but no more
than sixty (60) days prior to any Redemption Date, written notice shall be
mailed, postage prepaid, to each holder of
- 4 -
<PAGE> 5
record (determined at the close of business on the business day next preceding
the day on which notice is given) of Preferred Stock to be redeemed, at his post
office address last shown on the records of the corporation, notifying such
holder of the redemption of such shares, specifying the Redemption Date, the
Redemption Price and the date on which such holder's Conversion Rights (as
hereinafter defined) as to such shares terminate (such Conversion Rights to
expire on the day prior to the Redemption Date) and calling upon such holder to
surrender to the corporation, in the manner and at the place designated in the
continental United States, his certificate or certificates representing the
shares to be redeemed (such notice is hereinafter referred to as the "Redemption
Notice"). Unless such holder elects to convert his shares in accordance with
Section 4 below prior to the Redemption Date, on or after the Redemption Date,
each holder of Preferred Stock to be redeemed shall surrender his certificate or
certificates representing such shares to the corporation, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable as set forth in Section 3(a) to the order
of the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be canceled. In the event
less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. If, on or prior
to the Redemption Date, the funds necessary for such redemption shall have been
set aside by the corporation and deposited with a bank or trust company, for the
benefit of the holders of Preferred Stock whose shares are being redeemed in
accordance with Section 3(c) below, then from and after the close of business on
the Redemption Date, all rights of the holders of such shares as holders of
Preferred Stock of the corporation (except the right to receive the Redemption
Price upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the corporation or be deemed to be outstanding for any purpose
whatsoever.
(c) Trust Fund. On or prior to the Redemption Date, the
corporation may deposit the Redemption Price of all shares of Preferred Stock
designated for redemption in the Redemption Notice and not yet redeemed or
converted with a bank or trust company having aggregate capital in excess of
$100,000,000 as a trust fund for the benefit of the respective holders of the
shares designated for redemption and not yet redeemed or converted with
irrevocable instructions and authority to the bank or trust company to pay the
Redemption Price for such shares to their respective holders on or after the
Redemption Date in accordance with Section 3(a) upon the receipt of notification
from the corporation that such holder has surrendered its share certificate(s)
to the corporation pursuant to Section 3(b). Any monies deposited by the
corporation pursuant to this Section 3(c) for the redemption of shares
thereafter converted into shares of Common Stock pursuant to Section 4 hereof no
later than the close of business on the Redemption Date shall be returned to the
corporation forthwith upon such conversion. The balance of any monies deposited
by the corporation pursuant to this Section 3(c) remaining unclaimed at the
expiration of one (1) year following the Redemption Date shall thereafter be
returned to the corporation upon its request expressed in a resolution of the
board of directors of the corporation, provided that the shareholder to which
such monies would be payable hereunder shall be entitled, upon surrender of his
certificates representing such shares of Preferred Stock to the corporation, to
receive such monies but without interest from the Redemption Date.
(d) Insufficient Funds. If the funds of the corporation legally
available for redemption of Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of
- 5 -
<PAGE> 6
Preferred Stock requested to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of shares
of Preferred Stock to be redeemed on such date ratably among the holders of such
shares requested to be redeemed. At any time thereafter when additional funds of
the corporation are legally available for the redemption of Preferred Stock,
such funds will be immediately used to redeem the balance of the shares of
Preferred Stock which the corporation became obligated to redeem on such
Redemption Date but which it has not redeemed.
4. Conversion. The holders of Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible into share(s) of Class A Common Stock without the payment of any
additional consideration by the holder thereof and, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the corporation or any transfer agent for the Preferred Stock. Notwithstanding
the prior sentence, all shares of Series C-1 Preferred shall only be convertible
into Class B Common Stock. Each share of each series of Preferred Stock shall be
convertible into the number of fully paid and nonassessable shares of Class A or
Class B Common Stock, as applicable, which results from dividing the Conversion
Price (as hereinafter defined) per share in effect for such series of Preferred
Stock at the time of conversion into the per share Conversion Value (as
hereinafter defined) of such series of Preferred Stock. In addition, all shares
of Series C-1 Preferred shall be convertible into the same number of shares of
Series C Preferred and all shares of Series C Preferred held by a Regulated
Shareholder (as defined in Section 8 below) shall be convertible into the same
number of shares of Series C-1 Preferred, without the payment of any additional
consideration by the holder thereof and, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
corporation or any transfer agent for the Preferred Stock. The initial
Conversion Price per share of the Series A Preferred shall be $0.50, and the
Conversion Value per share of the Series A Preferred shall be $0.50. The initial
Conversion Price per share of the Series B Preferred shall be $0.75, and the
Conversion Value per share of the Series B Preferred shall be $0.75. The initial
Conversion Price per share of the Series C Preferred Stock shall be $1.50, and
the Conversion Value per share of the Series C Preferred Stock shall be $1.50.
The initial Conversion Price per share of the Series D Preferred shall be $6.50,
and the Conversion Value per share of the Series D Preferred shall be $6.50. The
Conversion Price of the Series A Preferred, Series B Preferred, Series C
Preferred Stock and Series D Preferred shall be subject to adjustment from time
to time as provided in Section 4(e) below. The number of shares of Class A and
Class B Common Stock, as applicable, into which a share of a series of Preferred
Stock is convertible is hereinafter referred to as the "Conversion Rate" of such
series.
(b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Class A or Class B Common Stock, as
applicable, at its then effective Conversion Rate (I) immediately upon the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
(the "Securities Act") covering the offer and sale of Common Stock in which (i)
the public offering price equals or exceeds $8.00 per share (adjusted to reflect
subsequent stock dividends, combinations, stock splits, recapitalizations or the
like) and (ii) the aggregate proceeds raised equals or exceeds $15,000,000; (II)
for each respective series of Preferred Stock, upon the vote of holders of
eighty percent (80%) of the then outstanding shares of such series; or (III) for
each respective series of
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<PAGE> 7
Preferred Stock, at such time as less than fifteen (15%) of the originally
issued shares of such series remain outstanding.
(c) Mechanics of Conversion. Before any holder of Preferred Stock shall
be entitled to convert the same into shares of Common Stock, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Preferred Stock and shall give
written notice to the corporation at such office that he elects to convert the
same (except that no such written notice of election to convert shall be
necessary in the event of an automatic conversion pursuant to Section 4(b)
hereof). The corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted (except that in the case of an
automatic conversion pursuant to Section 4(b)(I) hereof such conversion shall be
deemed to have been made immediately prior to the closing of the offering
referred to in Section 4(b)(I)) and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
(d) Fractional Shares. In lieu of any fractional shares to which the
holder of Preferred Stock would otherwise be entitled, the corporation shall pay
cash equal to such fraction multiplied by the fair market value of one share of
Common Stock as determined by the board of directors of the corporation. Whether
or not fractional shares are issuable upon such conversion shall be determined
on the basis of the total number of shares of Preferred Stock of each holder to
be converted at such time into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(e)Adjustment of Conversion Price.
(i) Special Definitions. For purposes of this paragraph 4(e), the
following definitions shall apply:
(1) "Excluded Stock" shall mean:
(A) all shares of Common Stock issued and outstanding
on the date this document is filed with the California Secretary of State and
all shares of Common Stock issued or issuable upon conversion of any outstanding
Preferred Stock;
(B) all shares of Common Stock, warrants or options
to purchase Common Stock or other securities issued or issuable to employees,
consultants, directors, licensors, lessors and corporate partners of the
corporation pursuant to plans and arrangements approved by the board of
directors of the corporation;
(C) all shares of Series A-2 Preferred issued or
issuable upon conversion of Series A-1 Preferred;
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<PAGE> 8
(D) all shares of Class A Common Stock issued or
issuable upon conversion of the Class B Common Stock;
(E) all shares of Class B Common Stock issued or
issuable upon conversion of the Class A Common Stock;
(F) all shares of Series C Preferred issued or
issuable upon conversion of the Series C-1 Preferred; and
(G) all shares of Series C-1 Preferred issued or
issuable upon conversion of the Series C Preferred.
All outstanding shares of Excluded Stock (including shares issuable upon
conversion of the Preferred Stock) shall be deemed to be outstanding for all
purposes of the computations of subparagraph 4(e)(iii) below.
(2) "Financing" means any issuance by the corporation of
Common Stock (including securities exercisable for or convertible into Common
Stock) in a transaction where the holders of Series A-1 Preferred are offered an
opportunity to purchase their Preferred Stock Pro Rata Share of the additional
shares of Common Stock (including securities exercisable for or convertible into
Common Stock) issued in such transaction.
(3) "Preferred Stock Pro Rata Share" shall mean the amount
determined by multiplying the total number of shares of Common Stock (including
securities exercisable for or convertible into Common Stock) offered for sale by
the corporation in a Financing to the holders of Series A-1 Preferred by a
fraction (x) the numerator of which is the total number of shares of Series A-1
Preferred held by such holder and (y) the denominator of which is the total
number of shares of Common Stock (including securities convertible into Common
Stock) then outstanding.
(4) "Series A Dilutive Issuance" shall mean an issuance of
Common Stock (including securities exercisable for or convertible into Common
Stock) in a Financing for a consideration per share less than the Conversion
Price of the Series A-1 Preferred in effect on the date of and immediately prior
to such issue.
(5) "Participating Holder" shall mean any holder of Series
A-1 Preferred that purchases at least its Preferred Stock Pro Rata Share of a
Series A Dilutive Issuance.
(6) "Non-Participating Holder" shall mean any holder of
Series A-1 Preferred that is not a Participating Holder.
(7) "Original Issue Date" shall mean the date on which the
first share of Series A Preferred, Series B Preferred, Series C Preferred Stock
or Series D Preferred was issued with respect to the conversion calculation for
the respective series of Preferred Stock.
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<PAGE> 9
(ii) Shadow Preferred. In the event the corporation issues
additional shares of Common Stock (including securities exercisable for or
convertible into Common Stock), other than Excluded Stock, in a Series A
Dilutive Issuance, each share of Series A-1 Preferred held by each and every
Nonparticipating Holder shall, immediately prior to the closing (the "Closing")
of the applicable Series A Dilutive Issuance, be automatically converted into
(a) the first time shares are converted pursuant to this clause (ii), one fully
paid and nonassessable share of Series A-2 Preferred or (b) any subsequent time
shares are converted pursuant to this clause (ii), one share of Preferred Stock
designated Series A-(X) Preferred Stock where X is the next integer following
the last series so issued hereunder. Upon the conversion of Series A-1 Preferred
held by a Nonparticipating Holder as set forth herein, such shares of Series A-1
Preferred shall no longer be outstanding on the books of the corporation and the
Nonparticipating Holder shall be treated for all purposes as the record holder
of such shares of Series A-2 Preferred on the date of the Closing of the
applicable Series A Dilutive Issuance.
(iii) Adjustment of Conversion Price for Issuance of Common
Stock. No adjustment in the Conversion Price of Series A-2 Preferred shall be
made in respect of the issuance of additional shares of Common Stock (other than
in the event of stock dividends, subdivisions, split-ups, combinations or
recapitalizations which are covered by Sections 4(e) (iv), (v), (vi) and (vii)).
The Conversion Price of Series A-1 Preferred, Series B Preferred, Series C
Preferred Stock and Series D Preferred shall be subject to adjustment from time
to time as follows:
If the corporation shall issue any Common Stock (other than
Excluded Stock) after the Original Issue Date, for a consideration per share
less than the Conversion Price for any series of Preferred Stock in effect
immediately prior to the issuance of such Common Stock (excluding stock
dividends, subdivisions, split-ups, combinations, dividends or recapitalizations
which are covered by Sections 4(e) (iv), (v), (vi) and (vii)), the Conversion
Price for such series in effect immediately after each such issuance shall
forthwith (except as provided in this Section 4(e)) be adjusted to a price equal
to the quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock
outstanding (including any shares of Common Stock issuable upon conversion of
the Preferred Stock, or deemed to have been issued pursuant to subdivision (3)
of this clause (iii)) immediately prior to such issuance multiplied by the
Conversion Price in effect immediately prior to such issuance, plus
(y) the consideration received by the
corporation upon such issuance, by
(B) the total number of shares of Common Stock
outstanding (including any shares of Common Stock issuable upon conversion of
the Preferred Stock or deemed to have been issued pursuant to subdivision (3) of
this clause (iii)) immediately prior to such issuance plus the additional shares
of Common Stock issued in such issuance (but not including
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<PAGE> 10
any additional shares of Common Stock deemed to be issued as a result of any
adjustment in the Conversion Price resulting from such issuance).
For the purposes of this clause (iii), the following
provisions shall be applicable:
(1)In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor after deducting any discounts or commissions paid or incurred by the
corporation in connection with the issuance and sale thereof.
(2)In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined by
the board of directors of the corporation, in accordance with generally accepted
accounting treatment; provided, however, that if, at the time of such
determination, the corporation's Common Stock is traded in the over-the-counter
market or on a national or regional securities exchange, the sum of such fair
market value as determined by the board of directors of the corporation and any
cash received shall not exceed the aggregate "Current Market Price" (as defined
below) of the shares of Common Stock being issued.
(3)In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities (other than Excluded Stock):
(A) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued at the time
such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subdivisions (1) and (2)
above), if any, received by the corporation upon the issuance of such options or
rights plus the minimum exercise price provided in such options or rights
(without taking into account potential antidilution adjustment) for the Common
Stock covered thereby;
(B) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
(assuming the satisfaction of any conditions to convertibility or
exchangeability) and subsequent conversion or exchange thereof, shall be deemed
to have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration received
by the corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received by
the corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to be
determined in the manner provided in subdivisions (1) and (2) above);
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<PAGE> 11
(C) on any change in the number of shares of
Common Stock deliverable upon exercise of any such options or rights or
conversion of or exchange for such convertible or exchangeable securities, or on
any change in the minimum purchase price of such options, rights or securities,
including, but not limited to a change resulting from the antidilution
provisions of such options, rights or securities, the Conversion Price shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment made upon (x) the issuance of such options, rights or securities not
exercised, converted or exchanged prior to such change, as the case may be, been
made upon the basis of such change or (y) the options or rights related to such
securities not converted or exchanged prior to such change, as the case may be,
been made upon the basis of such change; and
(D) on the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable securities, as the
case may be, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to such
convertible or exchangeable securities, as the case may be.
(iv) If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Conversion Price
of a series of Preferred Stock shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of any shares of such
series of Preferred Stock shall be increased in proportion to such increase of
outstanding shares.
(v) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination, the
Conversion Price of a series of Preferred Stock shall be appropriately increased
so that the number of shares of Common Stock issuable on conversion of any
shares of a series of Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares.
(vi) In case the corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of its capital stock (other
than Common Stock), stock or other securities of other persons, evidences of
indebtedness issued by the corporation or other persons, assets (excluding cash
dividends) or options or rights (excluding options to purchase and rights to
subscribe for Common Stock or other securities of the corporation convertible
into or exchangeable for Common Stock), then, in each such case, the holders of
shares of a series of Preferred Stock shall, concurrent with the distribution to
holders of Common Stock, receive a like distribution based upon the number of
shares of Common Stock into which such series of Preferred Stock is convertible.
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<PAGE> 12
(vii) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the corporation (other
than as a result of a stock dividend or subdivision, split-up or combination of
shares provided for elsewhere in this Section 4), or the consolidation or merger
of the corporation with or into another person (other than a consolidation or
merger in which the corporation is the continuing entity and which does not
result in any change in the Common Stock), or of the sale or other disposition
of all or substantially all the properties and assets of the corporation, the
shares of a series of Preferred Stock shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, be
convertible into the kind and number of shares of stock or other securities or
property of the corporation or otherwise to which such holder would have been
entitled if immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition he had converted his shares of
such series of Preferred Stock into Common Stock. The provisions of this clause
(vii) shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(viii) All calculations under this Section 4 shall be made to the
nearest cent or to the nearest one hundredth (1/100) of a share, as the case may
be.
(ix) For the purpose of any computation pursuant to this Section
4(e), the "Current Market Price" at any date of one share of Common Stock, shall
be deemed to be the average of the highest reported bid and the lowest reported
offer prices on the preceding business day as furnished by the National
Quotation Bureau, Incorporated (or equivalent recognized source of quotations);
provided, however, that if the Common Stock is not traded in such manner that
the quotations referred to in this clause (ix) are available for the period
required hereunder, Current Market Price shall be determined in good faith by
the board of directors of the corporation, but if challenged by the holders of
more than 50% of the voting power of the outstanding Preferred Stock, then as
determined by an independent appraiser selected by the board of directors of the
corporation, the cost of such appraisal to be borne by the challenging parties.
(f) Minimal Adjustments. No adjustment in the Conversion Price need be
made if such adjustment would result in a change in the Conversion Price of less
than $0.01. Any adjustment of less than $0.01 which is not made shall be carried
forward and shall be made at the time of and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or
more in the Conversion Price.
(g) No Impairment. Without the prior consent of the holders of a
majority of the voting power of the outstanding shares of each series of
Preferred Stock, the corporation will not through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate pursuant to this Section 4,
the corporation at its expense shall
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<PAGE> 13
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The corporation shall, upon
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Rate of such series at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversions of such holder's shares of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property or to receive any other right, the corporation
shall mail to each holder of Preferred Stock at least ten (10) days prior to
such record date, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution or right, and the amount
and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of (i) Class A Common Stock solely for the purpose of
effecting the conversion of the shares of Preferred Stock such number of its
shares of Class A Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Preferred Stock; (ii) Class B
Common Stock solely for the purpose of effecting the conversion of the shares of
Series C-1 Preferred such number of its shares of Class B Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series C-1 Preferred; (iii) Series C Preferred solely for the purpose
of effecting the conversion of the shares of Series C-1 Preferred such number of
its shares of Series C Preferred as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series C-1 Preferred; and
(iv) Series C-1 Preferred solely for the purpose of effecting the conversion of
the shares of Series C Preferred such number of its shares of Series C-1
Preferred as shall from time to time be sufficient to effect the conversion of
all outstanding shares of Series C Preferred held by a Regulated Shareholder. If
at any time the number of authorized but unissued shares of Common Stock or
Preferred Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Preferred Stock, the corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock or Preferred Stock, as the case
may be, to such number of shares as shall be sufficient for such purpose,
including, without limitation, using best efforts to obtain the requisite
shareholder approval of any necessary amendment to the Restated Articles of
Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to a holder of shares of Preferred Stock shall be deemed
given three business days after deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the corporation.
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<PAGE> 14
(l) Reissuance of Converted Shares. No shares of Preferred Stock which
have been converted into Common Stock after the original issuance thereof shall
ever again be reissued and all such shares so converted shall upon such
conversion cease to be a part of the authorized preferred shares of the
corporation.
(m)Conversion Rights Applicable to a Regulated Shareholder's Series C
Preferred Stock.
(i) Conversion of Series C Preferred. Subject to and upon
compliance with the provisions of this Section 4(m), any Regulated Shareholder
(defined below in Section 9(h)) shall be entitled to convert, at any time and
from time to time, any or all of the shares of Series C Preferred held by such
shareholder into the same number of shares of Series C-1 Preferred.
(ii) Conversion of Series C-1 Preferred. Subject to and upon
compliance with the provisions of this Section 4(m), each record holder of
Series C-1 Preferred shall be entitled at any time and from time to time in such
holder's sole discretion and at such holder's option, to convert any or all of
the shares of such holder's Series C-1 Preferred into the same number of shares
of Series C Preferred; provided, however, that Series C-1 Preferred constituting
Restricted Stock (defined below in Section 9(h)) with respect to a particular
Regulated Shareholder may not be converted into Series C Preferred to the extent
that immediately prior thereto, or as a result of such conversion, the number of
shares of Series C Preferred which constitute such Restricted Stock held by all
holders thereof would exceed the number of shares of Series C Preferred which
such Regulated Shareholder reasonably determines it and its Affiliates (defined
below in Section 9(h)) may own, control or have the power to vote under any law,
regulation, rule or other requirement of any governmental authority at the time
applicable to such Regulated Shareholder or its Affiliates; and, provided,
further. that each holder of Series C-1 Preferred may convert such shares into
Series C Preferred if such holder reasonably believes that such converted shares
will be transferred within fifteen (15) days pursuant to a Conversion Event
(defined below in Section 9(h)) and such holder agrees not to vote any such
shares of Series C Preferred prior to such Conversion Event and undertakes to
promptly convert such shares back into Series C-1 Preferred if such shares are
not transferred pursuant to a Conversion Event. Each Regulated Shareholder may
provide for further restrictions upon the conversion of any shares of Restricted
Stock by providing the corporation with signed, written instructions specifying
such additional restrictions and legending such shares as to the existence of
such restrictions.
(iii) Conversion Procedure. Each conversion of shares of Series
C-1 Preferred of the corporation into shares of Series C Preferred of the
corporation shall be effected by the surrender of the certificate or
certificates representing the shares to be converted (the "Preferred Converting
Shares") at the principal office of the corporation (or such other office or
agency of the corporation as the corporation may designated by written notice to
the holders of Series C-1 Preferred) at any time during its usual business
hours, together with written notice by the holder of such Preferred Converting
Shares, stating that such holder desires to convert the Preferred Converting
Shares, or a stated number of the shares represented by such certificate or
certificates, into an equal number of shares of the class into which such shares
may be converted (the "Preferred Converted Shares"). Such notice shall also
state the name or names (with addresses) and
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<PAGE> 15
denominations in which the certificate or certificates for Preferred Converted
Shares are to be issued and shall include instructions for the delivery thereof.
The corporation shall promptly notify each Regulated Shareholder of its receipt
of such notice. Promptly after such surrender and the receipt of such written
notice, the corporation will issue and deliver in accordance with the
surrendering holder's instructions the certificate or certificates evidencing
the Preferred Converted Shares issuable upon such conversion, and the
corporation will deliver to the converting holder a certificate (which shall
contain such legends as were set forth on the surrendered certificate or
certificates) representing any shares which were represented by the certificate
or certificates that were delivered to the corporation in connection with such
conversion, but which were not converted; provided, however, that if such
conversion is subject to paragraph (iv) of this Section 4(m), the corporation
shall not issue such certificate or certificates until the expiration of the
Preferred Deferral Period referred to therein. Such conversion, to the extent
permitted by law, shall be deemed to have been effected as of the close of
business on the date on which such certificate or certificates shall have been
surrendered and such notice shall have been received by the corporation, and at
such time the rights of the holder of the Preferred Converting Shares as such
holder shall cease (except that, in the case of a conversion subject to
paragraph (iv) of Section 4(m) below, the conversion shall be deemed to be
effective upon the expiration of the Preferred Deferral Period referred to
therein) and the person or persons in whose name or names the certificate or
certificates for the Preferred Converted Shares are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
Preferred Converted Shares. Upon issuance of shares in accordance with this
Section 4(m), such Preferred Converted Shares shall be deemed to be duly
authorized, validly issued, fully paid and non-assessable. The corporation shall
take all such actions as may be necessary to assure that all such shares of
Series C Preferred may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Series C Preferred may be listed (except for official
notice of issuance which will be immediately transmitted by the corporation upon
issuance). The corporation shall not close its books against the transfer of
shares of Series C Preferred in any manner which would interfere with the timely
conversion of any shares of Series C-1 Preferred.
Notwithstanding any provision of this Section 4(m) to the contrary, each
holder of Series C-1 Preferred shall be entitled to convert shares of Series C-1
Preferred in connection with any Conversion Event if such holder reasonably
believes that such Conversion Event will be consummated, and a written request
for conversion from any holder of Series C-1 Preferred to the corporation
stating such holder's reasonable belief that a Conversion Event shall occur
shall be conclusive and shall obligate the corporation to effect such conversion
in a timely manner so as to enable each such holder to participate in such
Conversion Event. The corporation will not cancel the shares of Series C-1
Preferred so converted before the 15th day following such Conversion Event and
will reserve such shares until such 15th day for reissuance in compliance with
the next sentence. If any shares of Series C-1 Preferred are converted into
shares of Series C Preferred in connection with a Conversion Event and such
shares of Series C Preferred are not actually distributed, disposed of or sold
pursuant to such Conversion Event, such shares of Series C Preferred shall be
promptly converted back into the same number of shares of Series C-1 Preferred.
(iv) Notice of Conversion to Other Regulated Shareholders;
Deferral. The corporation shall not convert or directly or indirectly redeem,
purchase or otherwise acquire any
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<PAGE> 16
shares of Series C Preferred or any other class of capital stock of the
corporation or take any other action affecting the voting rights of such shares,
if such action will increase the percentage of any class of outstanding voting
securities owned or controlled by any Regulated Shareholder (other than any such
shareholder which requested that the corporation take such action, or which
otherwise waives in writing its rights under this paragraph (iv) of this Section
4(m)), unless the corporation gives written notice (the "Preferred Deferral
Notice" ) of such action to each Regulated Shareholder. The corporation will
defer making any such conversion, redemption, purchase or other acquisition, or
taking any such other action for a period of twenty (20) days (the "Preferred
Deferral Period") after giving the Preferred Deferral Notice in order to allow
each Regulated Shareholder to determine whether it wishes to convert or take any
other action with respect to the Series C Preferred it owns, controls or has the
power to vote, and if any such Regulated Shareholder then elects to convert any
shares of Series C Preferred, it shall notify the corporation in writing within
ten (10) days of the issuance of the Preferred Deferral Notice, in which case
the corporation shall (i) promptly notify from time to time prior to the end of
such 20-day period each other Regulated Shareholder holding shares of each
proposed conversion, and (ii) effect the conversions requested by all Regulated
Shareholders in response to the notices issued pursuant to this paragraph (iv)
of this Section 4(m) at the end of the Preferred Deferral Period. Upon complying
with the procedures hereinabove set forth in this paragraph (iv) of this Section
4(m), the corporation may so convert or directly or indirectly redeem, purchase
or otherwise acquire any shares of Series C Preferred or any other class of
capital stock of the corporation or take any other action affecting the voting
rights of such shares.
5. Voting Rights.
(a) Generally. Except as otherwise required by law or as
otherwise set forth herein, the holder of each share of Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which each share of Preferred Stock could be converted on the record date
for the vote or consent of shareholders and shall have voting rights and powers
equal to the voting rights and powers of the Common Stock into which such
Preferred Stock could be converted. The holder of each share of Preferred Stock
shall be entitled to notice of any shareholders' meeting in accordance with the
bylaws of the corporation and upon any other matter submitted to a vote of
shareholders, except those matters required by law to be submitted to a class
vote. Fractional votes shall not, however, be permitted and any fractional
voting rights resulting from the above formula (after aggregating all shares of
Common Stock into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half rounded
upward to one).
(b) Election of Directors. As long as an aggregate of 1,000,000
shares of Series A Preferred are outstanding, at each election of directors, the
holders of the then outstanding shares of Series A Preferred, voting as a
separate class, shall be entitled to elect one member of the corporation's board
of directors. The holders of Series B Preferred, voting as a separate class,
shall be entitled to elect one member of the corporation's board of directors.
The remaining members of the board of directors shall be elected by the holders
of Preferred Stock (other than the Series C-1 Preferred), on an as-if converted
to common stock basis, and Common Stock (other than the Class B Common Stock),
voting together as a single class. Subject to Section 302 and Section 303 of the
California Corporations Code, any director who shall have been elected by a
specified group of
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<PAGE> 17
shareholders may be removed during the aforesaid term of office, either for or
without cause, by, and only by, the affirmative vote of the holders of a
majority of the shares of such specified group, given at a special meeting of
such shareholders duly called or by an action by written consent for that
purpose. Any vacancy in the board of directors caused by the removal,
resignation or death of any such director who shall have been elected by a
specified group of shareholders or the declaration by the board of directors
that the office of such director is vacant because such director has been
declared of unsound mind by a court or convicted of a felony may be filled by,
and only by, the vote of the holders of a majority of the shares of such
specified group given at a special meeting of such shareholders or by an action
by written consent.
6. Protective Provisions.
(a) In addition to any other class vote that may be required by
law, so long as any shares of Preferred Stock are outstanding, this corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of each series of the
then outstanding shares of Preferred Stock, with each series voting as a
separate class (with the exception of the Series C-1 Preferred Stock, which
shall have no voting rights):
(i) Amend Articles to Alter Rights, Preferences or
Privileges of Preferred Stock. Amend the Articles of Incorporation to change the
authorized number of Preferred Stock, Series A Preferred, Series B Preferred,
Series C Preferred Stock or Series D Preferred or alter or change the rights,
preferences or privileges of any series of Preferred Stock;
(ii) Senior Securities. Authorize or issue new shares,
obligate itself to authorize or issue new shares or reclassify the existing
shares having dividend, liquidation or other rights or preferences equal to or
superior to the existing series of Preferred Stock; or
(iii) Adversely Affect Rights. Amend the Articles of
Incorporation in a manner that adversely affects the rights, preferences or
privileges of the Series A Preferred, Series B Preferred, Series C Preferred
Stock or Series D Preferred.
(b) So long as any shares of Preferred Stock are outstanding,
this corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Preferred Stock, with all series voting as a
single class (with the exception of the Series C-1 Preferred Stock, which shall
have no voting rights):
(i) Merger or Consolidation. Enter into a merger or
consolidation of the corporation with one or more other corporations in which
the shareholders of this corporation after such merger or consolidation hold
stock representing less than a majority of the voting power of the outstanding
stock of the surviving corporation;
(ii) Sale of Assets. Sell, convey or otherwise dispose of
or encumber all or substantially all of its assets;
(iii) Liquidation, Dissolution. Liquidate or dissolve this
corporation; or
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<PAGE> 18
(iv) Dividends, Distribution. Declare or pay any dividends
on, or make any distributions with respect to, any shares of any equity security
of any kind of this corporation, other than (i) dividends on Common Stock
payable solely in Common Stock, and (ii) dividends or distributions made in
accordance with Sections 1, 2 or 3 of this Article IV;
7. Repurchase of Shares. In connection with repurchases by this
corporation of its Common Stock, pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
8. Special Rights of Common Stock All shares of Class A Common Stock and
Class B Common Stock will be identical and will entitle the holders thereof to
the same rights and privileges, except as otherwise provided herein.
(a)Voting Rights.
(i) Class A Common Stock. Except as set forth herein or as
otherwise required by law, each outstanding share of Class A Common Stock shall
be entitled to vote on each matter on which the shareholders of the corporation
shall be entitled to vote, and each holder of Class A Common Stock shall be
entitled to one vote for each share of such stock held by such holder. Except as
otherwise provided by law, the Class A Common Stock shall possess full and
complete voting power for the election of directors.
(ii) Class B Common Stock. Except as set forth herein or
as otherwise required by law, each outstanding share of Class B Common Stock
shall not be entitled to vote on any matter on which the shareholders of the
corporation shall be entitled to vote, and shares of Class B Common Stock shall
not be included in determining the number of shares voting or entitled to vote
on any such matters; provided that the holders of Class B Common Stock shall
have the right to vote as a separate class on any merger or consolidation of the
corporation with or into another entity or entities, or any recapitalization or
reorganization, in which shares of Class B Common Stock would receive or be
exchanged for consideration different on a per share basis from consideration
received with respect to or in exchange for the shares of Class A Common Stock
or would otherwise be treated differently from shares of Class A Common Stock in
connection with such transaction, except that shares of Class B Common Stock
may, without such a separate class vote, receive or be exchanged for non-voting
securities which are otherwise identical on a per share basis in amount and form
to the voting securities received with respect to or exchanged for the Class A
Common Stock so long as (A) such non-voting securities are convertible into such
voting securities on the same terms as the Class B Common Stock is convertible
into Class A Common Stock and (B) all other consideration is equal on a per
share basis. Notwithstanding the foregoing, holders of shares of the Class B
Common Stock shall be entitled to vote as a separate class on any amendment to
this paragraph (ii) of this Section 8(a) and on any amendment, repeal or
modification of any provision of these Articles of Incorporation that adversely
affects the powers, preferences or special rights of holders of the Class B
Common Stock.
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<PAGE> 19
(b) Dividends. Any dividend or distribution on the Common Stock
shall be payable on shares of Class A Common Stock and Class B Common Stock,
share and share alike; provided, that (i) in the case of dividends payable in
shares of Common Stock of the corporation, or options, warrants or rights to
acquire shares of such Common Stock, or securities convertible into or
exchangeable for shares of such Common Stock, the shares, options, warrants,
rights or securities so payable shall be payable in shares of, or options,
warrants or rights to acquire, or securities convertible into or exchangeable
for, Common Stock of the same class upon which the dividend or distribution is
being paid and (ii) if the dividends consist of other voting securities of the
corporation, the corporation shall make available to each holder of Class B
Common Stock, at such holder's request, dividends consisting of non-voting
securities of the corporation which are otherwise identical to the voting
securities and which are convertible into or exchangeable for such voting
securities on the same terms as the Class B Common Stock is convertible into the
Class A Common Stock.
(c) Conversion.
(i) Conversion of Class A Common Stock. Subject to and
upon compliance with the provisions of this Section 8(c), any Regulated
Shareholder (defined below) shall be entitled to convert, at any time and from
time to time, any or all of the shares of Class A Common Stock held by such
shareholder into the same number of shares of Class B Common Stock.
(ii) Conversion of Class B Common Stock. Subject to and
upon compliance with the provisions of this Section 8(c), each record holder of
Class B Common Stock shall be entitled at any time and from time to time in such
holder's sole discretion and at such holder's option, to convert any or all of
the shares of such holder's Class B Common Stock into the same number of shares
of Class A Common Stock; provided, however, that Class B Common Stock
constituting Restricted Stock (defined below) with respect to a particular
Regulated Shareholder may not be converted into Class A Common Stock to the
extent that immediately prior thereto, or as a result of such conversion, the
number of shares of Class A Common Stock which constitute such Restricted Stock
held by all holders thereof would exceed the number of shares of Class A Common
Stock which such Regulated Shareholder reasonably determines it and its
Affiliates (defined below) may own, control or have the power to vote under any
law, regulation, rule or other requirement of any governmental authority at the
time applicable to such Regulated Shareholder or its Affiliates; and, provided,
further. that each holder of Class B Common Stock may convert such shares into
Class A Common Stock if such holder reasonably believes that such converted
shares will be transferred within fifteen (15) days pursuant to a Conversion
Event (defined below) and such holder agrees not to vote any such shares of
Class A Common Stock prior to such Conversion Event and undertakes to promptly
convert such shares back into Class B Common Stock if such shares are not
transferred pursuant to a Conversion Event. Each Regulated Shareholder may
provide for further restrictions upon the conversion of any shares of Restricted
Stock by providing the corporation with signed, written instructions specifying
such additional restrictions and legending such shares as to the existence of
such restrictions.
(iii) Conversion Procedure. Each conversion of shares of
Common Stock of the corporation into shares of another class of Common Stock of
the corporation shall be effected by the surrender of the certificate or
certificates representing the shares to be converted (the
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<PAGE> 20
"Common Converting Shares") at the principal office of the corporation (or such
other office or agency of the corporation as the corporation may designated by
written notice to the holders of Common Stock) at any time during its usual
business hours, together with written notice by the holder of such Common
Converting Shares, stating that such holder desires to convert the Common
Converting Shares, or a stated number of the shares represented by such
certificate or certificates, into an equal number of shares of the class into
which such shares may be converted (the "Common Converted Shares"). Such notice
shall also state the name or names (with addresses) and denominations in which
the certificate or certificates for Common Converted Shares are to be issued and
shall include instructions for the delivery thereof. The corporation shall
promptly notify each Regulated Shareholder of its receipt of such notice.
Promptly after such surrender and the receipt of such written notice, the
corporation will issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates evidencing the Common Converted
Shares issuable upon such conversion, and the corporation will deliver to the
converting holder a certificate (which shall contain such legends as were set
forth on the surrendered certificate or certificates) representing any shares
which were represented by the certificate or certificates that were delivered to
the corporation in connection with such conversion, but which were not
converted; provided, however, that if such conversion is subject to paragraph
(iv) of this Section 8(c), the corporation shall not issue such certificate or
certificates until the expiration of the Common Deferral Period referred to
therein. Such conversion, to the extent permitted by law, shall be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such notice shall
have been received by the corporation, and at such time the rights of the holder
of the Converting Shares as such holder shall cease (except that, in the case of
a conversion subject to paragraph (iv) of this Section 8(c) below, the
conversion shall be deemed to be effective upon the expiration of the Common
Deferral Period referred to therein) and the person or persons in whose name or
names the certificate or certificates for the Common Converted Shares are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the Common Converted Shares. Upon issuance of shares in accordance
with this Section 8(c), such Common Converted Shares shall be deemed to be duly
authorized, validly issued, fully paid and non-assessable. The corporation shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which will be immediately transmitted by the corporation upon
issuance). The corporation shall not close its books against the transfer of
shares of Common Stock in any manner which would interfere with the timely
conversion of any shares of Common Stock.
Notwithstanding any provision of this Section 8(c) to the contrary, each
holder of Class B Common Stock shall be entitled to convert shares of Class B
Common Stock in connection with any Conversion Event if such holder reasonably
believes that such Conversion Event will be consummated, and a written request
for conversion from any holder of Class B Common Stock to the corporation
stating such holder's reasonable belief that a Conversion Event shall occur
shall be conclusive and shall obligate the corporation to effect such conversion
in a timely manner so as to enable each such holder to participate in such
Conversion Event. The corporation will not cancel the shares of Class B Common
Stock so converted before the 15th day following such Conversion Event
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<PAGE> 21
and will reserve such shares until such 15th day for reissuance in compliance
with the next sentence. If any shares of Class B Common Stock are converted into
shares of Class A Common Stock in connection with a Conversion Event and such
shares of Class A Common Stock are not actually distributed, disposed of or sold
pursuant to such Conversion Event, such shares of Class A Common Stock shall be
promptly converted back into the same number of shares of Class B Common Stock.
(iv) Notice of Conversion to Other Regulated Shareholders;
Deferral. The corporation shall not convert or directly or indirectly redeem,
purchase or otherwise acquire any shares of Class A Common Stock or any other
class of capital stock of the corporation or take any other action affecting the
voting rights of such shares, if such action will increase the percentage of any
class of outstanding voting securities owned or controlled by any Regulated
Shareholder (other than any such shareholder which requested that the
corporation take such action, or which otherwise waives in writing its rights
under this paragraph (iv) of this Section 8(c)), unless the corporation gives
written notice (the "Common Deferral Notice" ) of such action to each Regulated
Shareholder. The corporation will defer making any such conversion, redemption,
purchase or other acquisition, or taking any such other action for a period of
twenty (20) days (the "Common Deferral Period") after giving the Common Deferral
Notice in order to allow each Regulated Shareholder to determine whether it
wishes to convert or take any other action with respect to the Common Stock it
owns, controls or has the power to vote, and if any such Regulated Shareholder
then elects to convert any shares of Class A Common Stock, it shall notify the
corporation in writing within ten (10) days of the issuance of the Common
Deferral Notice, in which case the corporation shall (i) promptly notify from
time to time prior to the end of such 20-day period each other Regulated
Shareholder holding shares of each proposed conversion, and (ii) effect the
conversions requested by all Regulated Shareholders in response to the notices
issued pursuant to this paragraph (iv) of this Section 8(c) at the end of the
Common Deferral Period. Upon complying with the procedures hereinabove set forth
in this paragraph (iv) of this Section 8(c), the corporation may so convert or
directly or indirectly redeem, purchase or otherwise acquire any shares of Class
A Common Stock or any other class of capital stock of the corporation or take
any other action affecting the voting rights of such shares.
9. Other Provisions Regarding Preferred Stock and Common Stock.
(a) Restrictions on Redemptions, Etc. The corporation shall not
redeem, purchase, acquire or take any other action affecting outstanding shares
of Preferred Stock or Common Stock, including, without limitation, the amendment
of the corporation's Restated Articles of Incorporation, if, after giving effect
to such redemption, purchase, acquisition or other action, a Regulated
Shareholder would own more than 4.99% of any class of voting securities of the
corporation (other than any class of voting securities which is (or is made
prior to any such redemption, purchase, acquisition or other action) convertible
into a class of non-voting securities which are otherwise identical to the
voting securities and convertible into such voting securities on terms
reasonably acceptable to such Regulated Shareholder) or more than 24.99% of the
total equity of the corporation or more than 24.99% of the total value of all
capital stock and subordinated debt of the corporation (in each case determined
by assuming such Regulated Holder (but no other holder) has exercised, converted
or exchanged all of its options, warrants and other convertible or exchangeable
securities). The corporation shall not be a party to any merger, consolidation,
recapitalization, reorganization or other transaction pursuant to which a
Regulated Holder would be required to take any Securities or
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<PAGE> 22
subordinated debt which might reasonably be expected to cause such person to
have a Regulatory Problem.
(b) Stock Splits; Adjustments. If the corporation shall in any
manner subdivide (by stock split, stock dividend or otherwise) or combine (by
reverse stock split or otherwise) the outstanding shares of the Preferred Stock,
Class A Common Stock or the Class B Common Stock, then the outstanding shares of
each other class of Preferred Stock and Common Stock shall be subdivided or
combined, as the case may be, to the same extent, share and share alike, and
effective provision shall be made for the protection of the conversion rights
hereunder.
In case of any reorganization, reclassification or change of
shares of the Preferred Stock, Class A Common Stock or Class B Common Stock
(other than a change in par value or from par to no par value or as a result of
subdivision or combination), or in case of any consolidation of the corporation
with one or more corporations or a merger of the corporation with another
corporation (other than a consolidation or merger in which the corporation is
the resulting or surviving corporation and which does not result in any
reclassification or change of outstanding shares of Preferred Stock, Class A
Common Stock or Class B Common Stock), each holder of a share of Preferred
Stock, Class A Common Stock or Class B Common Stock shall have the right at any
time thereafter, so long as the conversion right hereunder with respect to such
share would exist had such event not occurred, to convert such share into the
kind and amount of shares of stock and other securities and properties
(including cash) receivable upon such reorganization, reclassification, change,
consolidation or merger by a holder of the number of shares of Preferred Stock,
Class A Common Stock or Class B Common Stock into which such shares of Preferred
Stock, Class A Common Stock or Class B Common Stock, as the case may be, might
have been converted immediately prior to such reorganization, reclassification,
change, consolidation or merger. In the event of such reorganization,
reclassification, change, consolidation or merger, effective provision shall be
made in the certificate of incorporation of the resulting or surviving
corporation or otherwise for the protection of the conversion rights of the
shares of Preferred Stock, Class A Common Stock and Class B Common Stock that
shall be applicable, as nearly as reasonably may be, to any such other shares of
stock and other securities and property deliverable upon conversion of such
shares of Preferred Stock, Class A Common Stock or Class B Common Stock into
which such Preferred Stock, Class A Common Stock or Class B Common Stock might
have been converted immediately prior to such event.
(c) Reservation of Shares. In addition to the reservation of
shares provided for in Section 4(j) above, the corporation shall at all times
reserve and keep available out of its authorized but unissued shares of (i)
Class A Common Stock solely for the purpose of effecting the conversion of the
shares of Class B Common Stock such number of its shares of Class A Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Class B Common Stock; and (ii) Class B Common Stock solely
for the purpose of effecting the conversion of the shares of Class A Common
Stock such number of its shares of Class B Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Class A
Common Stock held by a Regulated Shareholder
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<PAGE> 23
(d) No Charge. The issuance of certificates for shares of any
class of Preferred Stock or Common Stock (upon conversion of shares of any other
class of Preferred Stock or Common Stock or otherwise) shall be made without
charge to the holders of such shares for any issuance tax in respect thereof or
other cost incurred by the corporation in connection with such conversion and/or
the issuance of shares of Preferred Stock or Common Stock; provided, however,
that the corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Preferred Stock or
Common Stock converted.
(e) Registration of Transfer. The corporation shall keep at its
principal office (or such other place as the corporation reasonable designates)
a register for the registration of shares of Preferred Stock and Common Stock.
Upon the surrender of any certificate representing shares of any class of
Preferred Stock or Common Stock at such place, the corporation shall, at the
request of the registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of such class represented by the surrendered certificate,
and the corporation forthwith shall cancel such surrendered certificate. Each
such new certificate will represent such number of shares of such class as is
requested by the holder of the surrendered certificate and will be substantially
identical in form to the surrendered certificate. Subject to any other
restrictions on transfer to which such holder or such shares may be bound, the
corporation will also register such new certificate in such name as requested by
the holder of the surrendered certificate.
(f) Replacement. Upon receipt of evidence reasonably satisfactory
to the corporation (an affidavit of the registered holder will be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing one or more shares of any class of Preferred Stock or
Common Stock, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonable satisfactory to the corporation (provided that
if the holder is a financial institution or other institutional investor its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
(g) Notices. All notices referred to herein shall be in writing,
shall be delivered personally or by first class mail, postage prepaid, and shall
be deemed to have been given when so delivered or mailed to the corporation at
its principal executive offices and to any shareholder at such holder's address
as it appears in the stock records of the corporation (unless otherwise
specified in a written notice to the corporation by such holder).
(h) Definitions. As used herein, the following terms shall have
the meanings shown below:
(i) " Affiliate" shall mean with respect to any Person,
any other person, directly or indirectly controlling, controlled by or under
common control with such Person. For the purpose of the above definition, the
term "control" (including with correlative meaning, the terms
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<PAGE> 24
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
(ii) " Conversion Event" shall mean (a) any public
offering or public sale of securities of the corporation (including a public
offering registered under the Securities Act of 1933 and a public sale pursuant
to Rule 144 of the Securities and Exchange Commission or any similar rule then
in force), (b) any sale of securities of the corporation to a person or group of
persons (within the meaning of the Securities Exchange Act of 1934, as amended
(the "1934 Act")) if, after such sale, such person or group of persons in the
aggregate would own or control securities which possess in the aggregate the
ordinary voting power to elect a majority of the corporation's directors
(provided that such sale has been approved by the corporation's Board of
Directors or a committee thereof), (c) any sale of securities of the corporation
to a person or group of persons (within the meaning of the 1934 Act) if, after
such sale, such person or group of persons in the aggregate would own or control
securities of the corporation (excluding any Series C-1 Preferred or Class B
Common being converted and disposed of in connection with such Conversion Event)
which possess in the aggregate the ordinary voting power to elect a majority of
the corporation's directors, (d) any sale of securities of the corporation to a
person or group of persons (within the meaning of the 1934 Act) if, after such
sale, such person or group of persons would not, in the aggregate, own, control
or have the right to acquire more than two percent (2%) of the outstanding
securities of any class of voting securities of the corporation, and (e) a
merger, consolidation or similar transaction involving the corporation if, after
such transaction, a person or group of persons (within the meaning of the 1934
Act) in the aggregate would own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the surviving
corporation's directors (provided that the transaction has been approved by the
corporation's Board of Directors or a committee thereof).
(iii) " Person" or "person" shall be construed broadly and
shall include an individual, a partnership, a limited liability company, a
corporation, a trust, a joint venture, an unincorporated organization or a
government or any department or agency thereof.
(iv) " Regulatory Problem" means any set of facts or
circumstance wherein it has been asserted by any governmental regulatory agency
(or a Regulated Shareholder reasonably believes that there is a risk of such
assertion) that such Regulated Shareholder is not entitled to acquire, own, hold
or control or exercise any significant right (including the right to vote) with
respect to, any Securities of the corporation or any subsidiary of the
corporation.
(v) " Regulated Shareholder" shall mean BT Investment
Partners, Inc. and any other shareholder (i) that is subject to the provisions
of Regulation Y of the Board of Governors of the Federal Reserve System, 12
C.F.R. Part 225 (or any successor to such Regulation); (ii) that holds shares of
Preferred Stock or Common Stock (or other securities convertible into Common
Stock) of the corporation; and (iii) that has provided written notice to the
corporation of its status as a "Regulated Shareholder" hereunder.
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<PAGE> 25
(vi) " Restricted Stock" means, with respect to any
Regulated Shareholder, any outstanding shares of Series C Preferred Stock, Class
A Common Stock and/or Class B Common Stock ever held of record by such Regulated
Shareholder or its Affiliates, excluding treasury shares; provided, however,
that any such shares shall cease to be Restricted Stock with respect to such
Regulated Shareholder when such shares are transferred in a transaction which is
a Conversion Event or are acquired by the corporation or any subsidiary of the
corporation; and provided, further, that the corporation shall have no
responsibility for determining whether any outstanding shares of Series C
Preferred Stock, Class A Common Stock and/or Class B Common Stock constitute
Restricted Stock with respect to any particular Regulated Shareholder, but shall
instead by entitled to receive, and rely exclusively upon, a written notice
provided by such Regulated Shareholder designating such shares as Restricted
Stock.
V.
1. Limitation of Directors' Liability. The liability of the directors of
this corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
2. Indemnification of Corporate Agents. This corporation is authorized
to indemnify its agents to the fullest extent permissible under California law.
For purposes of this provision the term "agent" has the meaning set forth in
Section 317 of the California Corporations Code.
3. Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article V shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification.
THREE: The foregoing Amendment and Restatement of the Articles of
Incorporation has been approved by the Board of Directors.
FOUR: The foregoing Amendment and Restatement of the Articles of
Incorporation has been duly approved by the required vote of the shareholders in
accordance with Section 903 of the Corporations Code. The total number of
outstanding shares entitled to vote with respect to the amendment is 4,098,208
shares of Common Stock, 3,184,000 shares of Series A-1 Preferred Stock,
7,720,001 shares of Series B Preferred Stock and 7,690,973 shares of Series C
Preferred Stock. There are no shares of Series A-2 Preferred Stock outstanding
and the 213,334 shares of Series C-1 Preferred Stock are not entitled to vote on
this amendment. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was a majority of the
outstanding shares of Common Stock, a majority of the outstanding shares of
Series A Preferred Stock, a majority of the outstanding shares of Series B
Preferred Stock and a majority of the outstanding shares of Series C Preferred
Stock, each voting as a separate class.
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<PAGE> 26
We declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge. Executed at San Francisco, California on October 29, 1999.
/s/ PETER GOETTNER
-------------------------------
Peter Goettner, President
/s/ MARIO M. ROSATI
-------------------------------
Mario M. Rosati, Secretary
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<PAGE> 1
EXHIBIT 3.1(b)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DIGITALTHINK, INC.
DigitalThink, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the corporation is DigitalThink, Inc. The corporation was
originally incorporated under the same name, and the original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
November 2, 1999.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of the corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
The name of this corporation is DigitalThink, Inc.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the corporation is authorized
to issue is 110,000,000 shares. The number of shares of Common Stock authorized
is 100,000,000. The number of authorized shares of Preferred Stock is
10,000,000.
<PAGE> 2
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
(e) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
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<PAGE> 3
(i) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the board of directors of the corporation,
acting in accordance with this Restated Certificate of Incorporation, may deem
advisable and are not inconsistent with law and the provisions of this Restated
Certificate of Incorporation.
ARTICLE V
The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The corporation may indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the corporation, or any predecessor of
the corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the corporation or any predecessor to the
corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
the adoption of any provision of the corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the corporation.
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<PAGE> 4
ARTICLE IX
Holders of stock of any class or series of the corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to Sections 2115 or 301.5 of the California General
Corporation Law, in which event each such holder shall be entitled to as many
votes as shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and the holder may cast all of such votes for a
single director or may distribute them among the number of directors to be voted
for, or for any two or more of them as such holder may see fit, so long as the
name of the candidate for director shall have been placed in nomination prior to
the voting and the stockholder, or any other holder of the same class or series
of stock, has given notice at the meeting prior to the voting of the intention
to cumulate votes.
1. Number of Directors. The number of directors which constitutes the
whole Board of Directors of the corporation shall be designated in the Amended
and Restated Bylaws of the corporation. The directors shall be divided into
three classes with the term of office of the first class (Class I) to expire at
the annual meeting of stockholders held in 2000; the term of office of the
second class (Class II) to expire at the annual meeting of stockholders held in
2001; the term of office of the third class (Class III) to expire at the annual
meeting of stockholders held in 2002; and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election.
2. Election of Directors. Elections of directors need not be by written
ballot unless the Amended and Restated Bylaws of the corporation shall so
provide.
ARTICLE X
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Amended and Restated Bylaws of the corporation.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Amended and Restated Bylaws and no action shall be taken by the stockholders by
written consent. The affirmative vote of sixty-six and two-thirds percent (66
2/3%) of the then outstanding voting securities of the corporation, voting
together as a single class, shall be required for the amendment, repeal or
modification of the provisions of Article IX, Article X, Article XI or Article
XII of this Amended and Restated Certificate of Incorporation or Sections 2.3
(Special Meeting), 2.4 (Notice of Stockholders' Meeting), 2.5 (Advanced Notice
of Stockholder Nominees and Stockholder Business), 2.10 (Voting), or 2.12
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<PAGE> 5
(Stockholder Action by Written Consent Without a Meeting), or 3.2 (Number of
Directors) of the corporation's Amended and Restated Bylaws.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Amended and Restated Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Amended and Restated
Bylaws of the corporation.
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<PAGE> 6
IN WITNESS WHEREOF, DigitalThink, Inc. has caused this certificate to be
signed by Peter Goettner, its Chief Executive Officer, this ____ day of
_________, 2000.
---------------------------------------
Peter Goettner, Chief Executive Officer
<PAGE> 1
EXHIBIT 4.2(a)
BYLAWS
OF
DIGITALTHINK, INC.
<PAGE> 2
BYLAWS OF
DIGITALTHINK, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I - CORPORATE OFFICES........................................................... 1
1.1 PRINCIPAL OFFICE.................................................. 1
1.2 OTHER OFFICES..................................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS................................................... 1
2.1 PLACE OF MEETINGS................................................. 1
2.2 ANNUAL MEETING.................................................... 1
2.3 SPECIAL MEETING................................................... 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS.................................. 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE...................... 3
2.6 QUORUM............................................................ 3
2.7 ADJOURNED MEETING; NOTICE......................................... 3
2.8 VOTING............................................................ 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT................. 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........... 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS....... 6
2.12 PROXIES........................................................... 6
2.13 INSPECTORS OF ELECTION............................................ 7
ARTICLE III -DIRECTORS.................................................................. 8
3.1 POWERS............................................................ 8
3.2 NUMBER OF DIRECTORS............................................... 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.......................... 8
3.4 RESIGNATION AND VACANCIES......................................... 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.......................... 9
3.6 REGULAR MEETINGS.................................................. 9
3.7 SPECIAL MEETINGS; NOTICE.......................................... 9
3.8 QUORUM............................................................ 10
3.9 WAIVER OF NOTICE.................................................. 10
3.10 ADJOURNMENT....................................................... 10
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
3.11 NOTICE OF ADJOURNMENT............................................. 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................. 11
3.13 FEES AND COMPENSATION OF DIRECTORS................................ 11
3.14 APPROVAL OF LOANS TO OFFICERS..................................... 11
ARTICLE IV - COMMITTEES................................................................. 11
4.1 COMMITTEES OF DIRECTORS........................................... 11
4.2 MEETINGS AND ACTION OF COMMITTEES................................. 12
ARTICLE V - OFFICERS.................................................................... 13
5.1 OFFICERS.......................................................... 13
5.2 ELECTION OF OFFICERS.............................................. 13
5.3 SUBORDINATE OFFICERS.............................................. 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................... 13
5.5 VACANCIES IN OFFICES.............................................. 13
5.6 CHAIRMAN OF THE BOARD............................................. 14
5.7 PRESIDENT......................................................... 14
5.8 VICE PRESIDENTS................................................... 14
5.9 SECRETARY......................................................... 14
5.10 CHIEF FINANCIAL OFFICER........................................... 15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS.................................................. 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS......................... 15
6.2 INDEMNIFICATION OF OTHERS......................................... 15
6.3 PAYMENT OF EXPENSES IN ADVANCE.................................... 16
6.4 INDEMNITY NOT EXCLUSIVE........................................... 16
6.5 INSURANCE INDEMNIFICATION......................................... 16
6.6 CONFLICTS......................................................... 16
ARTICLE VII - RECORDS AND REPORTS....................................................... 17
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER...................... 17
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.............................. 17
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS............. 18
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
7.4 INSPECTION BY DIRECTORS........................................... 18
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER............................. 18
7.6 FINANCIAL STATEMENTS.............................................. 19
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................... 19
ARTICLE VIII - GENERAL MATTERS.......................................................... 19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............. 19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS......................... 20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED................ 20
8.4 CERTIFICATES FOR SHARES........................................... 20
8.5 LOST CERTIFICATES................................................. 20
8.6 CONSTRUCTION; DEFINITIONS......................................... 21
ARTICLE IX - AMENDMENTS................................................................. 21
9.1 AMENDMENT BY SHAREHOLDERS......................................... 21
9.2 AMENDMENT BY DIRECTORS............................................ 21
</TABLE>
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<PAGE> 5
BYLAWS
OF
DIGITALTHINK, INC.
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the second
Tuesday of April in each year at 10:00 am. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chair man of the board, the president, any vice president or
the secretary of the corporation. The officer re ceiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise given
in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if
sent by third-class mail pursuant to Sec tion 2.5 of these bylaws, thirty (30))
nor more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Cor porations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding pre ferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
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<PAGE> 7
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at the meeting at which the adjournment is
taken. However, if a new record date for the adjourned meeting
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<PAGE> 8
is fixed or if the adjournment is for more than forty-five (45) days from the
date set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
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<PAGE> 9
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be trans acted or the
purpose of any annual or special meeting of shareholders, except that if action
is taken or proposed to be taken for approval of any of those matters specified
in the second paragraph of Sec tion 2.4 of these bylaws, the waiver of notice or
consent or approval shall state the general nature of the proposal. All such
waivers, consents, and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and
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<PAGE> 10
shall be given in the manner specified in Section 2.5 of these bylaws. In the
case of approval of (i) a contract or transaction in which a director has a
direct or indirect financial interest, pursuant to Section 310 of the Code, (ii)
indemnification of a corporate "agent," pursuant to Section 317 of the Code,
(iii) a reorganization of the corporation, pursuant to Section 1201 of the Code,
and (iv) a distribution in dissolution other than in accordance with the rights
of outstanding preferred shares, pursuant to Section 2007 of the Code, the
notice shall be given at least ten (10) days before the consummation of any
action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting
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or by voting in person at the meeting, or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The dates contained on the forms of
proxy presumptively determine the order of execution, regardless of the postmark
dates on the envelopes in which they are mailed. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.
ARTICLE III
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DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than [3 nor
more than 5]. The exact number of directors shall be [5] until changed, within
the limits specified above, by a bylaw amending this Section 3.2, duly adopted
by the board of directors or by the shareholders. The indefinite number of
directors may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the articles of
incorporation or by an amendment to this bylaw duly adopted by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote; provided, however, that an amendment reducing the fixed number or the
minimum number of directors to a number less than three (3) cannot be adopted if
the votes cast against its adoption at a meeting, or the shares not consenting
in the case of an action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon.
No amendment may change the stated maximum number of authorized directors to a
number greater than two (2) times the stated minimum number of directors minus
one (1).
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the re moval of a director by the vote
or written consent of the shareholders or by court order may be filled only by
the
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affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the share holders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at
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that director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose or the place of the meeting, if the meeting is to be held at
the principal executive office of the corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given
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before the adjourned meeting takes place, in the manner specified in Section 3.7
of these bylaws, to the directors who were not present at the time of the
adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members
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* This section is effective only if it has been approved by the
shareholders in accordance with Sections 315(b) and 152 of the Code.
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of any committee, who may replace any absent member at any meeting of the
committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have all
the authority of the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on
the board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
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5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is
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no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
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5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Article VI, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at
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the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
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ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
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The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
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thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
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If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secre tary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certifi cate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms
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and conditions as the board may require; the board may require indemnification
of the corporation secured by a bond or other adequate security sufficient to
protect the corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
DIGITALTHINK, INC.
Adoption by Incorporator
The undersigned person appointed in the Articles of Incorporation to act
as the Incorporator of DigitalThink, Inc. hereby adopts the foregoing bylaws,
comprising twenty-one (21) pages, as the Bylaws of the corporation.
Executed this 1st day of May 1996.
/s/ PETER GOETTNER
-------------------------------
Peter Goettner, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of DigitalThink, Inc. and that the foregoing Bylaws,
comprising twenty-one (21) pages, were adopted as the Bylaws of the corporation
on May 1, 1996, by the person appointed in the Articles of Incorporation to act
as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 1st day of May 1996.
/s/ MARIO ROSATI
-------------------------------
Mario Rosati, Secretary
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<PAGE> 1
EXHIBIT 4.2(b)
AMENDED AND RESTATED BYLAWS
OF
DIGITALTHINK, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I CORPORATE OFFICES................................................................... 1
1.1 REGISTERED OFFICE.............................................................. 1
1.2 OTHER OFFICES.................................................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................................... 1
2.1 PLACE OF MEETINGS.............................................................. 1
2.2 ANNUAL MEETING................................................................. 1
2.3 SPECIAL MEETING................................................................ 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................................... 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS................ 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................................... 3
2.7 QUORUM......................................................................... 3
2.8 ADJOURNED MEETING; NOTICE...................................................... 4
2.9 CONDUCT OF BUSINESS............................................................ 4
2.10 VOTING......................................................................... 4
2.11 WAIVER OF NOTICE............................................................... 5
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........................ 5
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.................... 5
2.14 PROXIES........................................................................ 6
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE.......................................... 6
ARTICLE III DIRECTORS......................................................................... 7
3.1 POWERS......................................................................... 7
3.2 NUMBER OF DIRECTORS............................................................ 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS........................ 7
3.4 RESIGNATION AND VACANCIES...................................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE....................................... 8
3.6 REGULAR MEETINGS............................................................... 9
3.7 SPECIAL MEETINGS; NOTICE....................................................... 9
3.8 QUORUM......................................................................... 9
3.9 WAIVER OF NOTICE............................................................... 9
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............................. 10
3.11 FEES AND COMPENSATION OF DIRECTORS............................................. 10
3.12 APPROVAL OF LOANS TO OFFICERS.................................................. 10
3.13 REMOVAL OF DIRECTORS........................................................... 10
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE IV COMMITTEES......................................................................... 11
4.1 COMMITTEES OF DIRECTORS........................................................ 11
4.2 COMMITTEE MINUTES.............................................................. 11
4.3 MEETINGS AND ACTION OF COMMITTEES.............................................. 11
ARTICLE V OFFICERS............................................................................ 12
5.1 OFFICERS....................................................................... 12
5.2 APPOINTMENT OF OFFICERS........................................................ 12
5.3 SUBORDINATE OFFICERS........................................................... 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS; FILLING VACANCIES......................... 12
5.5 CHAIRMAN OF THE BOARD.......................................................... 13
5.6 CHIEF EXECUTIVE OFFICER........................................................ 13
5.7 PRESIDENT...................................................................... 13
5.8 VICE PRESIDENTS................................................................ 13
5.9 SECRETARY...................................................................... 13
5.10 CHIEF FINANCIAL OFFICER........................................................ 14
5.11 ASSISTANT SECRETARY............................................................ 14
5.12 ASSISTANT TREASURER............................................................ 15
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................................. 15
5.14 AUTHORITY AND DUTIES OF OFFICERS............................................... 15
ARTICLE VI INDEMNITY.......................................................................... 15
6.1 THIRD PARTY ACTIONS............................................................ 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.................................. 16
6.3 SUCCESSFUL DEFENSE............................................................. 16
6.4 DETERMINATION OF CONDUCT....................................................... 16
6.5 PAYMENT OF EXPENSES IN ADVANCE................................................. 17
6.6 INDEMNITY NOT EXCLUSIVE........................................................ 17
6.7 INSURANCE INDEMNIFICATION...................................................... 17
6.8 THE CORPORATION................................................................ 17
6.9 EMPLOYEE BENEFIT PLANS......................................................... 18
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.................... 18
ARTICLE VII RECORDS AND REPORTS............................................................... 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS.......................................... 18
7.2 INSPECTION BY DIRECTORS........................................................ 19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................................... 19
ARTICLE VIII GENERAL MATTERS.................................................................. 19
8.1 CHECKS......................................................................... 19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............................... 19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES......................................... 20
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
PAGE
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<S> <C>
8.4 SPECIAL DESIGNATION ON CERTIFICATES........................................... 20
8.5 LOST CERTIFICATES............................................................. 20
8.6 CONSTRUCTION; DEFINITIONS..................................................... 21
8.7 DIVIDENDS..................................................................... 21
8.8 FISCAL YEAR................................................................... 21
8.9 SEAL.......................................................................... 21
8.10 TRANSFER OF STOCK............................................................. 21
8.11 STOCK TRANSFER AGREEMENTS..................................................... 22
8.12 REGISTERED STOCKHOLDERS....................................................... 22
ARTICLE IX AMENDMENTS........................................................................ 22
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
DIGITALTHINK, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, either within or
without the State of Delaware, as may be designated by the board of directors or
in the manner provided in these bylaws. In the absence of any such designation,
stockholders' meetings shall be held at the registered office of the corporation
in the State of Delaware.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Tuesday of June of each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding business day. At the meeting, directors shall be elected and any
other proper business may be transacted.
2.3 SPECIAL MEETING
<PAGE> 6
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer, or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president or the
secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article
II, that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than ten (10) nor more than sixty (60) days after
the receipt of the request. Nothing contained in this paragraph of this Section
2.3 shall be construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.6 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
Subject to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
(i) nominations for the election of directors, and
(ii) business proposed to be brought before any stockholder
meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than one hundred twenty (120) calendar days in advance of the first
anniversary date of mailing of the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has
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<PAGE> 7
been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received a reasonable time before the solicitation is made. To
be in proper form, a stockholder's notice to the secretary shall set forth:
(a) the name and address of the stockholder who intends to make
the nominations or propose the business and, as the case may be, of the
person or persons to be nominated or of the business to be proposed;
(b) a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(c) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(d) such other information regarding each nominee or each matter
of business to be proposed by such stockholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, or the matter been proposed, or intended to
be proposed by the board of directors; and
(e) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of
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<PAGE> 8
the stockholders, then either (i) the Chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.10 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.13 of these bylaws,
subject to the provisions of Sections 217 and 218 of the Delaware General
Corporation Law (relating to voting rights of fiduciaries, pledgors and joint
owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
Notwithstanding the foregoing, if the stockholders of the corporation
are entitled, pursuant to Sections 2115 and 301.5 of the California Corporations
Code, to cumulate their votes in the election of directors, each such
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes that such stockholder normally
is entitled to cast) only if the candidates' names have been properly placed in
nomination (in accordance with these restated Bylaws) prior to commencement of
the voting, and the stockholder requesting cumulative voting has given notice
prior to commencement of the voting of the stockholder's intention to cumulate
votes. If cumulative voting is properly requested, each holder of stock, or of
any class or classes or of a series or series thereof, who elects to cumulate
votes shall be entitled to as many votes as equals the number of votes that
(absent this provision as to cumulative voting) he or she would be entitled to
cast for the election of directors with respect to his or her shares of stock
multiplied by the number of directors to be elected by him, and he or she may
cast all of such votes for single director
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<PAGE> 9
or may distribute them among the number to be voted for, or for any two or more
of them, as he or she may see fit.
2.11 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
Delaware General Corporation Law or of the certificate of incorporation or these
bylaws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
a corporation, or any action that may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the
Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the Delaware General Corporation Law.
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
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If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the first date on which
a signed written consent is delivered to the corporation.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.14 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by such stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if such stockholder's name is placed on the proxy by any
reasonable means including, but not limited to, by facsimile signature, manual
signature, typewriting, telegraphic transmission or otherwise, by such
stockholder or such stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the Delaware General Corporation Law.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Delaware General Corporation Law and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of five (5) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation. Upon the closing of the first sale of the
corporation's common stock pursuant to a firmly underwritten registered public
offering (the "IPO"), the directors shall be divided into three classes, with
the term of office of the first class, which class shall initially consist of
two directors, to expire at the first annual meeting of stockholders held after
the IPO; the term of office of the second class, which shall initially consist
of two directors, to expire at the second annual meeting of stockholders held
after the IPO; the term of office of the third class, which class shall
initially consist of one director, to expire at the third annual meeting of
stockholders held after the IPO; and thereafter for each such term to expire at
each third succeeding annual meeting of stockholders held after such election.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention
of the Secretary of the corporation. When one or more directors shall resign
from the board of directors, effective at a
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future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the Delaware General Corporation Law.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the
Delaware General Corporation Law as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of such board of directors, or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
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other, and such participation in a meeting pursuant to this section shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute, the certificate of incorporation, or
these bylaws. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
Delaware General Corporation Law, the certificate of incorporation, or these
bylaws, a written waiver thereof, signed
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by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when such
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors, or members of a
committee of directors, need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, so long as stockholders of the corporation are entitled to cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect such director if then cumulatively voted at an election of the entire
board of directors or, if there be classes of directors, at an election of the
class of directors of which such director is a part.
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No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority (i) approving or adopting or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval or
(ii) adopting, amending, or repealing any bylaws of the corporation; and, unless
the board resolution establishing the committee, the bylaws or the certificate
of incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting),
with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the board of directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the board of
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directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and any such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be appointed by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS; FILLING VACANCIES
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.5 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to the
chairman of the board by the board of directors or as may be prescribed by these
bylaws. If there is no president and no one has been appointed chief executive
officer, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.6 of these bylaws.
5.6 CHIEF EXECUTIVE OFFICER
The board of directors shall select a chief executive officer of the
corporation who shall be subject to the control of the board of directors and
have general supervision, direction and control of the business and the officers
of the corporation. The chief executive officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a chairman of the board,
at all meetings of the board of directors.
5.7 PRESIDENT
The president shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws. In addition and subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if no one has been
appointed chief executive officer, the president shall be the chief executive
officer of the corporation and shall, subject to the control of the board of
directors, have the powers and duties described in Section 5.6.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized
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and the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. The chief financial officer shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his transactions as chief financial officer and of the
financial condition of the corporation, and shall have other powers and perform
such other duties as may be prescribed by the board of directors or these
bylaws.
The chief financial officer shall be the treasurer of the corporation.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these bylaws.
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5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these bylaws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that 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),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the corporation, which approval shall not be unreasonably
withheld) 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 such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not,
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of itself, create a presumption that the person did not act in good faith and in
a manner which the person 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 reasonable cause to believe that the person's conduct was
unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall 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 or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of 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) and amounts paid in settlement (if such settlement is approved in advance
by the corporation, which approval shall not be unreasonably withheld) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware 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 Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding any other
provision of this Article VI, no person shall be indemnified hereunder for any
expenses or amounts paid in settlement with respect to any action to recover
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934,
as amended.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer, employee
or agent is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (1) by the Board of Directors or the Executive
Committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (2) or if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders. Notwithstanding the
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foregoing, a director, officer, employee or agent of the Corporation shall be
entitled to contest any determination that the director, officer, employee or
agent has not met the applicable standard of conduct set forth in Sections 6.1
and 6.2 by petitioning a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who 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 any liability asserted against such
person and incurred by such person in any such capacity or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
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6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI 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 the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive officer or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stockholder and
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the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by
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any contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
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Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in (i) the Delaware General Corporation Law or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to
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transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the Delaware General Corporation Law.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
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CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
DIGITALTHINK, INC.
Certificate by Secretary
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of DigitalThink, Inc. and that the foregoing Amended and
Restated Bylaws, comprising twenty-two (22) pages, were adopted as the Amended
and Restated Bylaws of the corporation on December ___, 1999 by the board of
directors of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this ____ day of December 1999.
-----------------------------------
Mario M. Rosati, Secretary
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EXHIBIT 10.1
DIGITALTHINK, INC.
RESTATED INVESTOR RIGHTS AGREEMENT
This Restated Investor Rights Agreement (the "Agreement") is effective
as of November 10, 1999 by and among DigitalThink, Inc. (the "Company") and the
investors listed on Schedule A attached hereto (the "Investors").
RECITALS
A. The Company sold and issued to certain of the Investors 3,184,000
shares of the Series A-1 Preferred Stock of the Company on August 5, 1996,
7,726,668 shares of Series B Preferred Stock on June 18, 1997, 5,824,306 shares
of Series C Preferred Stock on November 25, 1998, 1,786,667 shares of Series C
Preferred Stock on March 1, 1999, 80,000 shares of Series C Preferred Stock on
June 11, 1999, 213,334 shares of Series C-1 Preferred Stock sold on March 1,
1999 and up to 4,000,000 shares of Series D Preferred Stock on an even date
herewith. Pursuant to that certain Restated Investor Rights Agreement dated as
of March 1, 1999 (the "Prior Rights Agreement") the Company granted to such
Investors certain rights and the Investors entered into certain covenants
between themselves.
B. Pursuant to that certain Series D Preferred Stock Purchase Agreement
of even date herewith (the "Series D Agreement"), the Company has agreed to sell
to certain Investors (the "Series D Holders") a total of up to 4,000,000 shares
of the Series D Preferred Stock of the Company and, as an inducement for the
Series D Holders to purchase such shares, the Company and the existing Investors
have agreed to enter into this Agreement to supersede, amend and restate the
rights granted to and covenants agreed by the existing Investors in the Prior
Rights Agreement. The shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, the Series C-1 Preferred Stock and the shares
of Series D Preferred Stock sold pursuant to the Series D Agreement are
collectively referred to herein as the "Preferred Shares."
NOW THEREFORE, the parties hereby agree as follows:
1. Registration Rights.
1.1Definitions. For purposes of this Agreement:
(a) The term "register", "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document;
(b) The term "Registrable Securities" means (1) all
shares of Common Stock issued or issuable upon conversion of the Preferred
Shares, and (2) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Preferred Shares or Common Stock referenced in (1) above,
excluding in all
<PAGE> 2
cases, however, (i) any Registrable Securities sold by a person in a transaction
in which such person's rights under this Section 1 are not assigned, or (ii) any
Registrable Securities sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction;
(c) The number of shares of "Registrable Securities then
outstanding" shall mean the number of shares of Common Stock which are
Registrable Securities and (i) are then issued and outstanding or (ii) are then
issuable pursuant to the exercise or conversion of then outstanding and then
exercisable options, warrants or convertible securities.
(d) The term "Holder" means any Investor or other person
owning or having the right to acquire Registrable Securities or any assignee to
whom rights have been assigned in accordance with Section 1.13 hereof. For
purposes of this Agreement, a record holder of Preferred Shares convertible into
Registrable Securities shall be deemed to be the Holder of such Registrable
Securities;
(e) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission (the "SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC; and
(f) The term "Act" shall mean the Securities Act of
1933, as amended.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the
earlier of (1) December 31, 2000 or (2) the date six months after the effective
date of a registration statement filed pursuant to the Act for the initial
public offering of securities of the Company, a written request from the Holders
of at least thirty percent (30%) of the Registrable Securities then outstanding
(including securities convertible into Registrable Securities) or any lesser
number of shares if the anticipated aggregate offering price of the shares to be
registered would exceed $10,000,000 (before any underwriting discounts and
commissions), that the Company file a registration statement under the Act
covering the registration of Registrable Securities, then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders (the "Request Notice") and shall, only subject to the limitations
of Section 1.2(b), effect as soon as practicable, and in any event within ninety
(90) days of the receipt of such initial request, the registration under the Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such written notice by the Company; provided,
however, that the Company shall not be obligated to take any action to effect
any such registration, qualification or compliance pursuant to this Section
1.2(a):
(i) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date one hundred twenty (120) days immediately following the effective
date of, any registration statement pertaining to securities of the Company
subject to Section 1.3 hereof (other than a registration of securities in a Rule
145 transaction or with respect to an employee benefit plan), provided that the
Company is actively
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employing in good faith all reasonable efforts to cause such registration
statement to become effective;
(ii) After the Company has effected three (3)
such registrations pursuant to this Section 1.2(a), and such registrations have
been declared or ordered effective; or
(iii) If the Company shall furnish to such
Holders a certificate signed by the Chairman of the Board of the Company stating
that in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company and its shareholders for a registration statement to
be filed at the time filing would be required and it is therefore essential to
defer the filing of such registration statement, then the Company shall have the
right to defer such filing for a period not to exceed one hundred twenty (120)
days from the date of receipt of written request from the Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period.
(b) If the Holders initiating the registration request
hereunder (the "Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 1.2
and the Company shall include such information in the written notice referred to
in Section 1.2(a). In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company then owned by each Holder; provided,
however, that the Holders shall have the first right to include all of their
shares in the offering before any shares held by other selling shareholders or
the Company may be included in the offering.
1.3 Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after receipt of
written notice from the Company provided in
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accordance with Section 7.2, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered. If a Holder
elects not to include all of its Registrable Securities in any registration by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration(s) by the
Company of offerings of its securities, all subject to the terms, conditions and
limitations set forth herein
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement provided that such underwriting agreement
shall not provide for indemnification or contribution obligations on the part of
the Holders greater than the obligations set forth in Section 1.10(b).
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
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<PAGE> 5
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) if such offering is being
underwritten, a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the participating
holders.
(h) Cause all Registrable Securities registered pursuant
to this Agreement to be listed on each securities exchange on which similar
securities issued by the Company are then listed
1.5 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.6 Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions, incurred in connection with the
registration, filing or qualification pursuant to Section 1.2, including,
without limitation, all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one (1) demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Holders at the time of their request, then
the Holders shall not be required to pay any of such expenses and shall retain
their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including, without limitation, all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
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<PAGE> 6
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company; provided that such
underwriting agreement shall not provide for indemnification or contribution
obligations on the part of the Holders greater than the obligations set forth in
Section 1.10(b). If the total amount of securities, including Registrable
Securities, requested by shareholders to be included in such offering exceeds
the amount of securities sold other than by the Company that the underwriters
reasonably believe compatible with the success of the offering, then the
underwriter(s) may exclude such shares (including Registrable Securities) which
the underwriters believe will jeopardize the success of the offering from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder;
provided, however, that the underwriter(s) may not reduce the amount of
securities of the selling Holders included in the registration below twenty-five
(25%) of the total amount of securities included in such registration, unless
such offering is the initial public offering and such registration does not
include shares of any other selling shareholders, in which event any or all of
the Registrable Securities of the selling Holders may be excluded. In no event
will shares of any other selling shareholder be included in such registration
which would reduce the number of shares which may be included by the selling
Holders. If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. If any Holder withdraws from such
underwriting, the Company shall include in such underwriting a number of shares
of Registrable Securities equal to the number of shares which such Holder
withdrew from the underwriting allocated to those Holders participating in the
registration who desire to register additional Registrable Securities on a pro
rata basis based on the number of Registrable Securities then held by each such
Holder. Any Registrable Securities excluded or withdrawn (and not reallocated)
from such underwriting shall be excluded and withdrawn from the registration.
For purposes of apportionment, any Holder of Registrable Securities which is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder", and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
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(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors and partners of
each Holder, any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"),
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 1.10(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement, each of its officers,
directors and partners and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this Section 1.10(b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 1.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and in no event shall any indemnity under this
Section 1.10(b) exceed the net proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified
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party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 1.10, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the indemnified and
indemnifying parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, but the omission to so deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10.
(d) If the indemnification provided for in Section 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the
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sale of their Registrable Securities, such action to be taken as soon as
practicable after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to the general
public is declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration.
(a) In case the Company shall receive from any Holder or
Holders, a written request or requests that the Company effect a registration on
Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(i)promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(ii) as soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section 1.12: (1) if Form S-3 is not available for such offering by the
Holders; (2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an anticipated
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000; (3) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such Form
S-3 Registration to be effected at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 registration statement for a
period of not more than one hundred twenty (120) days after receipt of the
request of the Holder or Holders under this Section 1.12; provided, however,
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that the Company shall not utilize this right more than once in any twelve (12)
month period; (4) if the Company has already effected one registration on Form
S-3 in the six (6) month period preceding the request for the Holders pursuant
to this Section 1.12; or (5) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(b) If the Holders initiating the registration request
hereunder (the "Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as part of their request made pursuant to this Section 1.12
and the Company shall include such information in the written notice referred to
in Section 1.12(a)(i). In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.12, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the Holders shall have the first right to include all of their shares in
the offering before any shares held by other selling shareholders or the Company
may be included in the offering.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders and shall remain effective until the
registered shares are sold or three months have expired, whichever comes first.
All expenses incurred in connection with a registration requested pursuant to
Section 1.12, including, without limitation, all registration, filing,
qualification, printer's and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holders selected by them, but
excluding any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne by the Company. Registrations effected pursuant to
this Section 1.12 shall not be counted as demands for registration or
registrations effected pursuant to Section 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned by a Holder to a transferee or assignee that is an affiliate of the
Holder or who acquires at least 250,000 shares of Registrable Securities,
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the
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transferee or assignee is restricted under the Act. Notwithstanding the above,
such rights may be assigned by a Holder to a limited partner, general partner,
former partner or other affiliate of a Holder, and in the case of a Regulated
Shareholder, such rights may also be assigned to any Affiliate (as hereafter
defined) or other transferee or assignee, regardless of the number of shares
acquired.
1.14 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of at least 50% of the outstanding Registrable
Securities, the prior written consent of the holders of at least 50% of the
Series B Preferred Stock, the prior written consent of the holders of at least
50% of the Series C Preferred Stock and the prior written consent of the holders
of at least 50% of the Series D Preferred Stock, enter into any agreement with
any holder or prospective holder of any securities of the Company which would
grant such holder or prospective holder pari passu or superior registration
rights.
1.15 "Market Stand-Off" Agreement. Each holder of securities
which are or at one time were Registrable Securities (or which are or were
convertible into Registrable Securities) hereby agrees that, during a period not
to exceed one hundred eighty (180) days, following the effective date of a
registration statement of the Company filed under the Act in connection with the
initial public offering of the Company's securities, it shall not, to the extent
requested by the Company and such underwriter, sell or otherwise transfer or
dispose of (other than to a donee who agrees to be similarly bound) any Common
Stock of the Company held by it at any time during such period except Common
Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten initial
public offering; and
(b) all officers and directors of the Company enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 Termination of Registration Rights. No shareholder shall be
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public, provided that the aggregate proceeds of such registration exceed
$15,000,000 at a per share issuance price of at least $8.00 per share.
2. Right of First Offer.
2.1 Grant of Right. Subject to the terms and conditions
specified in this Section 2, the Company hereby grants to each Investor a right
of first offer with respect to future sales by the Company of its Future Shares
(as hereinafter defined) and each Investor grants to the Company a
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right of first offer with respect to all future sales of the shares listed
opposite each Investor's name on Schedule A attached hereto ("Investor Shares").
2.2 Future Shares. "Future Shares" shall mean shares of any
capital stock of the Company, whether now authorized or not, and any rights,
options or warrants to purchase such capital stock, and securities of any type
that are, or may become, convertible into such capital stock; provided however,
that "Future Shares" do not include (i) the Preferred Shares, the Common Stock
issued or issuable upon the conversion of Preferred Shares, any Class A Common
Stock issued or issuable upon the conversion of Class B Common Stock, any Class
B Common Stock issued or issuable upon the conversion of Class A Common Stock,
any Series C-1 Preferred Stock issued or issuable upon conversion of the Series
C Preferred Stock, and any Series C Preferred Stock issued or issuable upon
conversion of the Series C-1 Preferred Stock; (ii) securities offered pursuant
to a registration statement filed under the Act, (iii) securities issued
pursuant to the acquisition of another corporation by the Company by merger of,
purchase of substantially all of the assets of or other reorganization, and (iv)
securities issued or issuable to officers, directors, employees, consultants or
lessors of the Company pursuant to any plan or arrangement approved by the Board
of Directors of the Company, and (v) securities issued or issuable to strategic
partners or licensors pursuant to any plan or arrangement approved by the Board
of Directors of the Company, provided that, in addition to the purchase of
securities, such strategic partners or licensors also enter into a material
business relationship with the Company.
2.3 Notice. In the event the Company or an Investor proposes to
offer any of its Future Shares or Investor Shares, the Company or the Investor,
as applicable, shall first make an offering of such shares to each Investor or
the Company in accordance with the following provisions:
In the case of a proposed sale by the Company:
(a) The Company shall deliver a notice by certified mail
(the "Notice") to the Investors, or an assignee or transferee to whom such
rights have been assigned in accordance with Section 2.5 stating (i) its bona
fide intention to offer such Future Shares, (ii) the number of such Future
Shares to be offered, (iii) the price, if any, for which it proposes to offer
such Future Shares, and (iv) a statement as to the number of days from receipt
of such Notice within which the Investor must respond to such Notice.
(b) Within twenty (20) calendar days after receipt of
the Notice, the Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Future Shares
which equals the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion of the Investor Shares then held, by such
Investor bears to the total number of shares of Common Stock issued and
outstanding, including shares issuable upon conversion of convertible securities
issued and outstanding. The Company shall promptly, in writing, inform each
Investor which purchases of all the Future Shares available to it (the
"Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten-day period commencing after receipt of such information, each
Fully-Exercising Investor shall be entitled to obtain that portion of the Future
Shares offered to the Investors which was not subscribed for, which is equal to
the proportion that the number of shares of Common Stock issued and held, or
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issuable upon conversion of the Shares then held, held by such Fully-Exercising
Investor bears to the total number of shares of Common Stock issued and
outstanding, including shares issuable upon conversion of convertible securities
issued and outstanding, then held by all Fully-Exercising Investors who wish to
purchase some of the unsubscribed shares.
In the case of a proposed sale by an Investor:
(a) The Investor shall deliver a notice by certified
mail (the "Investor's Notice") to the Company stating (i) the existence of a
bona fide offer to purchase Investor Shares, (ii) the number of such Investor
Shares to be offered, (iii) the price for which it proposes to offer such
Investor Shares, and (iv) a statement as to the number of days from receipt of
such Investor's Notice within which the Company must respond to such Investor's
Notice.
(b) Within twenty (20) calendar days after receipt of
the Investor's Notice, the Company may elect to purchase or obtain, at the price
and on the terms specified in the Investor's Notice, all or a portion of the
Investor Shares so offered.
2.4 Sale after Notice. If all such Future Shares referred to in
the Notice are not elected to be obtained as provided in Section 2.3 hereof, the
Company may, during the 90-day period following the expiration of the period
provided in Section 2.3 hereof, offer the remaining unsubscribed Future Shares
to any person or persons at a price per share not less than, and upon terms no
more favorable to the offeree than those specified in the Notice. If the Company
does not enter into an agreement for the sale of the Future Shares within such
period, or if such agreement is not consummated within ninety (90) days of the
execution thereof, the right provided hereunder shall be deemed to be revived
and such Future Shares shall not be offered unless first reoffered to the
Investors in accordance herewith. If all such Investor Shares referred to in the
Investor's Notice are not elected to be purchased as provided in Section 2.3
hereof, the Investor may, during the ninety (90) day period following the
expiration of the period provided in Section 2.3 hereof, offer the remaining
unsubscribed Investor Shares to any person or persons at a price per share not
less than, and upon terms no more favorable to the offeree than those specified
in the Investor's Notice. If the Investor does not enter into an agreement for
the sale of the Investor Shares within such period, or if such agreement is not
consummated within ninety (90) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Investor Shares shall not be
offered unless first reoffered to the Company in accordance herewith.
2.5 Assignment. The right of first offer granted under this
Section 2 is assignable by the Investors to any transferee of a minimum of
250,000 shares of Common Stock (including any shares of Common Stock into which
shares of Preferred Stock are convertible) or to any affiliate of any Investor,
including in the case of a Regulated Shareholder, to an Affiliate or any
transferee in a transfer required as a result of a Regulatory Problem.
2.6 Termination of Rights. Neither an Investor nor the Company
shall be entitled to exercise any right provided for in this Section 2 (i) upon
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public, at a
price per
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share of at least $8.00 and aggregate offering proceeds of at least $15,000,000
or (ii) when the Company first becomes subject to the periodic reporting
requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934,
whichever event shall first occur.
2.7 Exceptions. An Investor shall have no obligation to comply
with the provisions set forth in Section 2.1 hereof with respect to sales to
affiliates (including, in the case of a Regulated Shareholder, Affiliates).
3. Information Rights.
3.1 Delivery of Financial Statements. The Company shall deliver
to each Investor which holds, together with its affiliates (including Affiliates
and transferees in a transfer required as a result of a Regulatory Problem, an
aggregate of 500,000 shares of Registrable Securities (a "Major Investor"):
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, statements of
operations and income and cash flow for such fiscal year, a balance sheet of the
Company as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
selected by the Company;
(b) within forty five (45) days of the end of each
fiscal quarter, and until a public offering of Common Stock of the Company, an
unaudited statement of operations and balance sheet for and as of the end of
such quarter, in reasonable detail and prepared in accordance with GAAP, subject
to year end audit adjustments and the absence of footnotes;
(c) within fifteen (15) days of the end of each month,
and until a public offering of Common Stock of the Company, an unaudited
statement of operations and balance sheet for and as of the end of such month,
in reasonable detail and prepared in accordance with GAAP, subject to year end
audit adjustments and the absence of footnotes;
(d) at least thirty (30) days prior to the beginning of
each fiscal year, and until a public offering of Common Stock of the Company, an
annual budget and operating plans for such fiscal year (and as soon as
available, any subsequent revisions thereto);
(e) with respect to the financial statements called for
in subsection (b) and (c) of this Section 3.1, an instrument executed by the
Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods and fairly present the financial condition of the
Company and its results of operation for the period specified, subject to
year-end audit adjustments and the absence of footnotes.
3.2 Inspection Rights. In addition to any rights which any Holder may
have under applicable law, each Major Investor shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the
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Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as often
as may be reasonably requested; provided, however, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not, therefore, be disclosed.
3.3 Additional Information. For a period of three years after
the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, the Company
shall deliver to each Major Investor a copy of all reports filed with the
Securities and Exchange Commission under such provisions.
3.4 Board Visitation Rights. A representative from Torstar
Corporation, a representative from BT Investment Partners, Inc., a
representative from Service Master Venture Fund, L.L.C., a representative from
Cambridge Technology Capital Fund I, L.P. and a representative of Worldview
Technology Partners shall each have the right to attend the Company's Board of
Directors meetings and to receive, at the same time such information as is
provided to its directors and notice and copies of all information furnished to
directors in connection with all meetings of the Board of Directors.
3.5 Assignment. The information rights granted under this
Section 3 are assignable by the Investors to any transferee of a minimum of
500,000 shares of Common Stock (including any shares of Common Stock into which
shares of Preferred Stock are convertible) or to any affiliate, including in the
case of a Regulated Shareholder, to an Affiliate or any transferee in a transfer
required as a result of a Regulatory Problem.
3.6 Termination of Covenants. The covenants set forth in Section
3.1 and 3.2 shall terminate as to Investors and be of no further force or effect
when the first sale of securities pursuant to a registration statement filed by
the Company under the Act in connection with the firm commitment underwritten
offering of its securities to the general public is consummated or when the
Company first becomes subject to the periodic reporting requirements of Sections
12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
4. Regulatory Compliance Cooperation.
4.1 Definitions.
"Affiliate" means, with respect to any Person, (i) a director or
executive officer of such Person or any Person identified in clause (iii) below,
(ii) a spouse, parent, sibling or descendant of such Person (or a spouse,
parent, sibling or descendant of any director or executive officer of such
Person), (iii) any other Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with such
Person, and (iv) a limited partner, general partner or former partner of a
Person that is a partnership. As used in this definition, the term "control"
means the possession, directly or indirectly, of the power to direct the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
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When such term is used in the context of a Regulatory Problem, it also has the
meaning ascribed to it in any Applicable Law.
"Applicable Law," with respect to any Person, means all
provisions of all laws, statutes, ordinances, rules, regulations, permits,
certificates or orders of any Governmental Authority applicable to such Person
or any of its assets or property or to which such Person or any of its assets or
property is subject, and all judgments, injunctions, orders and decrees of all
courts and arbitrators in proceedings or actions in which such Person is a party
or by which it or any of its assets or properties is or may be bound or subject.
"Board" means The Board of Governors of the United States
Federal Reserve System.
"Person" shall be construed as broadly as possible and shall
include an individual or natural person, a partnership (including a limited
liability partnership), a corporation, an association, a joint stock company, a
limited liability company, a trust, a joint venture, an unincorporated
organization and a governmental authority.
"Regulated Shareholder" shall mean BT Investment Partners, Inc.
and any other shareholder (i) that is subject to the provisions of Regulation Y
of the Board of Governors of the United States Federal Reserve System, 12 C.F.R.
Part 225 (or any successor to such regulations); (ii) that holds Securities of
the Company; and (iii) that has provided written notice to the Company of its
status as a "Regulated Shareholder" hereunder.
"Regulatory Problem" means any set of facts or circumstance
wherein it has been asserted by any governmental regulatory agency (or a
Regulated Shareholder reasonably believes that there is a risk of such
assertion) that such Regulated Shareholder is not entitled to acquire, own, hold
or control or exercise any significant right (including the right to vote) with
respect to, any Securities of the Company or any subsidiary of the Company.
"Securities" means, with respect to any Person, such Person's
"securities" as defined in Section 2(l) of the Securities Act of 1933, as
amended, and includes such Person's capital stock or other equity interests or
any options, warrants or other securities that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity or equity-linked interests, including phantom stock and
stock appreciation rights. Whenever a reference herein to Securities is
referring to any derivative Securities, the rights of a Shareholder shall apply
to such derivative Securities and all underlying Securities directly or
indirectly issuable upon conversion, exchange or exercise of such derivative
securities.
4.2 Regulatory Matters Generally.
If a Regulated Shareholder determines that it has a Regulatory
Problem, the Company agrees to take all such actions, subject to Applicable Law,
as are reasonably requested by such Regulated Shareholder (i) to effectuate and
facilitate any transfer by such Regulated Shareholder of any Securities of the
Company then held by such Regulated Shareholder to any Person designated by such
Regulated Shareholder (in which event such Regulated Shareholder shall have no
obligation to
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comply with the provisions of Section 2 hereof), (ii) to permit such Regulated
Shareholder (or any Affiliate of such Regulated Shareholder) to exchange all or
any portion of the voting Securities then held by such Person on a
share-for-share basis for shares of a class of non-voting Securities of the
Company, which non-voting Securities shall be identical in all respects to such
voting Securities, except that such new Securities shall be non-voting and shall
be convertible into voting Securities on such terms as are requested by such
Regulated Shareholder in light of regulatory considerations then prevailing, and
(iii) to continue and preserve the respective allocation of the voting interests
with respect to the Company provided for in the Series C Preferred Stock
Purchase Agreement and all exhibits thereto and with respect to such Regulated
Shareholder's ownership of the Company's voting Securities. Such actions may
include, without limitation, (a) entering into such additional agreements as are
reasonably requested by such Regulated Shareholder to permit any Person(s)
designated by such Regulated Shareholder to exercise any voting power which is
relinquished by such Regulated Shareholder upon any exchange of voting
Securities for non-voting Securities of the Company, and (b) entering into such
additional agreements, adopting such amendments to the charter documents of the
Company and taking such additional actions as are reasonably requested by such
Regulated Shareholder in order to effectuate the intent of the foregoing.
If a Regulated Shareholder has the right or opportunity to
acquire any of the Company's Securities from the Company, any shareholder or any
other Person (as the result of a preemptive offer, pro rata offer or otherwise),
at such Regulated Shareholder's request the Company will offer to sell (or if
the Company is not the seller, to cooperate with the seller and such Regulated
Shareholder to permit such seller to sell) such non-voting Securities on the
same terms as would have existed had such Regulated Shareholder acquired the
Securities so offered and immediately requested their exchange for non-voting
Securities pursuant to clause (2) above.
Each Investor agrees to cooperate with the Company in complying
with this Section 4.2, including without limitation, voting to approve amending
the Company's Articles of Incorporation in a manner reasonably requested by the
Regulated Shareholder requesting such amendment.
The Company agrees not to amend or waive the voting or other
provisions of this Agreement or the Company's Articles of Incorporation if such
amendment or waiver would cause any Regulated Shareholder to have a Regulatory
Problem, provided that any such Regulated Shareholder notifies the Company that
it would have a Regulatory Problem promptly after it has notice of such
amendment or waiver.
If the exercise by a Regulated Shareholder of any right
hereunder shall, in the reasonable judgment of such Regulated Shareholder, cause
a Regulatory Problem, such Regulatory Shareholder may, upon notice to the
Company, relinquish such right at any time.
5. Termination of Prior Rights Agreements. The Prior Rights Agreement is
hereby terminated and superseded by this Agreement. This termination is
effective upon the execution of this Agreement by Investors who are holders of a
majority of the Registrable Securities under the Prior Rights Agreement.
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6. Waiver of Right of First Offer. To the extent that an Investor under
the Prior Rights Agreement is not purchasing its pro rata share of Series D
Preferred Stock sold pursuant to the Series D Agreement, all rights under the
Right of First Offer set forth in Section 2 of the Prior Rights Agreement to
purchase such securities is hereby waived. This waiver is effective upon the
execution of this Agreement by the holders of the majority of the Registrable
Securities under the Prior Rights Agreement.
7. Miscellaneous Provisions.
7.1 Waivers and Amendments. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least 50% of the shares of Registrable Securities then outstanding. In no
event shall any term of this Agreement be amended whereby such amendment would
adversely impact BT Investment Partners, Inc., without the prior written consent
of BT Investment Partners, Inc. In no event shall any term of this Agreement be
amended whereby such amendment would adversely impact the rights of the holders
of Series D Preferred Stock without the prior written consent of the holders of
at least 50% of the Series D Preferred Stock. Any amendment or waiver effected
in accordance with this Section 7.1 shall be binding upon each person or entity
which are granted certain rights under this Agreement and the Company.
7.2 Notices. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given (i)
upon personal delivery to the party notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient, if not, then
on the next business day, (iii) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, or (iv) five (5)
days after being deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
corporation.
7.3 Descriptive Headings. The descriptive headings herein have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
7.4 Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument, but only one of which
need be produced. If shares of Series D Preferred Stock are sold to Investors
subsequent to the date of this Agreement, such Investors may become parties to
this Agreement by delivering a counterpart signature page to the Company.
-18-
<PAGE> 19
7.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
7.7 Successors and Assigns. Except as otherwise expressly
provided in this Agreement, this Agreement shall benefit and bind the
successors, assigns, heirs, executors and administrators of the parties to this
Agreement.
7.8 Entire Agreement; Superseding Prior Rights Agreement. This
Agreement constitutes the entire agreement among the parties hereto with respect
to the specific subject matter hereof. Without in any manner limiting the
foregoing, the parties hereto agree that this Agreement supersedes and replaces
the Prior Rights Agreement, and that the Prior Rights Agreement shall hereafter
have no further force or effect.
7.9 Separability; Severability. Unless expressly provided in
this Agreement, the rights of each Investor under this Agreement are several
rights, not rights jointly held with any other Investors. Any invalidity,
illegality or limitation on the enforceability of this Agreement with respect to
any Investor shall not affect the validity, legality or enforceability of this
Agreement with respect to the other Investors. If any provision of this
Agreement is judicially determined to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired.
7.10 Stock Splits.All references to numbers of shares or prices
per share in this Agreement shall be appropriately adjusted to reflect any stock
dividend, split, combination or other recapitalization of shares by the Company
occurring after the date of this Agreement.
7.11 Public Announcements Neither the Company nor any Investor
(other than Intel Corporation) shall use Intel Corporation's or its affiliates'
names or refer to Intel Corporation or its affiliates directly or indirectly in
connection with Intel Corporation's or its affiliates' relationship with the
Company in any advertisement, news release or professional or trade publication
or in any other manner, unless otherwise required by law or with Intel
Corporation's prior written consent, which consent will generally not be
granted. The parties agree that there will be no press release or other public
statement issued by any party relating to this Agreement or the transactions
contemplated hereby unless required by law or mutually agreed to, and further
agree to keep the terms and conditions of this Agreement (including its
existence) and the Schedule hereto in the strictest confidence, it being
understood that this restriction shall not prohibit disclosure to the parties'
counsel, accountants and professional advisors. If the Company determines that
it is required by law to disclose the terms and conditions of this Agreement or
the Exhibits hereto or to file this Agreement or the Schedule with the
Securities and Exchange Commission, it shall, a reasonable time before making
such disclosure or filing, consult with Intel Corporation regarding such a
filing and seek confidential treatment for such portions of those agreements as
may be reasonably requested by Intel Corporation. Notwithstanding the above, the
Company may disclose the existence of this Agreement to bona fide potential
investors who are under obligations of non-disclosure similar to those contained
herein and which the Company believes in good faith are seriously considering
investing in the Company.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first set forth above.
COMPANY:
DIGITALTHINK, INC.
By: /s/ PETER GOETTNER
---------------------------------
Title: President & CEO
---------------------------------
NEW INVESTORS:
/s/ JOHN ANTIOCO
- ---------------------------------
John Antioco
/s/ JOHN COZZI
- ---------------------------------
John Cozzi
DHM ARCADIA PARTNERS, L.P.
By: /s/ [signature illegible]
------------------------------
Title: Partner
---------------------------
GE CAPITAL EQUITY INVESTMENTS, INC.
By:
------------------------------
Title:
---------------------------
/s/ ROBERT L. GOLDBERG
- ---------------------------------
Robert L. Goldberg, Trustee of The Robert
L. Goldberg and Sandra L. Goldberg
Revocable Trust U/A 8/5/98
<PAGE> 21
HAMBRECHT & QUIST EMPLOYEE
VENTURE FUND, LP II
By: H&Q Venture Management LLC
Its: General Partner
By:
------------------------------
Title:
---------------------------
/s/ JACK LEVY
- ---------------------------------
Jack Levy
The Lodato Family Trust
By: /s/ MICHAEL W. LODATO
------------------------------
Title:
---------------------------
- ---------------------------------
Rod McGeary
- ---------------------------------
Santo Politi
/s/ MIKE POPE
- ---------------------------------
Mike Pope
George Irving Purnell and Suzanne Marie
Purnell, Trustees of the George Irving
Purnell, III and Suzanne Marie Purnell
Trust U/D/T dated June 26, 1980 as amended
By: /s/ [signature illegible]
------------------------------
Title: Member
---------------------------
QUAD CAPITAL PARTNERS, LLC
By:
------------------------------
Title:
---------------------------
<PAGE> 22
/s/ PETER SCUTT
- ---------------------------------
Peter Scutt
TENET HEALTHCARE CORPORATION
By:
------------------------------
Paul Kusserow
Title: Vice President Corporate Strategy & Ventures
TORSTAR CORPORATION
By: /s/ DAVID WETHERALD
------------------------------
Title: General Counsel
---------------------------
WORLDVIEW TECHNOLOGY PARTNERS II, L.P.
By: Worldview Capital II, L.P., its General Partner
Title: Worldview Equity I, L.L.C., its General Partner
By: /s/ MICHAEL ORSAK
------------------------------
Michael Orsak - Member
WORLDVIEW TECHNOLOGY INTERNATIONAL II, L.P.
By: Worldview Capital II, L.P., its General Partner
Title: Worldview Equity I, L.L.C., its General Partner
By: /s/ MICHAEL ORSAK
------------------------------
Michael Orsak - Member
WORLDVIEW STRATEGIC PARTNERS II, L.P.
By: Worldview Capital II, L.P., its General Partner
Title: Worldview Equity I, L.L.C., its General Partner
By: /s/ MICHAEL ORSAK
------------------------------
Michael Orsak - Member
<PAGE> 23
WALDEN EDB PARTNERS II, L.P.
By: Walden Management, L.P.
By: /s/ LIP-BU-TAN
-----------------------
Lip-Bu Tan
Title: General Partner
/s/ DAVID WRIGHT
- ---------------------------------
David Wright
EXISTING INVESTORS:
- ---------------------------------
Joseph Addiego
ADOBE VENTURES I, L.P.
By: its General Partner,
H&Q Adobe Ventures Management L.L.C.
By: /s/ JACKIE BERTERRETCHE
------------------------------
Jackie Berterretche
Title: Attorney-in-Fact
BISON GROUP LLC
By: /s/ [signature illegible]
------------------------------
Title: Managing Member
---------------------------
BT INVESTMENT PARTNERS, INC.
By:
------------------------------
Title:
---------------------------
CAMBRIDGE TECHNOLOGY CAPITAL FUND I, L.P.
<PAGE> 24
By: /s/ BARRY ROSENBAUM
------------------------------
Title: Managing Director
---------------------------
/s/ WILEY BUCHANAN III
- ---------------------------------
Wiley Buchanan III
/s/ PETER U. GOETTNER
- ---------------------------------
Peter U. Goettner
/s/ PETER GOETTNER
- ---------------------------------
Peter Goettner
H&Q DIGITAL THINK INVESTORS, L.P.
By: /s/ JACKIE BERTERRETCHE
------------------------------
Title: Attorney-in-Fact
---------------------------
INTEL CORPORATION
By:
------------------------------
Title:
---------------------------
/s/ WILLIAM LANE
- ---------------------------------
William & Kathleen Lane
/s/ WILLIAM LANE
- ---------------------------------
William H. Lane & Kathleen Lane Trust DTD December
26, 1995
- ---------------------------------
Danilo Lucherini
- ---------------------------------
Olga Lucherini
- ---------------------------------
Silvia Lucherini
<PAGE> 25
/s/ DAVID H. MARTIN
- ---------------------------------
David Henri Martin
- ---------------------------------
Jennifer Jane Martin
- ---------------------------------
Kevin Charles Martin
/s/ CORINNE M. MARTIN
- ---------------------------------
Corinne M. Martin TTEE of the Survivor Trust of the
Dan & Cori Martin Family Trust
MDLC PARTNERS, a California
Limited Partnership
By: /s/ DEAN O. MORTON
------------------------------
Title: General Partner
---------------------------
- ---------------------------------
Franca Lucherini Milletti
- ---------------------------------
Umberto Milletti
/s/ DAN MICHELINI
- ---------------------------------
Dan Michelini
- ---------------------------------
John Pletzke
- ---------------------------------
Ira Pohl
- ---------------------------------
Alexander B. Powers
<PAGE> 26
/s/ MARIO ROSATI
- ---------------------------------
Mario M. Rosati
SERVICE MASTER VENTURE FUND L.L.C.
By: /s/ [signature illegible]
------------------------------
Title: Director
---------------------------
/s/ EDWARD SHMUNES
- ---------------------------------
Edward Shmunes
- ---------------------------------
Edmond F. St. Geme Co-Trustee of the St. Geme
Living Trust
- ---------------------------------
Peter Emile St. Geme
TI VENTURES, L.P.
By: its General Partner,
H&Q TI Ventures Management L.L.C.
By: /s/ JACKIE BERTERRETCHE
------------------------------
Jackie Berterretche
Title: Attorney-in-Fact
TORSTAR CORPORATION
By: /s/ DAVID WETHERALD
------------------------------
Title: General Counsel
---------------------------
/s/ TREVOR TRAINA
- ---------------------------------
Trevor Dow Traina
WALDEN-SBIC, L.P.
By: /s/ GEORGE SARLO
------------------------------
George Sarlo
<PAGE> 27
Title: General Partner
WALDEN TECHNOLOGY VENTURES II, L.P.
By: Walden Technology Partners, L.P.
By: /s/ GEORGE SARLO
----------------------
George Sarlo
Title: General Partner
WALDEN EDB PARTNERS, L.P.
By: Walden Management, L.P.
By: /s/ LIP-BU TAN
----------------------
Lip-Bu Tan
Title: General Partner
WALDEN MEDIA INFORMATION TECHNOLOGY, L.P.
By: /s/ STEVEN ESKENAZI
------------------------------
Title: Manager
---------------------------
/s/ JIM WARREN
- ---------------------------------
Jim Warren
/s/ JEFF WITWER
- ---------------------------------
Jeff Witwer
WS INVESTMENTS
By: /s/ MARIO ROSATI
------------------------------
Title:
---------------------------
- ---------------------------------
Richard H. Zahm
/s/ STEVEN C. ZAHN
- ---------------------------------
Steven C. Zahn
<PAGE> 28
Steven C. Zahm
<PAGE> 29
SCHEDULE A
LIST OF INVESTORS
<TABLE>
<CAPTION>
Number of Number of Number of Number of Number of
Series A Series B Series C Series C-1 Series D
Name Shares Shares Shares Shares Shares
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Joseph Addiego 10,000 10,000 -0- -0- -0-
Adobe Ventures, L.P. 666,666 1,333,334 777,778 -0- 307,692
John Antioco -0- -0- -0- -0- 3,846
Bison Group, LLC 100,000 100,000 200,000 -0- -0-
John F. Burke -0- -0- -0- -0- -0-
Jin Byun -0- -0- -0- -0- -0-
BT Investment Partners -0- -0- 1,120,000 213,334 -0-
Wiley T. Buchanan III 50,000 33,333 -0- -0- -0-
Cambridge Technology Capital Fund I, L.P. -0- -0- 666,667 -0- 76,923
Follett Carter -0- -0- 80,000 -0- -0-
John Cozzi -0- -0- -0- -0- 15,385
DHM Arcadia Partners, L.P. -0- -0- -0- -0- 11,538
GE Capital Equity Investments, Inc. -0- -0- -0- -0- 769,231
Pete Goettner 30,000 -0- -0- -0- -0-
Peter U. Goettner 20,000 -0- -0- -0- -0-
Robert L. Goldberg, Trustee of The Robert -0- -0- -0- -0- 15,385
L. Goldberg and Sandra L. Goldberg
Revocable Trust U/A 8/5/98
H & Q Digital Think Investors, L.P. 666,667 1,333,334 598,748 -0- 261,432
Hambrecht & Quist Employee Venture Fund, -0- -0- -0- -0- 12,799
LP II
Intel Corporation -0- 1,333,334 -0- -0- -0-
William & Kathleen Lane Trust DTD December
26, 1995 50,000 20,000 -0- -0- 3,077
Jack Levy -0- -0- -0- -0- 7,692
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
Number of Number of Number of Number of Number of
Series A Series B Series C Series C-1 Series D
Name Shares Shares Shares Shares Shares
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
-0- -0- -0- -0- 15,385
The Lodato Family Trust
Danilo Lucherini 70,000 20,000 -0- -0- -0-
Olga Lucherini 70,000 20,000 -0- -0- -0-
Silvia Lucherini 70,000 20,000 -0- -0- -0-
David Henri Martin 5,000 -0- -0- -0- -0-
Jennifer Jane Martin 10,000 -0- -0- -0- -0-
Kevin Charles Martin 5,000 -0- -0- -0- -0-
Corinne M. Martin TTEE of the Survivor 10,000 20,000 -0- -0- -0-
Trust of the Dan & Cori Martin Family
Trust Dated May 20, 1985
Rod McGeary -0- -0- -0- -0- 7,692
MDLC Partners, a California Limited 150,000 50,000 -0- -0- -0-
Partnership
Dan Michelini -0- -0- 36,667 -0- 15,385
Franca Lucherini Milletti 30,000 -0- -0- -0- -0-
Umberto Milletti 30,000 -0- -0- -0- -0-
John Pletzke 14,000 -0- -0- -0- -0-
Ira Pohl 10,000 -0- -0- -0- -0-
Santo Politi -0- -0- -0- -0- 3,846
Mike Pope -0- -0- -0- -0- 15,385
Alexander B. Powers 20,000 -0- -0- -0- -0-
George Irving Purnell and Suzanne Marie
Purnell, Trustees of the George Irving -0- -0- -0- -0- 7,692
Purnell, III and Suzanne Marie Purnell
Trust U/D/T dated June 26, 1980 as amended
Quad Capital Partners, LLC -0- -0- -0- -0- 3,846
Mario M. Rosati 3,000 -0- -0- -0- -0-
Peter Scutt -0- -0- -0- -0- 4,615
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
Number of Number of Number of Number of Number of
Series A Series B Series C Series C-1 Series D
Name Shares Shares Shares Shares Shares
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
-0- -0- 666,667 -0- -0-
Service Master Venture Fund L.L.C
Edward Shmunes 20,000 -0- -0- -0- -0-
Edmund F. St. Geme Co-Trustee of the St -0- 66,666 -0- -0- -0-
Geme Living Trust
Peter Emile St. Geme 200,000 -0- -0- -0- -0-
Tenet Healthcare Corporation -0- -0- -0- -0- 307,693
TI Ventures, LP 666,667 1,333,334 777,778 -0- 307,692
Torstar Corporation -0- -0- 2,000,000 -0- 76,923
Trevor Dow Traina 80,000 33,333 -0- -0- -0-
Walden EDB Partners, L.P. -0- 200,000 20,000 -0- -0-
Walden EDB Partners II, L.P. -0- -0- -0- -0- 17,600
Walden-SBIC, L.P. -0- 666,667 66,660 -0- 32,400
Walden Media Information Technology, L.P. -0- 1,000,000 400,000 -0- 150,000
Walden Technology Ventures II, L.P. -0- 133,333 13,340 -0- -0-
Jim Warren -0- -0- 266,668 -0- -0-
Jeff Witwer 20,000 -0- -0- -0- -0-
Worldview Technology Partners II, L.P. -0- -0- -0- -0- 1,140,809
Worldview Technology International II, L.P. -0- -0- -0- -0- 349,227
Worldview Strategic Partners II, L.P. -0- -0- -0- -0- 48,426
WS Investments 27,000 -0- -0- -0- -0-
David Wright -0- -0- -0- -0- 10,000
Richard H. Zahm 50,000 -0- -0- -0- -0-
Steven C. Zahm 30,000 -0- -0- -0- -0-
TOTAL 3,184,000 7,726,668 7,690,973 213,334
</TABLE>
<PAGE> 1
EXHIBIT 10.2
DIGITALTHINK, INC.
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of an Option and subject to the applicable provisions of Section 422 of
the Code and the regulations promulgated there under. Stock Purchase Rights may
also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means DigitalThink, Inc., a California corporation.
(g) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of any
equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services or
are paid only a Director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. A leave of
<PAGE> 2
absence approved by the Company shall include sick leave, military leave, or any
other personal leave approved by an authorized representative of the Company.
For purposes of Incentive Stock Options, no such leave may exceed 90 days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract, including Company policies. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 91st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(i) "Director" means a member of the Board of Directors of the
Company.
(j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination and reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option or
a Stock Purchase Right.
(r) "Optionee" means an Employee or Consultant who receives an
Option or Stock Purchase Right.
-2-
<PAGE> 3
(s) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1996 Stock Plan.
(u) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(v) "Section 16(b) " means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(w) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(x) "Stock Purchase Right" means a right to purchase Common Stock
pursuant to Section 11 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 6,375,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an option
exchange program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a Committee appointed by the Board.
(b) Plan Procedure After the Date, if any, upon Which the Company
becomes Subject to the Exchange Act.
-3-
<PAGE> 4
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers. With
respect to grants of Options and Stock Purchase Rights to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with the rules under
Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
16b-3") relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in sub tion therefor, fill vacancies, however caused, and
remove all members of the Committee and thereafter directly administer the Plan,
all to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
(iii) Administration With Respect to Other Employees and
Consultants. With respect to grants of Options and Stock Purchase Rights to
Employees or Consultants who are neither Directors nor Officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provi sions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discre tion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
-4-
<PAGE> 5
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each
such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to determine whether and under what circum stances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock Purchase
Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be deter
mined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship
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<PAGE> 6
with the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 75% of the
shares reserved for issuance under the Plan.
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
(iii) If an Option or Stock Purchase Right is cancelled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option or
Stock Purchase Right shall be counted against the limit set forth in subsection
(i) above. For this purpose, if the exercise price of an Option or Stock
Purchase Right is reduced, such reduction will be treated as a cancellation of
the Option or Stock Purchase Right and the grant of a new Option or Stock
Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of
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<PAGE> 7
the Company or any Parent or Subsidiary, the per Share exercise price shall be
no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any other person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of sur render, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exer cised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan pro ceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan, but in no case at a rate of less than 20% per year over five (5)
years from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance
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<PAGE> 8
(as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to Employ
ee), such Optionee may, but only within such period of time as is determined by
the Administrator, of at least thirty (30) days, with such determination in the
case of an Incentive Stock Option not exceeding three (3) months after the date
of such termination (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise his or her Option
to the extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months and one day following such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death. If, at the
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<PAGE> 9
time of death, the Optionee was not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
immediately revert to the Plan. If, after the Optionee's death, the Optionee's
estate or a person who acquires the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previ ously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, includ ing the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator makes the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock purchase
agreement in the form determined by the Administrator. Shares pur chased
pursuant to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines other
wise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The pur chase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agree ment shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the
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<PAGE> 10
Administrator in its sole discretion. In addition, the provisions of Restricted
Stock purchase agreements need not be the same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her pur chase is entered upon the records
of the duly authorized trans fer agent of the Company. No adjustment shall be
made for a divi dend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expira tion of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclas sification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of con sideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exer cised, the Option or Stock Purchase Right shall
terminate immediately prior to the consum mation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corpo ration or a parent or subsidiary of such successor corporation. If, in
such event, an Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective
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<PAGE> 11
date of the transaction (and if the holders are offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares). If such consideration received in the merger is not
solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.
13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
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<PAGE> 12
16. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
19. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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<PAGE> 13
DIGITALTHINK, INC.
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number ______________________________
Date of Grant ______________________________
Vesting Commencement Date ______________________________
Exercise Price per Share $_____________________________
Total Number of Shares Granted ______________________________
Total Exercise Price $_____________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: ______________________________
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to Optionee's continuing to be a
Service Provider on such dates.
Termination Period:
<PAGE> 14
This Option shall be exercisable for one month after Optionee ceases to
be a Service Provider. Upon Optionee's death or disability, this Option may be
exercised for such longer period as provided in the Plan. In no event may
Optionee exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. In the event of a conflict between the terms
and conditions of the Plan and this Option Agreement, the terms and conditions
of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a)Right to Exercise. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b)Method of Exercise. This Option shall be exercisable by delivery
of an exercise notice in the form attached as Exhibit A (the ?Exercise Notice?)
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B, and shall read the applicable rules of the Commissioner of Corporations
attached to such Investment Representation Statement.
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<PAGE> 15
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
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<PAGE> 16
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to
be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
10.Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely
-4-
<PAGE> 17
to the Optionee's interest except by means of a writing signed by the Company
and Optionee. This agreement is governed by the internal substantive laws but
not the choice of law rules of the State of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: DIGITAL THINK, INC.
- --------------------------------- -----------------------------------
Signature By
- --------------------------------- -----------------------------------
Print Name Title
- ---------------------------------
- ---------------------------------
Residence Address
-5-
<PAGE> 18
EXHIBIT A
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Digital Think, Inc.
1000 Brannan Street, Suite 501
San Francisco, CA 94103
Attention: Chief Executive Officer
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of DigitalThink, Inc. (the
"Company") under and pursuant to the 1996 Stock Option Plan (the "Plan") and the
Stock Option Agreement dated ________, 19 (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 11 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the
<PAGE> 19
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Company to the general public pursuant
-2-
<PAGE> 20
to a registration statement filed with and declared effective by the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a)Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED
IN THE COMMISSIONER'S RULES.
-3-
<PAGE> 21
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b)Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c)Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10.Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of the State of
California
-4-
<PAGE> 22
11. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE: DIGITAL THINK, INC.
- ------------------------------ ------------------------------------
Signature By
- ------------------------------ ------------------------------------
Print Name Title
Address: Address:
- ------------------------------ 1000 Brannan Street, Suite 501
San Francisco, CA 94103
- ------------------------------
------------------------------------
Date Received
-5-
<PAGE> 23
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: DIGITALTHINK, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
<PAGE> 24
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than two years after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than three years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(e) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
-------------------------------------
<PAGE> 25
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such securities
is not in violation of any securities law of the foreign state, territory or
country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
<PAGE> 1
EXHIBIT 10.3
DIGITAL THINK, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Digital Think, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company or any
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Digital Think, Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before November 1,
2001. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE> 3
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
November 1, 2001. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE> 4
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of
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<PAGE> 5
the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
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<PAGE> 6
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be two hundred thousand (200,000) shares plus an annual increase to be
added on the first day of the Company's fiscal year beginning with the fiscal
year which starts on April 1, 2001 equal to the lesser of (i) 400,000 shares,
(ii) 1% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
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<PAGE> 7
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
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<PAGE> 8
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option
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<PAGE> 9
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain shareholder approval in such a manner and to
such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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<PAGE> 10
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE> 11
EXHIBIT A
DIGITAL THINK, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Digital Think,
Inc. Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I hereby agree to notify the Company in writing within 30
days after the date of any disposition of my shares and I will make
adequate
<PAGE> 12
provision for Federal, state or other tax withholding obligations, if
any, which arise upon the disposition of the Common Stock. The Company
may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including
any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year and 1-year holding periods, I understand that I
will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will
be taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the
time of such disposition over the purchase price which I paid for the
shares, or (2) 15% of the fair market value of the shares on the first
day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)___________________________________________________
(First) (Middle) (Last)
_________________________ ______________________________________
Relationship
______________________________________
(Address)
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<PAGE> 13
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:___________________ ____________________________________
Signature of Employee
____________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE> 14
EXHIBIT B
DIGITAL THINK, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Digital Think,
Inc. Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
___________________________________
___________________________________
___________________________________
Signature:
___________________________________
Date:______________________________
<PAGE> 1
EXHIBIT 10.4
DIGITALTHINK, INC.
FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of ________
__, 1999 by and between DigitalThink, Inc., a Delaware corporation (the
"Company"), and <<NAME>> ("Indemnitee").
WHEREAS, effective as of the date hereof, DigitalThink, Inc., a
California corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company
and Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement, with such changes as are required to
conform the existing agreement to Delaware law and to provide indemnification
and advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
a. "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding
<PAGE> 2
securities under an employee benefit plan of the Company acting in such capacity
or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing more
than 50% of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger or
consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
b. "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
c. References to the "Company" shall include, in addition to
DigitalThink, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which DigitalThink, Inc.
(or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
d. "Covered Event" shall mean any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
- 2 -
<PAGE> 3
e. "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of any Claim and any
federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement.
f. "Expense Advance" shall mean a payment to Indemnitee pursuant
to Section 3 of Expenses in advance of the settlement of or final judgement in
any action, suit, proceeding or alternative dispute resolution mechanism,
hearing, inquiry or investigation which constitutes a Claim.
g. "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
h. References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
i. "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
j. "Section" refers to a section of this Agreement unless
otherwise indicated.
k. "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
2. Indemnification.
a. Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if
- 3 -
<PAGE> 4
Indemnitee was or is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other participant in, any
Claim (whether by reason of or arising in part out of a Covered Event),
including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses.
b. Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
c. Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is not
entitled to be indemnified hereunder in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by such
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and, subject to the provisions of Section 15, the Company hereby
consents to service of process and to appear in any such proceeding. Absent such
litigation, any determination by any Reviewing Party shall be conclusive and
binding on the Company and Indemnitee.
d. Selection of Reviewing Party; Change in Control. If there has
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such
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<PAGE> 5
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the employment of separate
counsel by one or more Indemnitees has been previously authorized by the Company
in writing, or (ii) an Indemnitee shall have provided to the Company a written
statement that such Indemnitee has reasonably concluded that there may be a
conflict of interest between such Indemnitee and the other Indemnitees with
respect to the matters arising under this Agreement.
e. Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
a. Obligation to Make Expense Advances. Upon receipt of a written
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
b. Form of Undertaking. Any obligation to repay any Expense
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
c. Determination of Reasonable Expense Advances. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
a. Timing of Payments. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee pursuant
to this Agreement shall be made to the fullest extent permitted by law as soon
as practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
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<PAGE> 6
b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
c. No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably
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<PAGE> 7
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be Expenses for which Indemnitee may
receive indemnification or Expense Advances hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 10(a) hereof.
b. Nonexclusivity. The indemnification and the payment of Expense
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the
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<PAGE> 8
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
a. Excluded Actions or Omissions. To indemnify or make Expense
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
b. Claims Initiated by Indemnitee. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the case may be.
c. Lack of Good Faith. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
d. Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
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<PAGE> 9
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous; provided, however, that
until such final judicial determination is made, Indemnitee shall be entitled
under Section 3 to receive payment of Expense Advances hereunder with respect to
such action.
14. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for
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<PAGE> 10
by the party addressed, on the date of such delivery, or (ii) if mailed by
domestic certified or registered mail with postage prepaid, on the third
business day after the date postmarked. Addresses for notice to either party are
as shown on the signature page of this Agreement, or as subsequently modified by
written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
as applied to contracts between Delaware residents entered into and to be
performed entirely in the State of Delaware without regard to principles of
conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
DIGITALTHINK, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: 1098 Harrison Street
San Francisco, CA 94103
AGREED TO AND ACCEPTED
INDEMNITEE:
-------------------------------
(Signature)
<<NAME>>
-------------------------------
Name
-------------------------------
Address
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<PAGE> 1
EXHIBIT 10.5
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, June 1999 is made by and between Bruce J. Cardinal, Trustee of the
Robert J. Cardinal Trust ("LESSOR") and Digital Think, Inc., a California
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 1064 & 1098 Harrison Street, located in the County of San Francisco,
State of California, and generally described as (describe briefly the nature of
the property and, if applicable, the "PROJECT", if the property is located
within a Project) warehouse/light industrial buildings ("PREMISES"). (See also
Paragraph 2)
1.3 TERM: Ten (10) years and -- months ("ORIGINAL TERM") commencing
see Addendum para. #51 ("COMMENCEMENT DATE") and ending 120 months after Phase I
Commencement Date ("EXPIRATION DATE", Subject to one (1) five-year extension
option, see Addendum Section 53). (See also Paragraph 3)
1.4 EARLY POSSESSION: One (1) week prior to Commencement Date
("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $28 sq. ft. per month ("BASE RENT"), payable on the
first day of each month commencing on the Commencement Date for years 1 - 5,
then $33 sq. ft. (See also Paragraph 4)
[ ] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $-- as Base Rent for the
period 1999.
1.7 SECURITY DEPOSIT: $ see Addendum para. #58 ("SECURITY DEPOSIT").
(See also Paragraph 5)
1.8 AGREED USE: General office, sales, administrative, software
research and development and any other uses allowed under applicable zoning for
the Premises. (See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY". The Annual
"Base Premium" is $ To be determined (See also Paragraph 6)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[X] John M. Jensen, Grubb & Ellis Company represents Lessor exclusively
("LESSOR'S BROKER");
[X] Bob Kraynak, CB Richard Ellis represents Lessee exclusively ("LESSEE'S
BROKER"); or
[ ] _________________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of ______%
of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by Not applicable ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 51 through 67 and Exhibits ____________________
_________________________________, all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver each phase of the Premises broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and warrants that the existing
electrical, plumbing, fire sprinkler shall be in good operating condition on
said date and that the surface and structural elements of the roof, bearing
walls and foundation of any buildings on the Premises (the "BUILDING") shall be
free of material defects. If a non-compliance with said warranty exists as of
the Start Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on each phase
of the Premises comply with all applicable laws, covenants or restrictions of
record, building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS")
in effect on the Start Date. Said warranty does not apply to the use to which
Lessee will put the Premises or to any Alterations or Utility Installations (as
defined in Paragraph 7.3(a)) made or to be made by Lessee.
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<PAGE> 2
If the Premises do not comply with said warranty, Lessor shall, except as
otherwise provided, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify the
same at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within twelve (12) months following completion
of Phase III, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense. If the Applicable Requirements are
hereafter changed (as opposed to being in existence at the Start Date, which is
addressed in Paragraph 6.2(e) below) so as to require during the term of this
Lease the construction of an addition to or an alteration of the Building, the
remediation of any Hazardous Substance, or the reinforcement or other physical
modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall
allocate the cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with Interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Rent shall be
abated for the period of such early possession. All other terms of this Lease
(including, but not limited to, the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent for any period during the term hereof which is for less than one (1)
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so
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<PAGE> 3
stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee is in Breach under this Lease, Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, expense, loss or damage which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit monies
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Lessor shall not be required to keep the Security
Deposit separate from its general accounts. Within fourteen (14) days after the
expiration or termination of this Lease, if Lessor elects to apply the Security
Deposit only to unpaid Rent, and otherwise within thirty (30) days after the
Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall
return that portion of the Security Deposit not used or applied by Lessor. No
part of the Security Deposit shall be considered to bear interest or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to,
asbestos-containing materials, petroleum, gasoline, and/or crude oil or any
products, by-products or fractions thereof. Lessee shall not engage in any
activity in or on the Premises which constitutes a Reportable Use of Hazardous
Substances without the express prior written consent of Lessor and timely
compliance (at Lessee's expense) with all Applicable Requirements. "REPORTABLE
USE" shall mean (i) the installation or use of any above or below ground storage
tank, (ii) the generation, possession, storage, use, transportation, or disposal
of a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Premises of a Hazardous
Substance with respect to which any Applicable Requirements requires that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may use any ordinary and
customary materials reasonably required to be used in the normal course of the
Agreed Use, so long as such use is in compliance with all Applicable
Requirements, is not a Reportable Use, and does not expose the Premises or
neighboring property to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may condition its consent
to any Reportable Use upon receiving such additional assurances as Lessor
reasonably deems necessary to protect itself, the public, the Premises and/or
the environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements).
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party other than Lessor, Eller Media Company or their
employees, contractors, agents or invitees.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party other than Lessor, Eller Media Company or
their employees, contractors, agents or invitees (provided, however, that Lessee
shall have no liability under this Lease with respect to underground migration
of any Hazardous Substance under the Premises from adjacent properties).
Lessee's obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE OR LESSOR FROM THEIR OBLIGATIONS
UNDER THIS LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO
AGREED BY THE OTHER PARTY IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused
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<PAGE> 4
by the active or gross negligence or willful misconduct of Lessor, Eller Media
Company or their its agents or employees, contractors, or invitees. Lessor's
obligations, as and when required by the Applicable Requirements, shall include,
but not be limited to, the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date. Lessee shall
cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, without regard to whether said requirements are now in effect or
become effective after the Start Date. Lessee shall, within ten (10) days after
receipt of Lessor's written request, provide Lessor with copies of all permits
and other documents, and other information evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving the failure of Lessee or the Premises to comply with
any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements caused by
Lessee, or a contamination is found to exist or be imminent, or the inspection
is requested or ordered by a governmental authority. In such case, Lessee shall
upon request reimburse Lessor for the cost of such inspections, so long as such
inspection is reasonably related to the violation or contamination.
MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's
Obligations), 9 (Damage and Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole expense, keep the Premises, Utility Installations, and
Alterations in good order, condition and repair (whether or not the portion of
the Premises requiring repairs, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, but not limited to, all
equipment or facilities, such as plumbing, heating, ventilating,
air-conditioning, electrical, lighting facilities, fixtures, walls (interior and
exterior), ceilings, floors, windows, doors, skylights, signs, sidewalks and
parkways located in, on, or adjacent to the Premises. Lessor is responsible for
keeping the roof and roof drainage clean and free of debris. Lessor shall keep
the elevator (provided, however, Lessee and not Lessor shall be responsible to
make and pay for elevator repairs which do not exceed $2,500 in any calendar
year during the Lease Term: Lessor shall make and pay for all elevator repairs
and replacements in excess of such amount), fire sprinkler system, structural
floors, all pipes and conduit to the point of entry into the Premises, columns,
roof membrane, the surface and structural elements of the roof, foundations, and
bearing walls in good repair (see Paragraph 7.2). Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a condition (including, e.g., graffiti removal)
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, ("Basic Elements"), if
any, if and when installed on the Premises: (i) HVAC equipment, (ii) fire
extinguishing systems, including fire alarm and/or smoke detection, and (iii)
elevator.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor
as set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is less than $10,000 in the aggregate during
any calendar year during the Lease Term, then such Basic Elements shall be
replaced by Lessor, and the cost over $10,000 shall be prorated between the
Parties and Lessee shall only be obligated to pay in addition to the first
$10,000, each month during the remainder of the term of this Lease, on the date
on which Base Rent is due, an amount equal to the product of multiplying the
cost of such replacement by a fraction, the numerator of which is one, and the
denominator of which is the number of months of the useful life of such
replacement as such useful life is specified pursuant to Federal income tax
regulations or guidelines for depreciation thereof (including interest on the
unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee
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<PAGE> 5
reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the
Parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair and maintain the Premises, or the equipment therein, all of which
obligations are intended to be that of the Lessee, except for the items
specifically designated in Section 7.1, survive, as Lessor's responsibility. It
is the intention of the Parties that the terms of this Lease govern the
respective obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems and signs,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cost thereof does not exceed $20,000 in any one instance.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor, which shall
not be unreasonably withheld, shall be presented to Lessor in written form with
detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring
all applicable governmental permits, (ii) furnishing Lessor with copies of both
the permits and the plans and specifications prior to commencement of the work,
and (iii) compliance with all conditions of said permits and other Applicable
Requirements in a prompt and expeditious manner. Any Alterations or Utility
Installations shall be performed in a workmanlike manner with good and
sufficient materials. Lessee shall promptly upon completion furnish Lessor with
as-built plans and specifications. For work which costs $100,000 or more. Lessor
may condition its consent upon Lessee providing a lien and completion bond in an
amount equal to the estimated cost of such Alteration or Utility Installation.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises unless Lessee obtains Lessor's consent for removal at
the time of installation of Alterations or Utility Installations.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises without the express written consent of Lessor shall constitute a
holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES
(a) Lessee shall pay to Lessor any insurance cost increase
("Insurance Cost Increase") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual cost of the premiums for
insurance required under Paragraphs 8.2(b), 8.3(a) and 8.3(b) ("Required
Insurance"), over and above the Base Premium as hereinafter defined calculated
on an annual basis. "Insurance Cost Increase" shall include but not be limited
to increases resulting from the nature of Lessee's occupancy, any act or
omission of Lessee, increased valuation of the Premises and/or a premium
rate increase. The Parties are encouraged to fill in the Base Premium in
Paragraph 1.9 with a reasonable premium for the Required Insurance based on the
Agreed Use of the Premises. If the Parties fail to insert a dollar amount in
Paragraph 1.9, then the Base Premium shall be the annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term for the Agreed Use of the Premises. In no event, however, shall Lessee be
responsible for any portion of the increase in the premium cost attributable to
liability insurance carried by Lessor under Paragraph 8.1(b) in excess of
$5,000,000 per occurrence.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee
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<PAGE> 6
of a copy of the premium statement or other reasonable evidence of the amount
due. If the insurance policies maintained hereunder cover other property
besides the Premises, Lessor shall also deliver to Lessee a statement of the
amount of such Insurance Cost Increase attributable only to the Premises
showing in reasonable detail the manner in which such amount was computed.
Premiums for policy periods commencing prior to, or extending beyond the term
of this Lease, shall be prorated to correspond to the term of this Lease.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $5,000,000 per
occurrence with an "ADDITIONAL INSURED -- MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises (including, without limitation, the Tenant improvements),
as the same shall exist from time to time, or the amount required by any
Lenders, but in no event more than the commercially reasonable and available
insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations, Trade Fixtures, and Lessee's personal
property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.
Such policy or policies shall insure against all risks of direct physical loss
or damage (except the perils of flood and/or earthquake), including coverage for
debris removal and the enforcement of any Applicable Requirements requiring the
upgrading, demolition, reconstruction or replacement of any portion of the
Premises as the result of a covered loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $10,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, A-V, as set forth in the most current
issue of "Best's Insurance Guide". Lessee shall not do or permit to be done
anything which invalidates the required insurance policies. Lessee shall, prior
to the Start Date, deliver to Lessor certified copies of policies of such
insurance or certificates evidencing the existence and amounts of the required
insurance. No such policy shall be cancelable except after thirty (30) days
prior written notice to Lessor. Lessee shall, no later than ten (10) days after
the expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary
contained in this Lease, Lessee and Lessor each hereby release and relieve the
other, and waive their entire right to recover damages against the other, for
loss of or damage to its property arising out of or incident to the perils
required to be insured against herein. The effect of such releases and waivers
is not limited by the amount of insurance carried or required, or by any
deductibles applicable hereto. The Parties agree to have their respective
property damage insurance carriers waive any right to subrogation that such
companies may have against Lessor or Lessee.
8.7 INDEMNITY. Except for Lessor's or its agents', contractors',
employees', or invitees' active or gross negligence or willful misconduct,
Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor
and its agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens,
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judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations,
Utility Installations and Trade Fixtures, which can reasonably be repaired in
270 days or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in 270
days or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved or which was caused by an event
not required to be covered by the insurance described in Section 8.3(a) and the
cost of repair or rebuilding does not exceed One Hundred Thousand Dollars
($100,000).
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the foregoing, if the
required insurance was not in force or the insurance proceeds are not sufficient
to effect such repair, the Insuring Party shall promptly contribute the shortage
in proceeds as and when required to complete said repairs.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
willful misconduct of Lessee, Lessor shall have the right to recover Lessor's
damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds three
(3) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date
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specified in the termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" shall mean either
the unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase over the fiscal tax year during which the Commencement Date occurs
("Tax increase"). Subject to Paragraph 10.2(b), payment of any such Tax increase
shall be made by Lessee to Lessor within thirty (30) days after receipt of
Lessor's written statement setting forth the amount due and the computation
thereof. If any such taxes shall cover any period of time [word missing] after
the expiration or termination of this Lease. Lessee's share of such taxes shall
be prorated to cover only that portion of the tax bill applicable to the period
that this Lease is in effect.
(b) ADVANCE PAYMENT. In the event Lessee incurs more than two
(2) late charges in any calendar year on any Rent payment, Lessor may, at
Lessor's option, estimate the current Real Property Taxes, and require that the
Tax increase be paid in advance to Lessor by Lessee, either, (i) in a lump sum
amount equal to the amount due, at least twenty (20) days prior to the
applicable delinquency date; or (ii) monthly in advance with the payment of the
Base Rent. If Lessor elects to require payment monthly in advance, the monthly
payment shall be an amount equal to the amount of the estimated installment of
the Tax Increase divided by the number of months remaining before the month in
which said installment becomes delinquent. When the actual amount of the
applicable Tax increase in known, the amount of such equal monthly advance
payments shall be adjusted as required to provide the funds needed to pay the
applicable Tax increase. If the amount collected by Lessor is insufficient to
pay the Tax increase when due, Lessee shall pay Lessor, upon demand, such
additional sums as are necessary to pay such obligations. All monies paid to
Lessor under this Paragraph may be intermingled with other monies of Lessor and
shall not bear interest.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding anything to the
contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor
the entirety of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by Lessee or at
Lessee's request.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax increase for all
of the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
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(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may terminate this Lease.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefor to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a fee of $2,500 or ten percent (10%) of the current monthly Base
Rent applicable to the portion of the Premises which is the subject of the
proposed assignment or sublease, whichever is less, as consideration for
Lessor's considering and processing said request. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection of
Rent, be deemed liable to the sublessee for any failure of Lessee to perform and
comply with any of Lessee's obligations to such sublessee. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or
without providing reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
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Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of fifteen (15) business days following written notice
to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1 (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of
any Guarantor given to Lessor was materially or intentionally false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor; (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the
guaranty; or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee, equals
or exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee is in Breach of its affirmative
duties or obligations, Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including, but not limited to the obtaining, of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of the District within which the Premises are
located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Breach of this Lease shall not waive
Lessor's right to recover damages under Paragraph 12. If termination of this
Lease is obtained through the provisional remedy of unlawful detainer, Lessor
shall have the right to recover in such proceeding any unpaid Rent and damages
as are recoverable therein, or Lessor may reserve the right to recover all or
any part thereof in a separate suit.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to five percent (5%) of each such overdue
amount, it being understood that Lessor shall not charge Lessee a late charge
on the first late payment in any calendar year during the Lease Term if Lessee
pays the delinquent amount within five (5) days after its receipt of notice of
such.
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The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of such late payment.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's Default or Breach with respect to such overdue amount, nor prevent
the exercise of any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("Interest") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be more than forty-five (45) days after receipt by
Lessor, and any Lender whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than forty-five (45) days are
reasonably required for its performance, then Lessor shall not be in breach if
performance is commenced within such forty-five (45) day period and thereafter
diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within forty-five (45) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
Premises, or more than twenty-five percent (25%) of the land area portion of the
Premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10)
days after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's Rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
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<PAGE> 12
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including, but not limited to,
Lessee's financial statements for the past three (3) years, if available. All
such financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease accruing after the date of the transfer and
thereafter to be performed by the Lessor. Subject to the foregoing, the
obligations and/or covenants in this Lease to be performed by the Lessor shall
be binding only upon the Lessor as hereinabove defined. Notwithstanding the
above, and subject to the provisions of Paragraph 20 below, the original Lessor
under this Lease, and all subsequent holders of the Lessor's interest in this
Lease shall remain liable and responsible with regard to the potential duties
and liabilities of Lessor pertaining to Hazardous Substances as outlined in
Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, insurance proceeds, condemnation proceeds, and proceeds from
the Security Deposit or sales proceeds in possession of Lessor which arise from
sale of the Premises and to no other assets of Lessor, for the satisfaction of
any liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted
by this Lease shall be in writing and may be delivered in person (or by
reputable overnight courier) or may be sent by certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, and shall be deemed
sufficiently given on the second business day after delivery to the overnight
courier and on the third business day after mailing if sent by certified or
registered mail with postage prepaid. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing of
notices. Either Party may by written notice to the other specify a different
address for notice, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice. A copy of all notices
to Lessor shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate in writing.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by either party hereto, shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent Default
or Breach by the other party of the same or of any other term, covenant or
condition hereof. Lessor's consent to, or approval of, any act shall not be
deemed to render unnecessary the obtaining of Lessor's consent to, or approval
of, any subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any Default
or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account
of monies or damages due Lessor, notwithstanding any qualifying statements or
conditions made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically agreed
to in writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
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<PAGE> 13
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. CONSTRUCTION OF AGREEMENT. In construing this Lease, all headings and
titles are for the convenience of the Parties only and shall not be considered a
part of this Lease. Whenever required by the context, the singular shall include
the plural and vice versa. This Lease shall not be construed as if prepared by
one of the Parties, but rather according to its fair meaning as a whole, as if
both Parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof. Lessor
represents and warrants to Lessee that as of the date upon which Lessor and
Lessee fully execute and deliver an executed copy of this Lease to each other,
there will be no Security Device which is secured by the Premises.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership except with respect to defaults of a
continuing nature; (ii) be subject to any offsets or defenses which Lessee might
have against any prior lessor not specifically stated in this Lease; or (iii) be
bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party brings an action or proceeding involving
the Premises to enforce the terms hereof or to declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding, action, or
appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may
be awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "PREVAILING
PARTY" shall include, without limitation, a Party who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party of its claim or
defense. The attorneys' fees award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees,
costs and expenses incurred in the preparation and service of notices of Default
and consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
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<PAGE> 14
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including, but not limited to, architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including, but not limited to, consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions regarding a subsequent matter as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within ten (10) business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, any transferee under a
transfer permitted under Section 59 of the Addendum without Lessor's consent
hereinafter, a "Permitted Transferee"), and cannot be assigned or exercised by
anyone other than said original Lessee and only while the original Lessee or any
Permitted Transferee is in full possession of at least 50% of the Premises.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
other than through advertence (without regard to whether notice thereof is given
Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the
event that Lessee has been given three (3) or more notices of separate Default,
whether or not the Defaults are cured, during the twelve (12) month period
immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems reasonably necessary, and to cause the recordation
of parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use or access to
the Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by
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<PAGE> 15
one Party to the other under the provisions hereof, the Party against whom the
obligation to pay the money is asserted shall have the right to make payment
"under protest" and such payment shall not be regarded as a voluntary payment
and there shall survive the right on the part of said Party to institute suit
for recovery of such sum. If it shall be adjudged that there was no legal
obligation on the part of said Party to pay such sum or any part thereof, said
Party shall be entitled to recover such sum or so much thereof as it was not
legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other Party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
increase Lessee's obligations hereunder or materially decrease Lessee's rights
hereunder or otherwise affect Lessee's use or occupancy of the Premises. Lessee
agrees to make such reasonable non-monetary modifications to this Lease as may
be reasonably required by a Lender in connection with the obtaining of normal
financing or refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [X] is [ ] is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
________________________________________________________________________________
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
________________________________________________________________________________
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: San Francisco, CA Executed at: San Francisco, CA
------------------------------------- -------------------------------
on: June 18, 1999 on: June 18, 1999
--------------------------------------------- ---------------------------------------
By LESSOR: By LESSEE:
Bruce J. Cardinal Peter Goettner
- ------------------------------------------------- -------------------------------------------
By: By: /s/ PETER GOETTNER
---------------------------------------------- ----------------------------------------
Name Printed: Robert J. Cardinal Trust Name Printed: Digital Think, Inc.
- ------------------------------------------------- -------------------------------------------
Title: Trustee Title: President and CEO
- ------------------------------------------------- -------------------------------------------
By: /s/ BRUCE J. CARDINAL By: /s/ BRENDAN THOMAS
- ------------------------------------------------- -------------------------------------------
Name Printed: Bruce J. Cardinal Name Printed: Brendan Thomas
- ------------------------------------------------- -------------------------------------------
Title: Trustee Title: Controller
- ------------------------------------------------- -------------------------------------------
Address: P.O. Box 192663, San Francisco, CA 94119 Address: 1000 Brannan Street, San Francisco
- ------------------------------------------------- -------------------------------------------
Telephone: (415) 332-4188 Telephone: (415) 437-2800
- ------------------------------------------------- -------------------------------------------
Facsimile: (415) 331-8839 Facsimile: (415) 437-3877
- ------------------------------------------------- -------------------------------------------
Federal ID No. 94-6481294 Federal ID No. 94-3244366
- ------------------------------------------------- -------------------------------------------
</TABLE>
NOTE: These forms are often modified to meet the changing requirements of law
and industry needs. Always write or call to make sure
Page 15 of 16
<PAGE> 16
you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017.
(213) 687-8777. Fax No. (213) 687-8616
Page 16 of 16
<PAGE> 17
ADDENDUM
This Addendum ("Addendum") is dated as of June 18, 1999, and is made by and
between the undersigned, identified as Lessor and Lessee, for the purpose of
amending that Standard Industrial/Commercial Single-Tenant Lease--Gross, dated
June 18, 1999, between Lessor and Lessee (the "Lease"). Capitalized terms not
defined herein shall have the meaning set forth in the Lease. The following
provisions are added to the Lease, and in the case of any inconsistency between
this Addendum and the Lease, the terms of this Addendum shall prevail.
50. PREMISES.
When completed, the Premises will consist of 33,955 rentable square
feet plus approximately 7,750 rentable square feet of second floor addition
space to be constructed in the portion of the Premises commonly known as 1098
Harrison Street, for a total rentable area of approximately 41,705 square feet.
The final rentable area of the second floor addition space shall be measured in
accordance with BOMA industry standards.
51. COMMENCEMENT DATE.
The Lease Commencement Date shall begin in phases based upon completion
of improvements for various portions of the Premises as follows:
(a) The first phase of this Lease ("Phase I") shall commence (the
"Phase I Commencement Date") on the date of Substantial Completion (as defined
below) of all Tenant Improvements (as defined below) for that portion of the
Premises commonly known as 1064 Harrison Street (the "Phase I Premises") and all
Lessor Improvements (as defined below) to the interior and building systems of
the Phase I Premises. The Phase I Premises is more particularly described on
Exhibit A attached hereto and made a part hereof. If the Phase I Commencement
date has not occurred for any reason on or before September 30, 1999 (which date
shall be extended by one (1) day for each day of any Lessee Delay), then Lessee
may terminate this Lease by giving written notice to Lessor at any time until
the Phase I Commencement Date has occurred, whereupon any monies previously paid
(including, without limitation, any Excess Costs) or security deposits made by
Lessee to Lessor, shall promptly be reimbursed to Lessee, but Lessor shall be
entitled to deduct from its reimbursement to Lessee the amount of all Tenant
Improvements Costs that have been incurred by Lessor, or at Lessee's option, in
lieu of such deduction, Lessee may make payment of such costs directly to
Lessor. Lessor shall within ten (10) business days after its receipt of written
request from Lessee, inform Lessee in writing of the amount of all Tenant
Improvement Costs that have been incurred to date by Lessor and provide
reasonable supporting backup documentation of such costs to Lessee. In addition
to the foregoing termination right, if the Phase I Commencement date has not
occurred on or before September 30, 1999 (which date shall be extended by one
(1) day for each day of any Lessee
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Delay) due in whole or in part to any material default by Lessor (it being
understood that Lessor shall not be deemed in material default with respect to
any delay to the Substantial Completion of the Tenant Improvements and Lessor
Improvements for the Phase I Premises caused by an event or occurrence outside
of the control of Lessor and which is not due to Lessor's financial inability),
of its obligations to construct the Lessor Improvements and Tenant Improvements
in accordance with this Lease and Lessor fails to cure such default within
fifteen (15) days after written notice from Lessee specifying the nature of such
default, then Lessee may enter the Premises and complete the construction of the
Lessor Improvements and Tenant Improvements and take possession of and use all
or any part of Lessor's materials, equipment, supplies, labor, and other
property used by Lessor for the construction of the Lessor Improvements and the
Tenant Improvements, including engaging the services of Lessor's contractors,
the Architect and other parties therefor. Upon demand, (i) Lessor shall assign
and deliver to Lessee all drawings and specifications, construction contracts,
documents, tangible and intangible property, and contractual rights in the
possession or reasonably within the control of Lessor as Lessee may reasonably
demand for the purpose of completing the Tenant Improvements and Lessor
Improvements, and (ii) Lessor shall execute and deliver to Lessee such written
documentation as Lessee may reasonably request for the purpose of evidencing the
vesting in Lessee of the rights and benefits of Lessor with respect to the
documents and rights so delivered and assigned. Further, Lessee may deduct from
the Base Rent due under this Lease all reasonable costs incurred by Lessee in
completing the Lessor Improvements and Tenant Improvements (including interest
at the rate of 8% per annum on the amounts paid by Lessee that would otherwise
have been paid by Lessor hereunder until such amounts are offset pursuant to the
provisions hereof) in excess of the amount of the Lessee's Contribution (defined
below) that Lessee would have owed had Lessor completely and timely performed
the construction of the Lessor Improvements and Tenant Improvements in
accordance with the terms of this Lease. The Original Term shall commence on the
Phase I Commencement Date. In addition to any other rights or remedies that
Lessee may have, (A) if Lessor has not on or before the thirtieth (30th) day
after Lessee's execution of this Lease secured a commitment letter for funding
construction from a bank or other lending institution reasonably satisfactory to
Lessee, in an amount that will be required to complete the Lessor Improvements
and fund the Tenant Improvements to be paid by Lessor, then Lessee may terminate
this Lease by written notice to Lessor at any time thereafter until Lessor has
given Lessee satisfactory evidence of such funding, whereupon any monies
previously paid (including, without limitation, any Excess Costs) or security
deposits made by Lessee to Lessor, shall promptly be returned to Lessee, and (B)
if Lessor has not secured all governmental permits and approvals necessary to
construct the Tenant Improvements and Lessor Improvements by August 15, 1999,
then Lessee may terminate this Lease by written notice to Lessor at any time
thereafter until Lessor has given Lessee satisfactory evidence that Lessor has
secured the necessary governmental permits and approvals, whereupon any monies
previously paid (including, without limitation, any Excess Costs) or security
deposits made by Lessee to Lessor, shall promptly be reimbursed to Lessee;
provided, however, that so long as the delay in obtaining such governmental
permits and approvals was not due in whole or in part to any material default by
Lessor, other than a delay outside of the control of Lessor and which is not due
to Lessor's financial inability, of its obligations to obtain governmental
permits and approvals necessary to construct the Lessor Improvements and Tenant
Improvements in accordance with this Lease,
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then, and only then, Lessor shall be entitled to deduct from its reimbursement
to Lessee the amount of all Tenant Improvements Costs that have been incurred
by Lessor, or at Lessee's option, in lieu of such deduction, Lessee may make
payment of such costs directly to Lessor. As used herein, the term "Lessee
Delay" shall mean a delay in the Substantial Completion of the Tenant
Improvements or Lessor Improvements for any phase of the Premises caused by
(aa) Lessee's failure to approve or disapprove of any matter hereunder requiring
Lessee's approval within the required time periods expressly set forth in
Paragraph 57 for such approval or disapproval, (bb) a Breach by Lessee under
this Lease, (cc) changes to previously approved preliminary plans or Final Plans
which have been made at Lessee's request, or (dd) any other delays caused by
Lessee for any reason other than the proper exercise by Lessee of its rights
under this Lease.
(b) The second phase of this Lease ("Phase II") shall commence (the
"Phase II Commencement Date") on the date of Substantial Completion of the
Tenant Improvements for the space located in the existing second floor and the
space located immediately below such second floor in the portion of the Premises
commonly known as 1098 Harrison Street (collectively, the "Phase II Premises")
and the Lessor Improvements for the interior and building systems of the Phase
II Premises. The Phase II Premises is more particularly described on Exhibit A
attached hereto and made a part hereof. If the Phase II Commencement date has
not occurred for any reason on or before November 30, 1999 (which date shall be
extended by one (1) day for each day of any Lessee Delay), then Lessee may
terminate this Lease by giving written notice to Lessor at any time until the
Phase II Commencement Date has occurred, whereupon any monies previously paid
(including, without limitation, any Excess Costs) or security deposits made by
Lessee to Lessor, shall promptly be reimbursed to Lessee, but Lessor shall be
entitled to deduct from its reimbursement to Lessee the amount of all Tenant
Improvements Costs that have been incurred by Lessor, or at Lessee's option, in
lieu of such deduction. Lessee may make payment of such costs directly to
Lessor. Lessor shall within ten (10) business days after its receipt of written
request from Lessee, inform Lessee in writing of the amount of all Tenant
Improvement Costs that have been incurred to date by Lessor, and shall provide
reasonable supporting backup documentation of such costs to Lessee. In addition
to the foregoing termination right, if the Phase II Commencement date has not
occurred on or before November 30, 1999 (which date shall be extended by one (1)
day for each day of any Lessee Delay) due in whole or in part to any material
default by Lessor (it being understood that Lessor shall not be deemed in
material default with respect to any delay to the Substantial Completion of the
Tenant Improvements and Lessor Improvements for the Phase II Premises caused by
an event or occurrence outside of the control of Lessor and which is not due to
Lessor's financial inability), of its obligations to construct the Lessor
Improvements and Tenant Improvements in accordance with this Lease and Lessor
fails to cure such default within fifteen (15) days after written notice from
Lessee specifying the nature of such default, then Lessee may enter the Premises
and complete the construction of the Lessor Improvements and Tenant Improvements
and take possession of and use all or any part of Lessor's materials, equipment,
supplies, labor, and other property used by Lessor for the construction of the
Lessor Improvements and the Tenant Improvements, including engaging the services
of Lessor's contractors, the Architect and other parties therefor. Upon demand,
(i) Lessor shall assign and deliver to Lessee all drawings and specifications,
construction contracts,
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documents, tangible and intangible property, and contractual rights in the
possession or reasonably within the control of Lessor as Lessee may reasonably
demand for the purpose of completing the Tenant Improvements and Lessor
Improvements, and (ii) Lessor shall execute and deliver to Lessee such written
documentation as Lessee may reasonably request for the purpose of evidencing the
vesting in Lessee of the rights and benefits of Lessor with respect to the
documents and rights so delivered and assigned. Further, Lessee may deduct from
the Base Rent due under this Lease all reasonable costs incurred by Lessee in
completing the Lessor Improvements and Tenant Improvements (including interest
at the rate of 8% per annum on the amounts paid by Lessee that would otherwise
have been paid by Lessor hereunder until such amounts are offset pursuant to the
provisions hereof) in excess of the amount of the Lessee's Contribution (defined
below) that Lessee would have owed had Lessor completely and timely performed
the construction of the Lessor Improvements and Tenant Improvements in
accordance with the terms of this Lease.
(c) The third phase of this Lease ("Phase III") shall commence (the "Phase
III Commencement Date") on the date by which both of the following have
occurred: (i) the Substantial Completion of the Tenant Improvements for all
space located in the Premises other than the Phase I Premises and the Phase II
Premises (collectively, the "Phase III Premises"); and (ii) the Substantial
Completion of all remaining interior and exterior Lessor Improvements to the
entire Premises. The Phase III Premises is more particularly described on
Exhibit A attached hereto and made a part hereof. If the Phase III Commencement
date has not occurred for any reason on or before December 31, 1999 (which date
shall be extended by one (1) day for each day of any Lessee Delay), then Lessee
may terminate this Lease by giving written notice to Lessor at any time until
the Phase III Commencement Date has occurred, whereupon any monies previously
paid (including, without limitation, any Excess Costs) or security deposits made
by Lessee to Lessor, shall promptly be reimbursed to Lessee, but Lessor shall be
entitled to deduct from its reimbursement to Lessee the amount of all Tenant
Improvements Costs that have been incurred by Lessor, or at Lessee's option, in
lieu of such deduction. Lessee may make payment of such costs directly to
Lessor. Lessor shall within ten (10) business days after its receipt of written
request from Lessee, inform Lessee in writing of the amount of all Tenant
Improvement Costs that have been incurred to date by Lessor, and shall provide
reasonable supporting backup documentation of such costs to Lessee. In addition
to the foregoing termination right, if the Phase III Commencement date has not
occurred on or before December 31, 1999 (which date shall be extended by one (1)
day for each day of any Lessee Delay) due in whole or in part to any material
default by Lessor (it being understood that Lessor shall not be deemed in
material default with respect to any delay to the Substantial Completion of the
Tenant Improvements and Lessor Improvements for the Phase III Premises caused by
an event or occurrence outside of the control of Lessor and which is not due to
Lessor's financial inability), of its obligations to construct the Lessor
Improvements and Tenant Improvements in accordance with this Lease and Lessor
fails to cure such default within fifteen (15) days after written notice from
Lessee specifying the nature of such default, then Lessee may enter the Premises
and complete the construction of the Lessor Improvements and Tenant Improvements
and take possession of and use all or any part of Lessor's materials, equipment,
supplies, labor, and other property used by Lessor for the construction of the
Lessor Improvements and the Tenant Improvements, including engaging the
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services of Lessor's contractors and other parties therefor. Upon demand, (A)
Lessor shall assign and deliver to Lessee all drawings and specifications,
construction contracts, documents, tangible and intangible property, and
contractual rights in the possession or reasonably within the control of Lessor
as Lessee may reasonably demand for the purpose of completing the Tenant
Improvements and Lessor Improvements, and (B) Lessor shall execute and deliver
to Lessee such written documentation as Lessee may reasonably request for the
purpose of evidencing the vesting in Lessee of the rights and benefits of Lessor
with respect to the documents and rights so delivered and assigned. Further,
Lessee may deduct from the Base Rent due under this Lease all reasonable costs
incurred by Lessee in completing the Lessor Improvements and Tenant Improvements
(including interest at the rate of 8% per annum on the amounts paid by Lessee
that would otherwise have been paid by Lessor hereunder until such amounts are
offset pursuant to the provisions hereof) in excess of the amount of the
Lessee's Contribution (defined below) that Lessee would have owed had Lessor
completely and timely performed the construction of the Lessor Improvements and
Tenant Improvements in accordance with the terms of this Lease.
52. RENT.
The first sixty (60) months rent, running from the date of the Phase I
Commencement Date, shall be $28.00 per rentable square foot per annum or $2.33
per month. The second sixty (60) months rent, commencing with the fifth
anniversary date of the Phase I Commencement Date, shall be $33.00 per rentable
square foot per annum or $2.75 per month, payable in advance on the first day of
each and every month of the term of this Lease. Rent and any other charges under
this Lease payable by Lessor with respect to a phase shall not commence until
the occurrence of the applicable commencement date for such phase as set forth
in Paragraph 51. The "rentable" square footage of each phase of the Premises
shall be determined in accordance with applicable BOMA measurement standards
upon the Substantial Completion of each such phase.
53. OPTION TO EXTEND.
(a) General. Lessee is given the option to extend the Original Term
on all the provisions contained in this Lease, except for rent, for a five (5)
year period (the "Extended Term") following expiration of the Original Term by
giving notice of exercise of the option ("Option Notice") to Lessor at least
twelve (12) months and not earlier than eighteen (18) months before the
expiration of the Original Term; provided that, if Lessee is in monetary or
material non-monetary Breach as of the date of giving the Option Notice, the
Option Notice shall be ineffective, or if Lessee is in monetary or material
non-monetary Breach as of the date the Extended Term is to commence, the
Extended Term shall not commence and this Lease shall expire at the end of the
Original Term.
(b) Rent. The rent for the Extended Term shall be the fair market
rental value of the Premises (based upon the highest and best use for the
Premises under the Agreed Use) as of the date of commencement of the Extended
Term, which fair market rental value shall not be
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less than the rent in effect during the last year of the Original Term and
shall be determined in accordance with paragraph c, below.
(c) Determination of Fair Market Rent.
(i) The parties shall endeavor by good faith negotiations to agree
upon the fair market rental value within thirty (30) days after Lessor's receipt
of the Option Notice.
(ii) In the event Lessor or Lessee cannot agree on the rent within
sixty (60) days after Lessor's receipt of the Option Notice, then within thirty
(30) days thereafter each party, at its own cost and by giving notice to the
other party, shall appoint a real estate broker with at least five (5) years'
full time commercial leasing experience in the San Francisco Bay Area, to
appraise and determine the fair market rental value of the Premises ("Fair
Market Rent"). If, in the time provided, only one party shall notice appointment
of a broker, the single broker appointed shall determine the Fair Market Rent.
If two brokers are appointed by the parties, the two brokers shall
independently, and without consultation between them, prepare an appraisal of
the Fair Market Rent within thirty (30) days. Each broker shall seal its
respective appraisal after completion. After both appraisals are completed, the
resulting estimates of the Fair Market Rent shall be opened and compared. If the
value of the appraisals differ by no more than ten percent (10%), then the Fair
Market Rent shall be the average of the two appraisals.
(iii) If the values of the appraisals differ by more than ten
percent (10%), then the two brokers shall designate a third broker meeting the
qualifications set forth in subparagraph (ii), above. If the two brokers have
not agreed on a third broker after ten (10) days, either Lessor or Lessee, by
giving ten (10) days' notice to the other party, may apply to the then Presiding
Judge of the Superior Court for the county in which the Premises are located for
the selection of a third broker who meets the qualifications set forth in
subparagraph (ii), above. The third broker, however selected, shall be a person
who has not previously acted in any capacity for either party. The third broker
shall make an appraisal of the Fair Market Rent within ten (10) days after
selection and without consultation with the first two brokers. The parties shall
then determine the Fair Market Rent for the Premises by averaging the
appraisals; provided, however, that any high or low appraisal, differing from
the middle appraisal by more than fifteen percent (15%) of the middle appraisal,
shall be disregarded in calculating the average.
(d) Costs. Each party shall pay the fees and expenses of its own
broker, and fifty percent (50%) of the fees and expenses of the third broker.
(e) Criteria. The brokers shall determine the Fair Market Rent using
the "market comparison approach," with the relevant market being that for the
highest and best use under the Agreed Use for similar space without improvements
in the immediate area where the Premises are located. The brokers shall use
their best efforts to fairly and reasonably appraise and determine the fair
market rental value of the Premises in accordance with the terms of this Lease,
and shall not act as advocates for either Lessor or Lessee.
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(f) Rescission of Option Exercise. Notwithstanding anything to the
contrary contained in this Paragraph 53, if the rent during any extended term
is determined by appraisal and if Lessee does not, in its sole discretion,
approve the Fair Market Rent amount established by such appraisal, Lessee may
rescind its exercise of the option by giving Lessor written notice of such
election to rescind within thirty (30) days after receipt of all appraisals. If
Lessee rescinds its exercise of the option, then (i) this Lease shall terminate
on the one hundred eightieth (180th) day after Lessee's notice of rescission or
on the date this Lease would otherwise have terminated absent Lessee's exercise
of the Option, whichever is later, and (ii) Lessee shall pay all costs and
expenses of all appraisals required by either party in accordance with this
Paragraph 53.
(g) No Further Extension. Lessee shall have no further option to
extend the term of this Lease.
54. HAZARDOUS SUBSTANCES.
(a) Lessor represents and warrants to Lessee that to the best
knowledge of Lessor, (i) no Hazardous Substance is present on the Premises or
the soil, surface water or groundwater thereof, (ii) no underground storage
tanks or asbestos-containing building materials are present on the Premises,
and (iii) no action, proceeding or claim is pending or threatened concerning
the Premises concerning any Hazardous Substance or pursuant to any Applicable
Requirements.
(b) Except as provided for in (d) below, Lessee will not, in violation
of any Environmental Law, use, generate, manufacture, produce, store, release,
discharge or dispose of, on, under or about the Premises or transport to or
from the Premises any Hazardous Substances (as defined in Section 6.2(a) of
this Lease) or allow its employees, agents, contractors, invitees or any other
person or entity to do so.
(c) Lessee shall surrender the Premises in as good a condition as
when received by Lessee, reasonable wear and tear, casualties and condemnation
excepted, it being specifically agreed to by Lessor and Lessee that (i) the
presence at expiration or termination of this Lease of Hazardous Substances
which are generated, released, discharged or disposed of by Lessee on, under
or about the Premises shall not be "reasonable wear and tear" as that term is
used in this Lease, (ii) Lessee shall have no liability or responsibility with
respect to any Hazardous Substances that migrate onto the Premises from
adjacent or other premises, and (iii) Lessee shall have no liability or
responsibility with respect to any Hazardous Substances that are generated,
released, discharged or disposed of on or about the Premises by Lessor or Eller
Media Company or any of their agents, employees, contractors or invitees.
(d) Lessee may, as required in the conduct of its business and in
compliance with all Environmental Laws, use supplies and cleaning agents
commonly used in a general office use, oils, solvents, adhesives, paints, and
other materials. All applicable laws regarding the use, storage, and disposal
of such materials shall be complied with. Upon commencing any activity
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involving Hazardous Substances on the Property and continuing throughout the
term of this Lease. Lessor and its representatives shall have the right, upon
reasonable prior notice to Lessee, to enter the Property and to (i) conduct any
testing, monitoring and analysis for Hazardous Substances; (ii) review any
documents, materials, inventory, financial data or notices or correspondence to
or from private parties (except for attorney-client and proprietary documents
and correspondence) or to or from governmental entities in connection therewith;
and (iii) review all storage, use and disposal facilities and procedures
associated with the storage, use and disposal of Hazardous Substances
(collectively "Inspection") (except those prepared by or for legal counsel of
Lessee) at any time during the term of this Lease if, in Lessor's reasonable
judgment, Lessee is breaching its obligations under this Addendum or is not in
substantial compliance with any other provisions of this Lease.
55. LESSEE SIGNAGE.
Lessee shall have the right to install, affix and maintain any signs on the
exterior and on the interior of the buildings which shall signify Digital Think,
or its affiliates in the Premises; provided that such signs shall be subject to
the prior written approval of Lessor, which shall not be unreasonably withheld,
subject to the limitations and sign easement rights of Eller Media Company
pursuant to the terms of the recorded easement described in Paragraph 60 below.
56. LESSOR'S IMPROVEMENTS
The following is a list of the improvements (collectively, "Lessor
Improvements") that Lessor shall at its sole cost caused to be completed in the
Premises at the times and with respect to the portions of the Premises set forth
in Paragraph 51 and which are separate from the Tenant Improvements described in
Paragraph 57 below.
A. Replacement of all broken windows
B. Fill, patch and otherwise repair the exterior wall areas of the
Premises and repaint the exterior of the Premises in a color to be
determined by Lessee; provided however, that upon the termination of
this Lease, Lessee shall be obligated at its expense to repaint the
exterior of the Premises in a color to be determined by Lessor (which
determination shall be made and given by Lessor to Lessee promptly
upon request by Lessee)
C. Repairs and replacements necessary to deliver the following existing
building systems and elements serving the Premises in water-tight and
good condition and repair:
(i) roof;
(ii) sprinkler system;
(iii) electrical system (1250 amp three-phase service) and;
(iv) plumbing system.
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Any changes, additions or upgrades to the existing exterior walls
(including any doors or windows), roof, sprinkler system, electrical system, or
plumbing system, beyond those which are necessary to complete the foregoing
Lessor Improvements, shall not be deemed Lessor Improvements and shall be deemed
Tenant Improvements. In addition, any interior or exterior demolition of the
Premises beyond that which is necessary to complete the foregoing Lessor
Improvements shall be deemed Tenant Improvements.
Additionally, Lessor, at its expense, shall (i) install a passenger
elevator in the Premises that meets Title 24 Accessibility Requirements, and
(ii) make all improvements necessary to bring the Premises into compliance with
Applicable Requirements, including without limitation the Americans With
Disabilities Act and all necessary structural modifications and seismic upgrades
to the Premises, as may be required by the City and County of San Francisco;
provided, however, that if the cost to Lessor of any improvements necessary to
bring the Premises into compliance with Applicable Requirements as described in
the foregoing clause (ii) will in the aggregate exceed One Hundred Fifty
Thousand Dollars ($150,000) and Lessee does not agree in writing to fund the
Excess Costs within ten (10) days after Lessee's receipt of written notice from
Lessor of such costs in excess of $150,000 (the "Excess Costs"), which notice
shall include reasonable supporting backup documentation of such Excess Costs,
then Lessor may by giving written notice to Lessee within seven (7) days after
the expiration of such 10-day period, terminate this Lease, whereupon any monies
previously paid (including, without limitation, any Excess Costs) or security
deposits given by Lessee to Lessor, shall promptly be reimbursed to Lessee, but
Lessor shall be entitled to deduct from its reimbursement to Lessee fifty
percent (50%) of the amount of all Tenant Improvements Costs that have been
incurred by Lessor, or at Lessee's opinion, in lieu of such deduction. Lessee
may make payment of such costs directly to Lessor. Lessor shall be deemed to
have waived the foregoing termination right if it fails to give such termination
notice to Lessee within such 7-day period. If Lessee elects to fund such Excess
Costs, then this Lease shall remain in effect, and beginning on the seventh full
calendar month after the Phase III Commencement Date, and continuing each
calendar month thereafter during the Lease Term, Lessee shall be entitled to
offset against the rent due and payable under this Lease the full amount of the
Excess Costs (together with interest on the unpaid balance at the rate of eight
percent (8%) per annum) until such amount has been fully offset.
The cost of the foregoing items shall not be included in the Tenant
Improvements Allowance described in Paragraph 57 below; however, any additional
upgrades to the Base Buildings, their systems and elements which are not
described above and which are desired by Lessee (and will not be covered by the
Tenant Improvements Allowance) shall be the responsibility of the Lessee and
shall be done at Lessee's expense.
57. TENANT IMPROVEMENTS.
Immediately upon execution of this Lease and posting by Lessee of the
Letter of Credit described in Paragraph 58, below, Lessor shall use commercially
reasonable efforts to have constructed on the Premises in a good and workmanlike
manner and in accordance with this
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Addendum, the Tenant Improvements specified by Lessee in accordance with the
Final Plans defined in this paragraph.
(a) As soon as reasonably possible after the date of mutual execution of
this Lease by Lessor and Lessee, Lessor shall retain a qualified, licensed
architect (the "Architect") to prepare preliminary plans and specifications and
preliminary cost estimates for the construction of the Tenant Improvements. The
Architect retained by Lessor shall be subject to the prior approval of Lessee,
which approval shall not be unreasonably withheld. Within five (5) days after
Lessee's receipt of such preliminary plans and specifications and preliminary
cost estimates, at its election, (i) Lessee may terminate this Lease and
receive a full refund of all monies paid and deposits made by it to Lessor
under this Lease after deduction or payment by Lessee of all Tenant Improvement
Costs incurred by Lessor; (ii) Lessee may approve such preliminary plans and
specifications and preliminary cost estimate; or (iii) Lessee may deliver to
Lessor the specific written changes to such plans that it deems necessary or to
reduce Lessee's cost. If Lessee desires changes to the preliminary plans and
specifications, Lessor shall not unreasonably withhold its approval of such
changes.
(b) As soon as reasonably possible after the date that both parties have
approved in writing the preliminary plans and specifications and preliminary
cost estimates, Lessor shall cause final plans and specifications (the "Final
Plans") and a final cost estimate ("Final Cost Estimate") to be prepared. Within
five (5) days after receipt thereof, at its selection, (i) Lessee may terminate
this Lease and receive a full refund of all monies paid and deposits made by it
to Lessor under this Lease after deduction or payment by Lessee of all Tenant
Improvement Costs incurred by Lessor; (ii) Lessee may approve such Final Plans
and Final Cost Estimate; or (iii) Lessee may deliver to Lessor the specific
written changes to such Final Plans that it deems necessary to reduce Lessee's
cost. If Lessee desires changes to the Final Plans, Lessor shall not
unreasonably withhold its approval of such changes.
(c) Lessor shall be responsible for obtaining approval for the Final Plans
from all necessary government agencies. The parties agree that they shall be
bound by any change in the Final Plans ordered as a condition of government
approval; provided, however that if any such change will (i) materially impair
Lessee's use and occupancy of the Premises, (ii) materially increase Lessee's
cost of operating in the Premises, or (iii) materially delay the anticipated
completion of the Tenant Improvements, then Lessee may terminate this Lease by
written notice to Lessor and receive a full refund of all monies paid and
deposits made by Lessee to Lessor under this Lease after deduction or payment
by Lessee of all Tenant Improvement Costs incurred by Lessor.
(e) After approval of the Final Plans, neither party may require extra
work or make any modifications with respect to the construction of the Tenant
Improvements, without the prior written consent of the other party as to the
change, which consent shall not be unreasonably withheld. All Lessee
requested change orders shall specify any change in the Final Cost Estimate
as a consequence of the change orders, and any and all Lessor requested change
orders approved by Lessee shall be made at no cost to Lessee.
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(f) Lessor shall cause at least three (3) general contractors approved in
advance by Lessee (which approval shall not be unreasonably withheld or delayed)
to bid for construction of the Tenant Improvements. If Lessee so desires, Lessee
may also select a general contractor, reasonably acceptable to Lessor, to bid
the work. All bids shall be opened simultaneously and shall be subject to
Lessee's approval, which approval shall not be unreasonably withheld or delayed.
Unless otherwise agreed to in writing by Lessee, the "General Contractor"
selected by Lessor from the approved bidders list shall be the lowest responsive
bidder and if the lowest responsive bid is in excess of the Final Cost Estimate,
Lessee shall have the right to propose changes to the Final Plans to reduce the
amount of such bid, and any delay to the Substantial Completion of any phase of
the work as a result of any such changes shall be deemed a Lessee Delay.
Notwithstanding Lessee's right to approve the General Contractor, the General
Contractor shall be the contractor only of Lessor, and Lessee shall have no
liability to the General Contractor under any construction contract or otherwise
with respect to the Premises.
(g) Lessor shall cause the General Contractor to prosecute diligently to
completion the construction of the Tenant Improvements and Lessor Improvements.
Lessee's only obligation to pay any cost of constructing the Tenant Improvements
shall be limited to the positive difference, if any, between the General
Contractor's approved bid for such work (as such amount may later be adjusted by
change orders requested by Lessee and approved by Lessor) and the Tenant
Improvement Allowance, such difference being referred to herein as the "Lessee's
Contribution." The parties acknowledge that Lessee shall have no obligation to
pay any cost of constructing any portion of the Tenant Improvements in excess of
the Lessee's Contribution. Lessee shall pay the Lessee's Contribution as
follows: Lessee shall pay to Lessor ninety percent (90%) of a proportionate
share of each progress payment due to the General Contractor which bears the
same relationship to the total amount of the progress payment in question as the
Lessee's Contribution bears to the approved General Contractor's bid. Within ten
(10) days after the Tenant Improvements are fully and finally completed
(including all "punch list" items) and the amount of all Tenant Improvement
Costs have been finally determined as provided below, Lessee shall pay Lessor
any portion of the Lessee's Contribution that remains due and unpaid, including
without limitation the ten percent (10%) retention held by Lessee. As used
herein, the term "Tenant Improvement Allowance" shall mean the product of
Twenty-Five Dollars ($25.00) multiplied by the number of square feet of rentable
area of the Premises (which amount Lessor must contribute for the design,
development and construction of the Tenant Improvements); provided, however,
that with respect to the portion of the Premises located at 1098 Harrison
Street, (i) Lessor shall contribute Thirty Dollars ($30.00) per rentable square
foot toward the construction of a second floor addition consisting of
approximately 7,750 square feet of space, (B) Lessee shall be responsible for
the payment of the next Ten Dollars ($10.00) per rentable square foot of the
cost of construction of the second floor addition, and (C) Lessor shall be
responsible for the balance of the cost of the second floor addition in excess
of Forty Dollars ($40.00) per rentable square foot. For purposes of this
paragraph, the second floor addition shall consist of a "bare bones" second
level addition of not more than Seven Thousand Seven Hundred Fifty (7,750)
square feet and generally described as follows: a self-supporting structure
supported by new concrete foundations with pipe columns to hold steel beams,
which steel beams will in
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turn hold truss joists and on top of the truss joints will be plywood decking,
and a new stair exit and sprinklers under the deck will be provided, if and to
the extent required by the City and County of San Francisco. If Lessee shall be
required to contribute toward the cost of the second floor addition
construction, then (in addition to any funds contributed by Lessee for Excess
Costs) beginning on the seventh full calendar month after the Phase III
Commencement Date, and continuing each calendar month thereafter during the
Lease Term, Lessee shall be entitled to offset against the rent due and payable
under this Lease the full amount of such costs (with interest on such amount at
the rate of eight percent (8%) per annum until fully offset) until such amount
(along with any Excess Costs) has been fully offset. After the General
Contractor's bid has been approved by Lessee, Lessee shall not substantially
delay or impede the construction by requesting material changes or material
alterations to the Final Plans. Any changes requested by Lessee in the Final
Plans must be approved by Lessor, which approval not to be unreasonably withheld
or delayed and any and all such changes or alterations which cause an increase
in the Lessee's Contribution shall be paid for by Lessee.
(i) When construction of each phase of the Tenant Improvements, as defined
in Paragraph 51 above is Substantially Completed, Lessor shall submit to Lessee
a final and detailed accounting of all Tenant Improvement Costs for such phase
paid by Lessor, certified to be true and correct by Lessor's representative.
Lessee may audit the books, records, and supporting documents of Lessor to the
extent necessary to determine the accuracy of such accounting during normal
business hours after giving Lessor at least forty-eight (48) hours written
notice. Lessee shall bear the cost of such audit, unless such audit discloses
that Lessor has overstated the total costs by more than two percent (2%) of the
actual amount of such costs, in which event Lessor shall pay the costs of
Lessee's audit. Lessor shall promptly refund any overpayments to Lessee. As used
herein, the term "Tenant Improvement Costs" shall mean the sum of the following:
(i) payments to the General Contractor and its subcontractors for labor and
materials furnished pursuant to any construction contract for construction of
the Tenant Improvements, which is entered into by Lessor and approved by Lessee
in accordance with this Lease; (ii) reasonable fees paid by Lessor to permit
expediters, and use attorneys, architects, space planners, designers, inspectors
and other construction professionals; (iii) permit and license fees for use and
occupancy permits required for Lessee to occupy the Premises; (iv) attorney's
fees incurred in connection with negotiation of construction contracts; and (v)
the amounts paid to governmental authorities or agencies for inspections and
issuance of building permits and approvals for the Tenant Improvements.
Notwithstanding the foregoing, in no event shall Tenant Improvement Costs
include nor shall Lessor apply any of the Tenant Improvement Allowance toward
(A) costs attributable to Lessor Improvements or improvements installed outside
the demising walls of the Premises; (B) costs for improvements which are not
shown on or described in the Final Plans unless otherwise approved by Lessee;
(C) costs incurred to remove Hazardous Substances from the Premises or the
surrounding area; (D) attorneys' fees, experts' fees and other costs in
connection with disputes with third parties; (E) interest and other costs of
financing construction costs; (F) restoration costs in excess of insurance
proceeds as a consequence of casualties; (G) penalties and late charges
attributable to Lessor's failure to pay construction costs through no fault of
Lessee; and (H) costs to bring the Premises into compliance with Applicable
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Requirements pursuant to the provisions set forth in the second to the last
grammatical paragraph of Paragraph 56.
(j) As used herein, the terms "Substantially Completed" and
"Substantial Complete" with respect a phase of the Tenant Improvements shall
mean the date by which all of the following have occurred: (i) all necessary
governmental approvals for occupancy of the applicable phase of the Premises
have been obtained by Lessor (including a final "sign-off" and, if applicable, a
certificate of occupancy); (ii) the Architect has certified that the applicable
phase of the Tenant Improvements has been constructed in accordance with the
Final Plans, except for minor "punch list" items which will not interfere with
Lessee's use and occupancy of the Premises; and (iii) Lessor has delivered
possession of the Premises to Lessee and Lessee has had at least seven (7) days
to complete furniture, equipment and cabling installation in the applicable
phase of the Premises.
(k) As soon as possible after the commencement of the Lease, Lessor and
Lessee shall designate as Lessee's property Tenant Improvements having a cost
approximately equal to the Lessee's Contribution. In determining which Tenant
Improvements will be designated as Lessee's property, Lessor and Lessee shall
act reasonably and in good faith, shall not designate any improvements which
will be needed for occupancy by future tenants of the Premises, and shall give
preference to those Tenant Improvements which are most readily removable from
the Premises and which shall have the greatest utility for Lessee outside of the
Premises. Property designated as Lessee's property under the terms of this
subparagraph shall constitute Lessee's property for purposes of the Lease, may
be removed from the Premises at any time by Lessee so long as such removal will
not cause any structural injury to the Premises and Lessee repairs any damage to
the Premises caused by such removal, and Lessee shall be entitled to all
investment tax credit, depreciation, and other tax attributes relating to such
property. At the expiration or sooner termination of the Lease, all Tenant
Improvements not designated as Lessee's property under this subparagraph shall
be surrendered to Lessor in accordance with the terms of the Lease.
(l) Within thirty (30) days after the Commencement Date for each phase
of the Lease, Lessee shall have the right to submit a written "punch list" to
Lessor, setting forth any defective item of construction in such phase, and
Lessor shall promptly cause such items to be corrected. The parties' preparation
of such a "punch list" shall not, however, be deemed an acceptance by Lessee of
the Premises or phase thereof as complete or free from defects and shall not in
any way affect Lessor's warranty obligations under this Lease. Notwithstanding
anything to the contrary in the Lease, effective upon the Substantial Completion
of the last phase of the Tenant Improvements, Lessor does hereby warrant (i)
that the Tenant Improvements and Lessor Improvements were constructed in
accordance with all Applicable Requirements, (ii) that Tenant Improvements and
Lessor Improvements were constructed in accordance with the Final Plans and in
a good and workmanlike manner, and (iii) that all material and equipment
installed in the Premises conformed to the Final Plans, were new and otherwise
of good quality and were installed in accordance with all vendor's and
manufacturer's specifications, instructions and requirements. If the Premises do
not comply with such warranty, Lessor shall, promptly upon receipt of written
notice from Lessee setting forth the nature and extent of such non-compliance,
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rectify the same at Lessor's expense. If Lessee does not give Lessor written
notice of a non-compliance with this warranty with respect to the Tenant
Improvements and Lessor Improvements within twelve (12) months after the start
of the warranty period, then correction of such non-compliance with respect to
the Tenant Improvements and Lessor Improvements shall be at Lessee's expense.
All construction product and equipment warranties and guarantees obtained by
Lessor shall, to the extent obtainable, provide that such warranties and
guarantees shall also run to the benefit of Lessee and its successors and
assigns. Lessee shall have the benefit of any construction, product and
equipment warranties and guarantees in favor of Lessor that would assist
Lessee in correcting defects and in discharging any of Lessee's obligations
regarding the repair and maintenance of the Premises. Upon written request by
Lessee, Lessor shall inform Lessee of all written construction, product and
equipment warranties and guarantees in favor of Lessor that affect the
Premises. Lessor shall cooperate with Lessee in enforcing such warranties and
guarantees and in bringing any suit that may be necessary to enforce liability
(A) at Lessor's sole expense with regard to any defect for which Lessor is
responsible under this paragraph or under the Lease, and (B) also with regard
to any defect for which Lessor is not responsible under this paragraph or under
this Lease so long as Lessee pays all costs reasonably incurred by Lessor in
doing so. Notwithstanding anything to the contrary contained in the Lease.
Lessee's acceptance of the Premises or phase thereof shall not be deemed a
waiver of the foregoing warranty, and Lessor shall promptly repair all
violations of the warranty to the extent required under this paragraph at its
sole cost and expense.
58. LETTER OF CREDIT.
As and for its Security Deposit hereunder pursuant to the provisions of
Paragraph 5 of this Lease, above, and to assure and secure Lessee's obligations
under all other provisions of this Lease and Addendum, including but not limited
to Lessee's obligations under Paragraph 57, Lessee shall deposit with Lessor a
Letter of Credit in form subject to the reasonable approval of Lessor's
attorneys and issued by a national bank or lending institution, cash, or a
combination thereof, in the total amount of $1,800,000.00. This Lease shall have
no force or effect, nor shall Lessor have any obligations hereunder unless and
until it is in receipt of such Security Deposit. Commencing on the first day of
the first full month following the Phase I Commencement Date and continuing on
the first day of each month thereafter during the Lease Term until the required
Security Deposit amount has been reduced to $700,000, the amount of the Security
Deposit may be reduced by Lessee in an amount equal to the Base Rent payment for
each such month; provided, however, that no reduction shall occur at any time
that Lessee is in Breach of any of the provisions of this Lease. Lessee may
reduce the Security Deposit amount by substituting a new Letter of Credit (in
form reasonably acceptable to Lessor's attorneys), cash or any combination
thereof, in the reduced amount. Cash, a Letter of Credit, or a combination
thereof, in a sum of not less than $700,000 shall remain on deposit with Lessor
(after Lessee has paid in rent not less than $1,100,000) for the Original Term
and the Extended Term, if any, and shall secure all of Lessee's obligations
hereunder. Any Letter of Credit shall require that any draw on the Letter of
Credit shall be made only upon receipt by the issuer of a written certification
from Lessor certifying that Lessee is in Breach under the Lease or that Lessee
has terminated this Lease
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pursuant to Sections 51, 56 or 57 hereunder, and that the amount drawn on the
Letter of Credit is the amount due Lessor on account of the Breach or
termination by Lessee. In the event such Letter of Credit is not payable in
amounts less than the full amount thereof, and if Lessee's Breach is less than
such amount, Lessor shall nonetheless be entitled to draw against such Letter of
Credit to satisfy Lessee's obligations in the event of a Breach by Lessee and
to hold any excess sums as a cash Security Deposit. Lessee shall restore its
Letter of Credit to the full amount, or deposit the necessary additional cash
required within ten (10) days after written notice from Lessor. Upon Lessee's
restoration of the Letter of Credit, Lessor shall promptly refund to Lessee all
of the excess cash Security Deposit then held by Lessor. Lessor shall look
first to any cash portion of the Security Deposit then held by Lessor hereunder
before drawing on any Letter of Credit portion of the Security Deposit.
59. ASSIGNMENT AND SUBLETTING.
Notwithstanding the provisions of Section 12 of this Lease, Lessee may sublet
all or any portion of the Premises or assign its interest in this Lease, on the
following terms and conditions.
(a) Lessee must first obtain the written consent of Lessor to the
assignment or subletting, which consent shall not be unreasonably withheld. A
consent to one assignment or subletting by Lessor shall not be deemed to be a
consent to any subsequent assignment or subletting. Any assignment or
subletting without the prior written consent of Lessor shall be void and shall,
at the option of Lessor, terminate this Lease.
(b) Lessee shall pay to Lessor one half (1/2) of all rents received
from the subtenant and/or assignee in excess of the rent payable by Lessee to
Lessor under this Lease, after deducting therefrom all reasonable costs
incurred by Lessee in effectuating such assignment or subletting, including,
without limitation, brokerage commissions, reasonable attorneys' fees, and
tenant improvement costs. Any assignment or subletting that does not comply
with the foregoing shall be void and shall at the option of Lessor, terminate
this Lease.
Lessee may, without Lessor's prior written consent and without any sharing of
excess rental proceeds, sublet the Premises or assign this Lease to:
(c) A subsidiary, affiliate, divisional or corporation controlled or
under common control with Lessee, or
(d) A successor corporation related to Lessee by merger,
consolidation, non-bankruptcy reorganization or government action. For the
purpose of this Lease, a sale or transfer of Lessee's capital stock, including
without limitation a transfer in connection with the merger, consolidation or
non-bankruptcy reorganization of Lessee and any sale through any public
exchange, shall not be deemed an assignment, subletting or any other transfer
of this Lease or the Premises.
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Additionally, Lessee may, without Lessor's prior written consent, but
subject to an equal sharing with Lessor of the bonus value (i.e., the then
present value of any difference between the Rent due under this Lease and the
fair market value rent for the Premises) of this Lease, if any, assign this
Lease to an entity which purchases substantially all of the assets of Lessee
located in the Premises. If Lessor and Lessee are unable to agree upon the
amount of the bonus value of this Lease at the time of any such sale of assets,
then this amount shall be determined by appraisal in accordance with the
appraisal procedures set forth in Paragraphs 53(c), (d) and (e).
60. SIGN EASEMENT AND ACCESS RIGHTS.
Lessee is aware and acknowledges that Lessor has sold to Eller Media
Company certain sign easement and access rights for the maintenance of outdoor
advertising display structures and sign supporting structures, panels, moldings
connections and components on the roof of the Premises located at 1098 Harrison
Street. Lessee agrees to honor all such rights, including without limitation,
the right to repair and maintain such signs, structures and equipment and will
not interfere with any required maintenance, repairs or servicing required by
Eller Media Company, its successors and assigns. Notwithstanding anything to the
contrary in this Lease, Lessor shall indemnify, defend, protect and hold
harmless Lessee from all claims, demands, liabilities or causes of action,
personal injuries, damages and expenses arising out of the negligence or willful
misconduct of, or damage to the Premises caused by, Eller Media Company or its
agents, employees or contractors.
61. LIMITATION ON ARBITRATION.
Notwithstanding anything to the contrary set forth in this Lease or in any
addendum thereto, no dispute concerning rent, rental payments or any sum claimed
to be owing to Lessor under this Lease shall be subject to arbitration.
62. INSURANCE.
Lessor shall be named as an additional insured under the general liability
insurance policy required to be obtained by Lessee under this Lease. Such policy
shall insure against loss, damage or liability for personal injury or death of
any person or loss or damage to property occurring in, upon or about the
Premises and shall include broad form contractual liability insurance. The
property insurance required to be carried by Lessee under this Lease shall be in
so called "all risk" form, which shall include vandalism and malicious mischief
coverage. The provisions of this paragraph are intended to be in addition to,
and not as a limitation of, the insurance obligations of Lessee under Section 8
of this Lease.
Lessee shall furnish to Lessor upon the Commencement Date and thereafter
within ten (10) days prior to the expiration of each policy required by this
Lease, a Certificate of Insurance and endorsement(s) affording evidence of the
above insurance requirements issued by the
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insurance carrier of each policy of insurance carried by Lessee pursuant hereto.
All such carriers shall be required to give notice to Lessor of the termination
of any such policy. If at any time during the Original Term of this Lease, or
any Extended Term, but not more often than once every four (4) years, the amount
or coverage of insurance which Lessee is required to carry under this Lease is,
in Lessor's independent insurance advisor's reasonable judgment, materially less
than the amount or type of insurance coverage typically carried by lessees of
comparable property located in the relevant San Francisco market area, Lessor
shall have the right to require Lessee to increase the amount or change the
types of insurance coverage required under this Lease. Lessee shall submit
annually to Lessor a copy of the insurance limits then in effect.
63. REAL PROPERTY TAXES.
(a) If any assessments for public improvements, services or benefits are
levied against the Premises, Lessor may elect to pay the assessment either in
full or in installments. In either such case, however, Lessee shall pay to
Lessor with each payment of real property taxes due hereunder only that amount
of any tax increase based on the installments of principal and interest which
would have become due during this Lease Term had Lessor elected to pay the
assessment in installments. Lessee shall pay the Real Property Taxes applicable
to the Premises within (i) twenty (20) days after receipt of billing or (ii) ten
(10) days prior to the delinquency date of such real property taxes, whichever
is later. Any Tax Increase attributable to the cost of the Lessor Improvements
and Tenant Improvements shall be payable by Lessee; provided, however, that if
the construction of the Lessor Improvements and Tenant Improvements shall
trigger a full fair market value reassessment of the Premises, then Lessee shall
only be required to pay a share of any such resulting Tax Increase, which share
shall be determined by multiplying the amount of the Tax Increase by a fraction,
the numerator of which shall be the sum of the cost of the Lessor Improvements
and Tenant Improvements incurred by both Lessor and Lessee and the denominator
of which shall be the amount of the reassessed fair market value of the
Premises, it being understood that Lessor shall be responsible for paying the
remaining share of the Tax Increase.
(b) During the Original Term of this Lease, Lessee shall not be obligated
to pay, and Lessor shall pay, any Tax Increase resulting from any "change of
ownership" and consequent reassessment of the Premises pursuant to Chapter 3.5
of the California Revenue and Taxation Code, as amended.
(c) Lessee, at its cost, shall have the right at any time, to seek a
reduction in the assessed valuation of the Premises or to contest any Tax
Increase that is to be paid by Lessee. Lessor shall not be required to join in
any proceeding or contest brought by Lessee unless the provisions of any law
require that the proceeding or contest be brought by or in the name of Lessor.
In that case, Lessor shall join in the proceedings or contest or permit it to
be brought in Lessor's name as long as Lessor is not required to bear any cost.
Lessor shall cooperate in good faith with Lessee in connection with any such
proceeding or contest. On final determination of the proceedings or contest,
(i) Lessee shall immediately pay or discharge its share of any Tax Increase
based on the decision or judgment rendered, together with all costs, charges,
interest and
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penalties incidental to the decision or judgment, or (ii) Lessor shall promptly
refund to Lessee any overpayment of any Tax Increase made by Lessee, as
applicable.
64. ENTRY BY LESSOR.
Lessor and Lessor's agents, except in the case of emergency, shall provide
Lessee with twenty-four (24) hours' notice prior to entry of the Premises. Any
such entry by Lessor or Lessor's agents shall comply with all reasonable
security measures of Lessee and shall not interrupt Lessee's business
operations more than reasonably necessary. During any such entry, except in the
case of emergency, Lessor and Lessor's agents shall at all times be accompanied
by a representative of Lessee.
65. LESSOR REPRESENTATIONS.
Lessor represents and warrants to Lessee that (i) the Robert J. Cardinal
Trust (the "Trust") is a valid and existing trust and that the Trust holds fee
title to the Premises; (ii) Lessor is empowered to enter into this Lease on
behalf of the Trust and to lease the Premises to Lessee; and (iii) that Lessor
has or will secure the funding necessary to satisfy its obligations to
construct the Lessor Improvements and Tenant Improvements.
66. RULES AND REGULATIONS.
(a) Lessee and Lessee's employees shall comply with any and all
reasonable rules and regulations as may from time to time be promulgated by
Lessor relating to the ordinary care and maintenance of the Premises which do
not otherwise conflict with Lessee's rights under this Lease, including, but not
limited, to the following:
(1) All garbage and refuse shall be kept in standard trash
containers, and shall be placed outside of the Premises prepared for
collection in the manner and at the times and places specified by the
refuse collection service. Lessee shall pay the cost of removal of
Lessee's refuse or rubbish.
(2) No loudspeakers, televisions, phonographs, radios or other
devices shall be used in a manner so as to be heard or seen outside of
the Premises without the prior written consent of Lessor. Lessee shall
conduct its business so as not to create unreasonable or unnecessary
noise.
(3) The outside areas immediately adjoining the Premises shall
be kept clear and free from dirt and rubbish by Lessee to the
reasonable
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satisfaction of Lessor and Lessee shall not place or permit any
obstructions in such areas.
(4) The plumbing facilities shall not be used for any other
purpose than that for which they are constructed, and no foreign
substance of any kind shall be thrown therein, and the expense of any
breakage, stoppage, or damage resulting from a violation of this
provision shall be borne by Lessee.
67. DAMAGE AND DESTRUCTION.
The following provisions shall supplement and amend Paragraph 9 of the
Lease: Lessor shall notify Lessee within thirty (30) days following any damage
to or destruction of the Premises of the length of time Lessor reasonably
estimates to be necessary for the repair or restoration. Lessee may terminate
this Lease by written notice to Lessor if the restoration or repair of the
Premises will take more than one hundred eighty (180) days. Additionally, if
neither party elects, or has the right to elect, to terminate this Lease
following any such damage or destruction, and such damage or destruction is not
corrected within nine (9) months of the date of such damage or destruction,
unless such damage or destruction is caused by a negligent or willful act of
Lessee, then Lessee may elect to terminate this Lease by delivering to Lessor
written notice of Lessee's election to terminate, in which event the Lease shall
terminate thirty (30) days after such notice if the correction is not then
complete. If this Lease is not terminated by Lessor or Lessee pursuant to any
express right of termination that either of them may have under Paragraph 9 or
this Paragraph 67, then Lessor shall restore the Premises and all Tenant
Improvements and Lessor Improvements to the condition in which they existed
immediately prior to the destructive event.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
LESSOR: The Robert J. Cardinal Trust LESSEE: Digital Think, Inc. a
California Corporation
By /s/ BRUCE J. CARDINAL By /s/ PETER J. GOETLNER
-------------------------------- ---------------------------------
Bruce J. Cardinal, Trustee Its President and CEO
And By /s/ BRENDAN THOMAS
-----------------------------
Its Controller
Dated: 6/18/99 Dated: 6/18/99
---------------------------- -----------------------------
<PAGE> 36
EXHIBIT A (PAGE 1)
[FLOOR PLAN]
<PAGE> 37
EXHIBIT A (PAGE 2)
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.6
Page 1 of 8
DIGITALTHINK CUSTOM COURSE AGREEMENT
WHEREAS, ADOBE SYSTEMS INCORPORATED ("Sponsor"), with a principal place of
business at 321 Park Avenue, San Jose, California 95110, desires to secure
online training services for its, and its affiliate's employees, customers,
and/or other business partners; and
WHEREAS, DIGITALTHINK ("DigitalThink") with a principal office at 1000
Brannan Street, Suite 302, San Francisco, CA 94103, desires to provide such
training services for Sponsor;
NOW, therefore, the parties agree as follows:
1. SERVICES:
a) DigitalThink shall perform for Sponsor the customer course services
(the "Services") relating to project management, development of course
content, production of courseware, and delivery of the online courses
via the Internet as specified in one or more Attachments to this
Agreement (in the form of Arrangement Letters signed by both parties),
each of which will be attached hereto and made a part hereof. In the
event of a conflict between any term of this Agreement and an
Attachment, the terms of the relevant Attachment shall prevail.
b) Changes within the scope of the Services shall be made only in writing
executed by authorized representatives of both parties. DigitalThink
shall have no obligation to commence work in connection with any
change until the fee and/or schedule impact of the change is agreed
upon by the parties in writing.
2. TERM OF AGREEMENT: The Effective Date of this Agreement shall be February
17, 1999, regardless of the date of execution hereof, and shall continue
until February 16, 2002.
3. COMPENSATION:
a) Sponsor shall pay DigitalThink for the Services as defined in the
applicable Attachments.
b) Sponsor shall pay the amounts payable to DigitalThink hereunder
within 30 days of the receipt of invoices submitted by DigitalThink.
c) DigitalThink shall be reimbursed by Sponsor for all reasonable travel
and lodging expenses incurred by DigitalThink in accordance with
Sponsor's travel expense guidelines for travel to Sponsor's premises
in support of the Services.
4. RESPONSIBILITIES:
The Courses to be developed shall be defined in the applicable Attachments.
Course development includes all work required to create and build the
courses, while Course delivery includes all work and services required for
delivery via the Web.
DigitalThink's product development responsibilities shall be:
a) Provide project management resources.
b) Assist in the creation of the instructional plan and course outline.
<PAGE> 2
Page 2 of 8
c) Provide guidance to Sponsor's content expert and review content as part
of the course creation process.
d) Produce the Course and prepare it for online delivery via the
DigitalThink system. Course production includes page layout and text
formatting of the course content in a form suitable for delivery on the
DigitalThink online system; creation of artwork and graphics for the
Course; creation and implementation of interactive Java applets and
learning tools; incorporation and production of audio clips; and,
editing and proofing of all course content.
DigitalThink's product delivery and maintenance responsibilities shall be:
a) Course delivery of each course for the duration defined in the
appropriate Attachment. At the end of the defined duration, Sponsor may
extend the delivery of such course subject to a minimum yearly
maintenance fee defined in the appropriate service level agreement
attachment. This fee provides for ongoing hosting, delivery, technical
support, and help desk services from DigitalThink. This fee does not
provide for the ongoing provision and maintenance of the courseware
which shall be defined in separate product development agreements and
attached to this Agreement.
b) Quarterly maintenance of course content up to a total of 15 development
hours per course per quarter.
c) E-mail based technical support (help desk) for Sponsor's students.
Sponsor's responsibilities shall be:
a) Identify the Content Expert(s) prior to the formal start of the project
and provide this person(s) as a resource for creating course content.
Sponsor's Content Expert(s) shall function as the primary course content
author for the Course and shall be solely responsible for the veracity
and relevance of the Course content.
b) Design the Course syllabus and outline detailing lessons, quizzes,
exercises, projects, diagrams, and interactive elements.
c) Create the Course content. Content must be provided to DigitalThink in
the form of an electronic ASCII text file.
d) Provide Sponsor's logo and web-site graphics either in the form of
electronic files or style guides from which DigitalThink can recreate
sponsor's corporate look and feel.
e) Provide sufficient project management and timely decisions.
f) Provide beta testers to act as "trial students" and provide feedback as
required to DigitalThink.
g) Provide qualified and continuous tutor support for the Course.
DigitalThink makes no representation as to how many work hours will be
required to prepare the Course content, but will make every effort to aid
and direct the Sponsor's content expert(s) during the project. Sponsor's
content expert(s) should be familiar with instructional materials
preparation and be capable of creating a course syllabus and structured
course content in the form of text-based lessons, quizzes, and exercises.
5. WARRANTIES AND INDEMNITIES:
a) Warranties by Sponsor. Sponsor represents and warrants that (i) it has
the right, power and authority to enter into this Agreement and to fully
perform its obligations under this
<PAGE> 3
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Agreement; and (iii) the making of this Agreement by it does not violate
any agreement existing between Sponsor and any other party.
b) Warranties by DigitalThink. DigitalThink represents and warrants that (i)
it has the right, power and authority to enter into this Agreement and to
fully perform its obligations under this Agreement; and (ii) the making of
this Agreement by it does not violate any agreement existing between
DigitalThink and any other party.
c) Indemnification By Sponsor. Sponsor agrees to, and shall, indemnify,
defend and hold harmless DigitalThink and its directors, shareholders,
officers, agents, employees, successors and assigns from and against any
and all claims, demand, suits, and actions by Sponsor's employees,
customer, and/or other business partners performing under this Agreement
at the request of Sponsor, and against all resulting judgments, damages,
costs, losses, expenses and other liabilities arising from, in connection
with or related in any way to, directly or indirectly, (i) any breach or
alleged breach of any of the representations, warranties or agreements
made by Sponsor under this Agreement; or (ii) the negligence or willful
misconduct of Sponsor. DigitalThink shall promptly notify Sponsor of any
such claim. Sponsor shall bear responsibility for the defense (including
any settlement) only up to an amount equivalent to the total monetary
amount of revenues paid to Sponsor by DigitalThink and DigitalThink shall
bear responsibility for any additional like responsibility; provided
however, that (1) Sponsor shall keep DigitalThink informed of, and consult
with DigitalThink in connection with the progress of such litigation or
settlement; and (2) Sponsor shall not have any right, without
DigitalThink's written consent, to settle any such claim if such
settlement arises from or is part of any criminal action, suit or
proceeding or contains a stipulation to or admission or acknowledgment of,
any liability or wrongdoing (whether in contract, tort or otherwise) on
the part of DigitalThink.
d) Indemnification by DigitalThink. DigitalThink agrees to, and shall,
indemnify, defend and hold harmless Sponsor, and its directors,
shareholders, officers, agents, employees, successors and assigns from and
against any and all claims, demands, suits, actions, judgments, damages,
costs, losses, expenses and other liabilities arising from, in connection
with or related in any way to, directly or indirectly, (i) DigitalThink's
use of rights lawfully conferred by the Sponsor to DigitalThink by the
authority of this Agreement; (ii) any breach or alleged breach of any of
the representations, warranties or agreements made by DigitalThink under
this Agreement; or (iii) the negligence or willful misconduct of
DigitalThink. Sponsor shall promptly notify DigitalThink of any such
claim. DigitalThink shall bear full responsibility for the defense
(including any settlements); provided however, that (1) DigitalThink shall
keep Sponsor informed of, and consult with Sponsor in connection with, the
progress of such litigation or settlement; and (2) DigitalThink shall not
have any right, without Sponsor's written consent, to settle any such
claim if such settlement arises from or is part of any criminal action,
suit or proceeding or contains a stipulation to or admission or
acknowledgment of, any liability or wrongdoing (whether in contract, tort
or otherwise) on the part of Sponsor.
e) DigitalThink represents and warrants that the Services do not and will not
violate or infringe any patent, trademark, trade secret, copyright or
similar right. DigitalThink agrees to indemnify and hold Sponsor harmless
from and against (i) any and all suits, claims, losses, damages,
judgments, costs and expenses which Sponsor may sustain for copyright,
trademark, trade secret, patent or other proprietary right infringement
claims, or as a result of the failure of DigitalThink's title to or right
to use the Services, and (ii) any and all costs and
<PAGE> 4
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expenses of any nature whatsoever, incurred by Sponsor in the
investigation of copyright, trademark, trade secret, patent or other
proprietary right infringement claims, in the preparation of a
defense against same, and/or in settlement thereof, provided that
the obligations of DigitalThink under this Section are conditioned
upon its being given (i) prompt notice of each such claim received
in writing by Sponsor and (ii) the right to control and direct the
investigation, defense and settlement of each such claim.
f) DigitalThink represents, warrants and covenants that the Services
shall not contain any computer code (i) intentionally designed to
disrupt, disable, harm, or otherwise impede in any manner including
aesthetic disruptions or distortions, the operation of the
Services, or any other associated software, firmware, hardware,
computer systems or network (sometimes referred to as "viruses" or
"worms"), (ii) that would disable the Services or impair in any
way its operation based on the elapsing of a period of time,
exceeding an authorized number of copies advancement to a
particular date or other numeral (sometimes referred to as "time
bombs", "time locks", or "drop dead" devices) or (iii) that would
permit DigitalThink to access the Services to cause such
disablement or impairment (sometimes referred to as "traps",
"access codes" or "trap door" devices), or any other similar
harmful, malicious or hidden procedures, routines or mechanisms
which would cause such programs to cease functioning or to damage
or corrupt data, storage media, programs, equipment or
communications, or otherwise interfere with operations (collectively
"Destructive Elements").
6. COPYRIGHTS/OWNERSHIP:
a) Sponsor shall own the copyright to the Course Materials derived
from Sponsor's Work. DigitalThink shall include in the Course
distributed hereunder a copyright notice with respect to the Work
(original Course Materials and all subsequent updates to Course
Materials relating to this Agreement) in Sponsor's name in
accordance with the United States Copyright Act and the Universal
Copyright Convention, as amended. (References to copyright in this
Agreement shall include any amendment subsequent to the date hereof
to the United States Copyright Act, the copyright laws of other
countries in the Territory, and international copyright
conventions.)
b) Sponsor shall own the copyright to any text, graphics, or media
supplied to DigitalThink for use in the Course, and may reuse it in
forms other than on-line delivery. DigitalThink may not reuse
content or media provided by Sponsor without advanced written
permission.
c) Any contents of the Course, other than the Course Materials derived
from Sponsor's Work, that DigitalThink furnishes at its own expense
(with Sponsor's approval), or any other art, designs, photographs
or text other than the Course Materials derived from the Sponsor's
Work, may be treated as a separate copyrighted work, if Sponsor
deems it appropriate. Such approval will not to be unreasonably
withheld.
d) DigitalThink shall retain ownership of all proprietary technology
used in the development, delivery, or administration of the Course
Materials, including all text, graphics, and interactive course
elements previously in existence, or created to support the online
functionality of the Course or DigitalThink's delivery system (for
example; instructions on how to use the DigitalThink graphic user
interface move from screen to screen, or take tests).
<PAGE> 5
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e) Nothing herein, nor the exercise of any rights granted Sponsor
hereunder, conveys to Sponsor, except as is set forth above, any
Intellectual Property Rights or any other right, interest or title to
DigitalThink's web-based delivery system and technology. Sponsor
agrees that it shall not at any time assert or claim any interest in,
or do anything that may adversely affect the validity or
enforceability of, any Intellectual Property Right belonging to or
licensed by DigitalThink. Sponsor acknowledges and agrees that
DigitalThink is the creator and author of the delivery technology and
all Intellectual Property Rights and every other right, interest and
title therein, including without limitation the copyrights (and all
renewals and extension thereof) in and to each of the foregoing, are
and shall be the property of DigitalThink.
7. USE OF SPONSOR'S NAME: DigitalThink shall not furnish the name of Sponsor
or any Subsidiary or affiliate thereof in any advertising or promotional
materials without the prior written consent of sponsor or the subsidiary or
affiliate whose name DigitalThink desires to furnish or utilize.
8. COMMUNICATION AND ADMINISTRATION: For and on behalf of DigitalThink and
Sponsor, the persons designated below shall have cognizance of the services
provided pursuant to this Agreement, and liaison and general administration
of the Agreement for DigitalThink and Sponsor shall be through them. All
documents required hereunder shall be sent directly to these individuals:
If to Sponsor: If to DigitalThink:
-------------- -------------------
Adobe Systems Inc. 1000 Brannan Street, Suite 302
321 Park Avenue San Francisco, CA 94103
San Jose, CA 95110 Attn: Todd Clyde
Attn: Kara Underwood
9. CONFLICTING AGREEMENT: DigitalThink warrants that it is not a party to any
other existing agreement which would prevent DigitalThink from entering
into this Agreement or which would adversely affect this Agreement.
10. INDEPENDENT CONTRACTOR: It is understood and agreed that DigitalThink shall
be acting as an independent contractor and not as an agent or employee of
Sponsor. Accordingly, DigitalThink assumes all risks and hazards
encountered in its performance Agreement, and further DigitalThink shall be
solely responsible for all injuries, including death, to all persons and
all loss or damage to property which are attributed to DigitalThink
performance under this Agreement or that of any agent, employee or
subcontractor engaged by DigitalThink.
11. TERMINATION: Either party may terminate this Agreement at any time upon
seven (7) working days' written notice prior to completion of last phase,
i.e. "live" launch on the Internet, subject to:
Cause:
1. In the event Sponsor terminates this Agreement due to
DigitalThink's material breach of its obligations stated in the
Agreement after Sponsor has given written notice of such breach
and allowed DigitalThink thirty (30) days to cure, DigitalThink
liability shall be limited to the payment made to such
termination date.
2. In the event DigitalThink terminates this Agreement due to
Sponsor's material breach of its obligation stated in this
Agreement after DigitalThink has given written notice of such
<PAGE> 6
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breach and allowed Sponsor thirty (30) days to cure, Sponsor shall be
liable for the sum total of the agreement amounts per course as
defined in the attached Arrangement Letters.
Without Cause:
1. In the event Sponsor terminates this Agreement without cause, Sponsor
will pay DigitalThink the full agreement amounts per course as
defined in the attached Arrangement Letters.
2. In the event DigitalThink terminates this Agreement without cause,
DigitalThink will refund all funds paid by Sponsor for services
render under this Agreement.
12. MODIFICATION: Sponsor may request DigitalThink to provide additional
services in writing at any time during the duration of this Agreement.
This Agreement and any attachment hereto shall be modified only by an
instrument in writing and signed by duly authorized representatives of the
parties.
13. TAXES: DigitalThink shall be solely responsible for payment of all taxes
which arise in connection with its business activities in performing
services for Sponsor.
14. INSURANCE; DigitalThink shall be solely responsible for all personal
injury and property damage caused by DigitalThink's negligent or improper
actions while performing services for Sponsor, and DigitalThink agrees to
maintain general liability insurance coverage, including automobile
insurance coverage, adequate to cover this potential liability.
15. RELEASE OF INFORMATION: DigitalThink, using utmost care, shall hold in
trust for Sponsor and shall not use or disclose to any other party any
confidential information (as such term is hereinafter defined) which may
be disclosed to DigitalThink by Sponsor in connection with performance
under this Agreement by DigitalThink. As used herein, the term
"confidential information" means information concerning any Sponsor
business strategy, process, or proprietary intellectual property, or any
information which relates to this Agreement or the subject matter of any
Sponsor service order issued to DigitalThink, internal controls, computer
or data processing programs, electronic data processing applications,
routines, subroutines, techniques or Services, or information concerning
the business or financial affairs and methods of operation or proposed
methods of operation, accounts, transactions, proposed transactions or
security procedures of either Sponsor, any affiliate of Sponsor, or any
client, customer or vendor of Sponsor, except such information which is in
the public domain at the time of its disclosure to DigitalThink.
DigitalThink agrees that it shall include and enforce such provisions in
contracts of employment of individuals engaged in performance under this
Agreement as shall be necessary to ensure the non-disclosure of
confidential information by such individuals.
16. FORCE MAJEURE: The failure of DigitalThink to offer the Course or otherwise
perform its obligations under this Agreement shall not be deemed to be a
violation of this Agreement nor give rise to any right of termination or
reversion if such failure arises from a "force majeure." DigitalThink's
time to perform its obligations shall be extended for a period equal to
the period of delay caused by the force majeure. For purposes of this
Agreement, "force majeure" includes, without limitation, acts of God,
fires, national disasters, restrictions of governmental agencies, labor
disputes, or any other circumstances beyond DigitalThink's reasonable
control.
<PAGE> 7
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17. BANKRUPTCY: In the event that DigitalThink (a) files a petition in
bankruptcy, or (b) is adjudicated bankrupt by a court of competent
jurisdiction; or (c) completely liquidates its business, this Agreement
shall terminate automatically, and all rights granted to DigitalThink herein
shall revert to Sponsor.
18. GOVERNING LAW: This Agreement shall in all respects be governed by and
interpreted in accordance with the substantive laws of the State of
California (without regard to choice of law rules). The parties agree that
any dispute arising under this Agreement will be resolved in the state or
federal courts within the City and County of San Francisco, and Sponsor and
DigitalThink expressly consents to jurisdiction therein.
19. ASSIGNMENT: This Agreement shall be binding upon and inure to the benefit
of the heirs, executors, administrators and, subject as follows, assigns of
Sponsor and the successors and, subject as follows, assigns of
DigitalThink. Neither DigitalThink nor Sponsor may assign or transfer this
Agreement without the prior written approval of the other party. The sale
of substantially all of the assets of a party, or its acquisition by or
merger into another company, shall not be deemed an assignment of this
Agreement by that party, nor shall an assignment to a parent company or any
subsidiary or affiliate be deemed such an assignment. Any assignment in
violation of this Section shall be void. DigitalThink agrees not to
sub-license or otherwise confer any rights secured by authority of this
Agreement from the Sponsor, to any nonparty to this Agreement, except where
DigitalThink is acquired by another company as set forth above, without the
express written consent of Sponsor.
20. HEADINGS: The headings in this Agreement are for convenience only and are
without substantive effect.
21. NOTICES: Except as set forth in section 3, all notices, payments, demands
or consents required or permitted by this Agreement shall be in writing.
Notice may be served by hand delivery, by registered or express or
certified mail, return receipt requested, postage prepaid; or by
nationally-recognized private express courier (e.g. DHL, Federal Express,
etc.) or by facsimile to either party at the address first listed above, or
to such other addresses of which either party may so notify the other.
Notices will be deemed given when received.
22. SEVERABILITY: If any restriction, covenant or provision of this Agreement
shall be adjudged by a court of competent jurisdiction to be void as going
beyond what is reasonable in all the circumstances for the protection of
the interest of the party seeking to enforce such restriction, covenant or
provision, such restriction, covenant or provision shall apply with such
modifications as may be necessary to make it valid and effective. In the
event that any provision of this Agreement should be found by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
23. ENTIRE UNDERSTANDING: This Agreement, including all Product Development
Arrangements and Service Level Agreements attached hereunder, contains the
entire understanding of Sponsor and DigitalThink and supersedes all prior
and contemporaneous negotiations, understandings and agreements between
them concerning the Work. No waiver or modification of any of the terms
hereof shall be valid unless made in writing and signed by both parties. No
waiver of any breach shall be deemed a waiver of any subsequent breach.
<PAGE> 8
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24. SURVIVABILITY: The terms and conditions of Sections 5, 6, 7, 10, 15 and 18
shall survive the expiration or termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
ADOBE SYSTEMS INC.
By: /s/ KARA UNDERWOOD
-----------------------
Its: Sales Training Manager
Date: 3/3/99
DIGITALTHINK, INC.
By: /s/ TODD CLYDE
-----------------------
Its: Director Customer Services
Date: 3/3/99
<PAGE> 1
EXHIBIT 10.7
DIGITALTHINK COURSE AGREEMENT
WHEREAS, KPMG ("Sponsor"), with a principal place of business at Three
Chestnut Ridge Road, Montvale, NJ 07645, desires to secure online training
services for its, and its affiliate's employees, customers, and/or other
business partners; and
WHEREAS, DIGITALTHINK ("DigitalThink") with a principal office at 1000
Brannan Street, Suite 501, San Francisco, CA 94103, desires to provide such
training services for Sponsor;
NOW, therefore, the parties agree as follows:
1. SERVICES:
a) DigitalThink shall perform for Sponsor the custom course services (the
"Services") relating to project management, development of course
content, production of courseware, and delivery of the online courses
via the Internet as specified in one or more Attachments to this
Agreement (in the form of Arrangement Letters signed by both parties),
each of which will be attached hereto and made a part hereof. In the
event of a conflict between any term of this Agreement and an
Attachment, the terms of the relevant Attachment shall prevail.
b) Changes within the scope of the Services shall be made only in writing
executed by authorized representatives of both parties. DigitalThink
shall have no obligation to commence work in connection with any
change until the fee and/or schedule impact of the change is agreed
upon by the parties in writing.
2. TERM OF AGREEMENT: The Effective Date of this Agreement shall be August 9,
1999, regardless of the date of execution hereof, and shall continue until
August 9, 2000.
3. COMPENSATION:
a) Sponsor shall pay DigitalThink for the Services as defined in the
applicable Attachments.
b) Sponsor shall pay the amounts payable to DigitalThink hereunder within
30 days of the receipt of invoices submitted by DigitalThink.
c) DigitalThink shall be reimbursed by Sponsor for all reasonable travel
and lodging expenses incurred by DigitalThink in accordance with
Sponsor's travel expense guidelines for travel to Sponsor's premises
in support of the Services.
4. RESPONSIBILITIES:
The Courses to be developed shall be defined in the applicable Attachments.
Course development includes all work required to create and build the
courses, while Course delivery includes all work and services required for
delivery via the Web.
DigitalThink's product development responsibilities shall be:
a) Provide project management resources.
b) Assist in the creation of the instructional plan and course
outline.
<PAGE> 2
c) Provide guidance to Sponsor's content expert and review content
as part of the course creation process.
d) Produce the Course and prepare it for online delivery via the
DigitalThink system. Course production includes page layout and
text formatting of the course content in a form suitable for
delivery on the DigitalThink online system; creation of artwork
and graphics for the Course; creation and implementation of
interactive Java applets and learning tools; incorporation and
production of audio clips; and, editing and proofing of all
course content.
DigitalThink's product delivery and maintenance responsibilities shall
be:
a) Course delivery of each course for the duration defined in the
appropriate Attachment. At the end of the defined duration,
Sponsor may extend the delivery of such course subject to a
minimum yearly maintenance fee defined in the appropriate service
level agreement attachment. This fee provides for ongoing
hosting, delivery, technical support, and help desk services from
DigitalThink. This fee does not provide for the ongoing revision
and maintenance of the courseware which shall be defined in
separate product development agreements and attached to this
Agreement.
b) For custom courses, quarterly maintenance of course content up to
a total of 15 development hours per course per quarter.
c) E-mail based technical support (help desk) for Sponsor's students
Sponsor's responsibilities shall be:
a) Identify the Content Expert(s) prior to the formal start of the
project and provide this person(s) as a resource for creating
course content. Sponsor's Content Expert(s) shall function as the
primary course content author for the Course and shall be solely
responsible for the veracity and relevance of the Course content.
b) Design the Course syllabus and outline detailing lessons,
quizzes, exercises, projects, diagrams, and interactive elements.
c) Create the Course content. Content must be provided to
DigitalThink in the form of an electronic ASCII text file.
d) Provide Sponsor's logo and web-site graphics either in the form
of electronic files or style guides from which DigitalThink can
recreate sponsor's corporate look and feel.
e) Provide sufficient project management and timely decisions.
f) Provide beta testers to act as "trial students" and provide
feedback as required to DigitalThink.
g) Provide qualified and continuous tutor support for the Course.
DigitalThink makes no representation as to how many work hours will be
required to prepare the Course content, but will make every effort to
aid and direct the Sponsor's content expert(s) during the project.
Sponsor's content expert(s) should be familiar with instructional
materials preparation and be capable of creating a course syllabus and
structured course content in the form of text-based lessons, quizzes,
and exercises.
5. WARRANTIES AND INDEMNITIES:
a) Warranties by Sponsor. Sponsor represents and warrants that (i)
it has the right, power and authority to enter into this
Agreement and to fully perform its obligations under this
Agreement; and (ii) the making of this Agreement by it does not
violate any agreement existing between Sponsor and any other
party.
b) Warranties by DigitalThink. DigitalThink represents and warrants
that (i) it has the right, power and authority to enter into this
Agreement and to fully perform its obligations under this
Agreement; and (ii) the
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making of this Agreement by it does not violate any agreement
existing between DigitalThink and any other party.
c) Indemnification By Sponsor. Sponsor agrees to, and shall,
indemnify, defend and hold harmless DigitalThink and its
directors, shareholders, officers, agents, employees, successors
and assigns from and against any and all claims, demand, suits,
and actions by Sponsor's employees, customer, and/or other
business partners performing under this Agreement at the request
of Sponsor, and against all resulting judgments, damages, costs,
losses, expenses and other liabilities arising from, in
connection with or related in any way to , directly or
indirectly, (i) any breach or alleged breach of any of the
representations, warranties or agreements made by Sponsor under
this Agreement; or (ii) the negligence or willful misconduct of
Sponsor. DigitalThink shall promptly notify Sponsor of any such
claim. Sponsor shall bear responsibility for the defense
(including any settlement) only up to an amount equivalent to the
total monetary amount of revenues paid to Sponsor by DigitalThink
and DigitalThink shall bear responsibility for any additional
like responsibility; provided however, that (1) Sponsor shall
keep DigitalThink informed of, and consult with DigitalThink in
connection with the progress of such litigation or settlement;
and (2) Sponsor shall not have any right, without DigitalThink's
written consent, to settle any such claim if such settlement
arises from or is part of any criminal action, suit or proceeding
or contains a stipulation to or admission or acknowledgment of,
any liability or wrongdoing (whether in contract, tort or
otherwise) on the part of DigitalThink.
d) Indemnification By DigitalThink. DigitalThink agrees to, and
shall, indemnify, defend and hold harmless Sponsor, and its
directors, shareholders, officers, agents, employees, successors
and assigns from and against any and all claims, demands, suits,
actions, judgments, damages, costs, losses, expenses and other
liabilities arising from, in connection with or related in any
way to, directly or indirectly, (i) DigitalThink's use of rights
lawfully conferred by the Sponsor to DigitalThink by the
authority of this Agreement; (ii) any breach or alleged breach of
any of the representations, warranties or agreements made by
DigitalThink under this Agreement; or (iii) the negligence or
willful misconduct of DigitalThink. Sponsor shall promptly notify
DigitalThink of any such claim. DigitalThink shall bear full
responsibility for the defense (including any settlements);
provided however, that (1) DigitalThink shall keep Sponsor
informed of, and consult with Sponsor in connection with, the
progress of such litigation or settlement; and (2) DigitalThink
shall not have any right, without Sponsor's written consent, to
settle any such claim if such settlement arises from or is part
of any criminal action, suit or proceeding or contains a
stipulation to or admission or acknowledgment of, any liability
or wrongdoing (whether in contract, tort or otherwise) on the
part of Sponsor.
e) DigitalThink represents and warrants that the Services do not and
will not violate or infringe any patent, trademark, trade secret,
copyright or similar right. DigitalThink agrees to indemnify and
hold Sponsor harmless from and against (i) any and all suits,
claims, losses, damages, judgments, costs and expenses which
Sponsor may sustain for copyright, trademark, trade secret,
patent or other proprietary right infringement claims, or as a
result of the failure of DigitalThink's title to or right to use
the Services, and (ii) any and all costs and expenses of any
nature whatsoever, incurred by Sponsor in the investigation of
copyright, trademark, trade secret, patent or other proprietary
right infringement claims, in the preparation of a defense
against same, and/or in settlement thereof, provided that the
obligations of DigitalThink under this Section are conditioned
upon its being given (i) prompt notice of each such claim
received in writing by Sponsor and (ii) the right to control and
direct the investigation, defense and settlement of each such
claim.
f) DigitalThink represents, warrants and covenants that the Services
shall not contain any computer code (i) intentionally designed to
disrupt, disable, harm, or otherwise impede in any manner,
including aesthetic disruptions or distortions, the operation of
the Services, or any other associated software, firmware,
hardware, computer systems or network (sometimes referred to as
"viruses" or "worms"), (ii) that would
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disable the Services or impair in any way its operation based on
the elapsing of a period of time, exceeding an authorized number
of copies, advancement to a particular date or other numeral
(sometimes referred to as "time bombs", "time locks", or "drop
dead" devices) or (iii) that would permit DigitalThink to access
the Services to cause such disablement or impairment (sometimes
referred to as "traps", "access codes" or "trap door" devices),
or any other similar harmful, malicious or hidden procedures,
routines or mechanisms which would cause such programs to cease
functioning or to damage or corrupt data, storage media,
programs, equipment or communications, or otherwise interfere
with operations (collectively "Destructive Elements").
6. COPYRIGHTS/OWNERSHIP:
a) Sponsor shall own the copyright to the Course Materials derived
from Sponsor's Work. DigitalThink shall include in the Course
distributed hereunder a copyright notice with respect to the Work
(original Course Materials and all subsequent updates to Course
Materials relating to this Agreement) in Sponsor's name in
accordance with the United States Copyright Act and the Universal
Copyright Convention, as amended. (References to copyright in
this Agreement shall include any amendment subsequent to the date
hereof to the United States Copyright Act, the copyright laws of
other countries in the Territory, and international copyright
conventions.)
b) Sponsor shall own the copyright to any text, graphics, or media
supplied to DigitalThink for use in the Course, and may reuse it
in forms other than on-line delivery. DigitalThink may not reuse
content or media provided by Sponsor without advanced written
permission.
c) Any contents of the Course, other than the Course Materials
derived from Sponsor's Work, that DigitalThink furnishes at its
own expense (with Sponsor's approval), or any other art, designs,
photographs or text other than the Course Materials derived from
the Sponsor's Work, may be treated as a separate copyrighted
work, if Sponsor deems it appropriate. Such approval will not to
be unreasonably withheld.
d) DigitalThink shall retain ownership of all proprietary technology
used in the development, delivery, or administration of the
Course Materials, including all text, graphics, and interactive
course elements previously in existence, or created to support
the online functionality of the Course or DigitalThink's delivery
system (for example: instructions on how to use the DigitalThink
graphic user interface, move from screen to screen, or take
tests).
e) Nothing herein, nor the exercise of any rights granted Sponsor
hereunder, conveys to Sponsor, except as is set forth above, any
Intellectual Property Rights or any other right, interest or
title to DigitalThink's web-based delivery system and technology.
Sponsor agrees that it shall not at any time assert or claim any
interest in, or do anything that may adversely affect the
validity or enforceability of, any Intellectual Property Right
belonging to or licensed by DigitalThink. Sponsor acknowledges
and agrees that DigitalThink is the creator and author of the
delivery technology and all Intellectual Property Rights and
every other right, interest and title therein, including without
limitation the copyrights (and all renewals and extension
thereof) in and to each of the foregoing, are and shall be the
property of DigitalThink.
7. USE OF SPONSOR'S NAME: DigitalThink shall not furnish the name of Sponsor
or any subsidiary or affiliate thereof (including, but not limited to, KPMG
or any subsidiary or affiliate thereof in any advertising or promotional
materials without the prior written consent of Sponsor or the subsidiary or
affiliate whose name DigitalThink desires to furnish or utilize.
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8. COMMUNICATION AND ADMINISTRATION For and on behalf of DigitalThink and
Sponsor, the persons designated below shall have cognizance of the services
provided pursuant to this Agreement, and liaison and general administration
of the Agreement for DigitalThink and Sponsor shall be through them. All
documents required hereunder shall be sent directly to these individuals:
<TABLE>
<CAPTION>
If to Sponsor: If to DigitalThink:
------------- ------------------
<S> <C>
KPMG 1000 Brannan Street, Suite 501
Three Chestnut Ridge Road San Francisco, CA 94103
Montvale, NJ 07645 Attn: Nancy Levine
Attn: Douglas Stefanko
</TABLE>
9. CONFLICTING AGREEMENT: DigitalThink warrants that it is not a party to any
other existing agreement which would prevent DigitalThink from entering
into this Agreement or which would adversely affect this Agreement.
10. INDEPENDENT CONTRACTOR: It is understood and agreed that DigitalThink shall
be acting as an independent contractor and not as an agent or employee of
Sponsor. Accordingly, DigitalThink assumes all risks and hazards
encountered in its performance Agreement, and further DigitalThink shall be
solely responsible for all injuries, including death, to all persons and
all loss or damage to property which are attributed to DigitalThink
performance under this Agreement or that of any agent, employee or
subcontractor engaged by DigitalThink.
11. TERMINATION: Either party may terminate this Agreement at any time upon
seven (7) working days' written notice prior to completion of last phase,
i.e. "live" launch on the Internet, subject to:
Cause:
1. In the event Sponsor terminates this Agreement due to
DigitalThink's material breach of its obligations stated in the
Agreement after Sponsor has given written notice of such breach
and allowed DigitalThink thirty (30) days to cure, DigitalThink
liability shall be limited to the payment made to such
termination date.
2. In the event DigitalThink terminates this Agreement due to
Sponsor's material breach of its obligation stated in this
Agreement after DigitalThink has given written notice of such
breach and allowed Sponsor thirty (30) days to cure, Sponsor
shall be liable for the sum total of the agreement amounts per
course as defined in the attached Arrangement Letters.
Without Cause:
1. In the event Sponsor terminates this Agreement without cause,
Sponsor will pay DigitalThink the full agreement amounts per
course as defined in the attached Arrangement Letters.
2. In the event DigitalThink terminates this Agreement without
cause, DigitalThink will refund all funds paid by Sponsor for
services render under this Agreement.
12. MODIFICATION: Sponsor may request DigitalThink to provide additional
services in writing at any time during the duration of this Agreement. This
Agreement and any attachment hereto shall be modified only by an instrument
in writing and signed by duly authorized representatives of the parties.
13. TAXES: DigitalThink shall be solely responsible for payment of all taxes
which arise in connection with its business activities in performing
services for Sponsor.
5
<PAGE> 6
14. INSURANCE: DigitalThink shall be solely responsible for all personal injury
and property damage caused by DigitalThink's negligent or improper actions
while performing services for Sponsor, and DigitalThink agrees to maintain
general liability insurance coverage, including automobile insurance
coverage, adequate to cover this potential liability.
15. RELEASE OF INFORMATION: DigitalThink, using utmost care, shall hold in
trust for Sponsor and shall not use or disclose to any other party any
confidential information (as such term is hereinafter defined) which may be
disclosed to DigitalThink by Sponsor in connection with performance under
this Agreement by DigitalThink. As used herein, the term "confidential
information" means information concerning any Sponsor business strategy,
process, or proprietary intellectual property, or any information which
relates to this Agreement or the subject matter of any Sponsor service
order issued to DigitalThink, internal controls, computer or data
processing programs, electronic data processing applications, routines,
subroutines, techniques or Services, or information concerning the business
or financial affairs and methods of operation or proposed methods of
operation, accounts, transactions, proposed transactions or security
procedures of either Sponsor, any affiliate of Sponsor, or any client,
customer or vendor of Sponsor, except such information which is in the
public domain at the time of its disclosure to DigitalThink. DigitalThink
agrees that it shall include and enforce such provisions in contracts of
employment of individuals engaged in performance under this Agreement as
shall be necessary to ensure the non-disclosure of confidential information
by such individuals.
16. FORCE MAJEURE: The failure of DigitalThink to offer the Course or otherwise
perform its obligations under this Agreement shall not be deemed to be a
violation of this Agreement nor give rise to any right of termination or
reversion if such failure arises from a "force majeure." DigitalThink's
time to perform its obligations shall be extended for a period equal to the
period of delay caused by the force majeure. For purposes of this
Agreement, "force majeure" includes, without limitation, acts of God,
fires, national disasters, restrictions of governmental agencies, labor
disputes, or any other circumstances beyond DigitalThink's reasonable
control.
17. BANKRUPTCY: In the event that DigitalThink (a) files a petition in
bankruptcy, or (b) is adjudicated bankrupt by a court of competent
jurisdiction; or (c) completely liquidates its business, this Agreement
shall terminate automatically, and all rights granted to DigitalThink
herein shall revert to Sponsor.
18. GOVERNING LAW: This Agreement shall in all respects be governed by and
interpreted in accordance with the substantive laws of the State of
California (without regard to choice of law rules). The parties agree that
any dispute arising under this Agreement will be resolved in the state or
federal courts within the City and County of San Francisco, and Sponsor and
DigitalThink expressly consents to jurisdiction therein.
19. ASSIGNMENT: This Agreement shall be binding upon and inure to the benefit
of the heirs, executors, administrators and, subject as follows, assigns of
Sponsor and the successors and, subject as follows, assigns of
DigitalThink. Neither DigitalThink nor Sponsor may assign or transfer this
Agreement without the prior written approval of the other party. The sale
of substantially all of the assets of a party, or its acquisition by or
merger into another company, shall not be deemed an assignment of this
Agreement by that party, nor shall an assignment to a parent company or any
subsidiary or affiliate be deemed such an assignment. Any assignment in
violation of this Section shall be void. DigitalThink agrees not to
sub-license or otherwise confer any rights secured by authority of this
Agreement from the Sponsor, to any nonparty to this Agreement, except where
DigitalThink is acquired by another company as set forth above, without the
express written consent of Sponsor.
20. HEADINGS: The headings in this Agreement are for convenience only and are
without substantive effect.
21. NOTICES: Except as set forth in section 3, all notices, payments, demands
or consents required or permitted by this Agreement shall be in writing.
Notice may be served by hand delivery, by registered or express or
6
<PAGE> 7
certified mail, return receipt requested, postage prepaid; or by
nationally-recognized private express courier (e.g. DHL, Federal Express,
etc.) or by facsimile to either party at the address first listed above, or
to such other addresses of which either party may so notify the other.
Notices will be deemed given when received.
22. SEVERABILITY: If any restriction, covenant or provision of this Agreement
shall be adjudged by a court of competent jurisdiction to be void as going
beyond what is reasonable in all the circumstances for the protection of
the interest of the party seeking to enforce such restriction, covenant or
provision, such restriction, covenant or provision shall apply with such
modifications as may be necessary to make it valid and effective. In the
event that any provision of this Agreement should be found by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
23. ENTIRE UNDERSTANDING: This Agreement, including all Product Development
Arrangements and Service Level Agreements attached hereunder, contains the
entire understanding of Sponsor and DigitalThink and supersedes all prior
and contemporaneous negotiations, understandings and agreements between
them concerning the Work. No waiver or modification of any of the terms
hereof shall be valid unless made in writing and signed by both parties. No
waiver of any breach shall be deemed a waiver of any subsequent breach.
24. SURVIVABILITY: The terms and conditions of Sections 5, 6, 7, 10, 15 and 18
shall survive the expiration or termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
CLIENT NAME
KPMG
By: /s/ DOUGLAS STEFANCO
-------------------------------------
Its:
-------------------------------------
Date: 8/19/99
-------------------------------------
DIGITALTHINK, INC.
By: /s/ NANCY R. LEVINE
-------------------------------------
Its: Business Line Manager
-------------------------------------
Date: 8/19/99
-------------------------------------
7
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of DigitalThink, Inc. on
Form S-1 of our report dated December 2, 1999, appearing in the prospectus,
which is part of this registration statement, and of our report dated December
2, 1999 related to the financial statement schedule appearing elsewhere in this
registration statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such prospectus.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
December 8, 1999
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<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
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<CASH> 2,862 9,445
<SECURITIES> 0 0
<RECEIVABLES> 261 1,191
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<DEPRECIATION> 93 329
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<CURRENT-LIABILITIES> 549 2,251
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9,329 24,583
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<INCOME-PRETAX> (3,469) (5,751)
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<DISCONTINUED> 0 0
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<NET-INCOME> (3,469) (5,751)
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