<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
KINZAN.COM
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7371 33-0839983
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------
KINZAN.COM
2111 PALOMAR AIRPORT ROAD, SUITE 250
CARLSBAD, CALIFORNIA 92009
(760) 602-2900
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------
JEFFREY P. HIGGINS, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
2111 PALOMAR AIRPORT ROAD, SUITE 250
CARLSBAD, CALIFORNIA 92009
(760) 602-2900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
<TABLE>
<S> <C>
CRAIG W. ADAS, ESQ. GARY L. SELLERS, ESQ.
WEIL, GOTSHAL & MANGES LLP SIMPSON THACHER & BARTLETT
2882 SAND HILL ROAD, SUITE 280 425 LEXINGTON AVENUE
MENLO PARK, CALIFORNIA 94025 NEW YORK, NEW YORK 10017-3954
(650) 926-6200 (212) 455-2000
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, $0.001 par value.............................. $57,500,000 $15,180.00
</TABLE>
(1) Estimated for the sole purpose of computing the amount of the registration
fee in accordance with Rule 457(o) promulgated under the Securities Act of
1933, as amended.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL AND IT IS NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
SUBJECT TO COMPLETION. DATED APRIL 28, 2000
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Kinzan, Inc. All
of the shares of common stock are being sold by Kinzan. The estimated initial
public offering price will be between $ and $ per share.
--------------
There is currently no public market for the common stock. We have
applied to list the common stock on the Nasdaq National Market under the symbol
KNZN.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Kinzan, before expenses......................... $ $
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to additional shares of our common stock.
--------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CHASE H&Q
THOMAS WEISEL PARTNERS LLC
WILLIAM BLAIR & COMPANY
, 2000
<PAGE>
Inside Front Cover: A diagram depicting the interconnection of customers,
suppliers and manufacturers in a business relationship network appears under the
heading "Extending Relationship Networks onto the Internet." The following text
is included: "Kinzan provides a leading platform for extending and managing
business relationship networks on the Internet. It is through these relationship
networks - the complex and dynamic interaction between a central organization
and its numerous affiliated individuals or entities - that an organization
conducts its business. Our platform enables an organization to manage its
relationship network by quickly, easily and cost-effectively distributing
branded content, commerce and revenue-generating opportunities throughout the
entire network." The Kinzan logo appears at the bottom of the page.
Inside Gatefold: Text describing our offering and our customers appears under
the heading "Extending the Brand, Not Just the Reach." What we do: "Kinzan's
global platform - an integrated suite of proprietary software, scalable hardware
and sophisticated processes - facilitates the development and deployment of
hosted Internet applications. We function as the 'brand behind the brand,'
enabling our customers to extend, configure and brand our platform to meet their
diverse needs." Our customers: "Central organizations whose operations depend on
large networks of affiliates recognize the importance of extending their
relationships onto the Internet. As a result, our customers are typically
traditional offline organizations such as manufacturers of retail products,
major franchisors, Fortune 500 organizations with dealer/distributor channels,
media companies and professional associations." The following profiles of our
customers are included:
- AutoTrader.com: "AutoTrader.com, with listings of over 1.5 million
used vehicles, selected the Kinzan solution to establish its business
relationship network as an Internet portal. Now, used vehicle dealers
have access to AutoTrader.com's online database and can receive direct
sales leads." The AutoTrader.com logo is included.
- Avon: "Avon.com is bringing its U.S. representatives online this year
with Kinzan's platform. Avon.com's E-Representative strategy allows
representatives to create, edit and maintain an online presence while
ensuring that Avon maintains the integrity of its brand and consistent
marketing message. The Web sites will also create efficiencies in
administrative processes and provide convenient access to
time-sensitive information for the representatives and customers." The
Avon.com logo is included.
- Carlson Wagonlit Travel: "As a worldwide leader in leisure and
business travel with more than 3,000 locations in 141 countries,
Carlson Wagonlit needed a solution that maintained consistent brand
integrity across its over 1,100 affiliated travel agent Web sites in
the United States. The Kinzan platform integrates branded franchised
Web sites with the supply chain reservation system and allows
associates to realize revenue from booking travel online." The Carlson
Wagonlit Travel logo is included.
- Chase Merchant Services: "Chase Merchant Services sought to
strengthen its relationships with its approximately 340,000 small
businesses by offering them the ability to create electronic commerce
enabled Web sites. Their solution, eWEBuilder, powered by Kinzan,
allows the customers of Chase Merchant Services to transition their
operations online quickly and inexpensively by creating customized Web
sites." The Chase Merchant Services logo is included.
- Maytag: "Maytag required a solution for its Home Appliance Center
Channel and additional independent dealers that would leverage the
Maytag brand with over 100 years of brand equity. The Kinzan platform
provides the independent dealers an online brand presence with the
power to edit their Web sites locally and enables Maytag to promote
its brand globally." The Maytag logo is included.
- YMCA: "YMCA required a consistent Web presence for their San
Francisco region. By integrating the Kinzan solution with third-party
applications, YMCA is able to extend its relationship network of 14
branches with branded Web sites, all with the ability to collect camp
registrations and online donations." The YMCA logo is included.
<PAGE>
Inside Back Cover: The Kinzan logo appears at the bottom of the page. The
following text describes our platform, applications and customer service:
- "Kinzan's platform provides the foundation for the development and
deployment of rich, hosted Internet applications and services aimed at
helping our customers to extend and manage their business relationship
networks on the Internet."
- "Our first three applications enable our customers and their
affiliates to create, publish and maintain Web sites quickly and
cost-effectively."
- "Our electronic commerce application provides a complete solution for
affiliates of a business relationship network, allowing them to set up
a catalog of products, provide payment options, create shipping
structures and configure store taxes."
- "To enhance the functionality of the Web sites, third-party
applications, such as email, locator services, visual content and
affiliate marketing programs, can be easily integrated."
- "To support the deployment of our technology platform and
applications, we offer professional services to our customers
including programming, implementation and design, and we commit to 24
hours a day, seven days a week customer support to ensure that our
customers have the technical assistance they need."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 28
Management.................................................. 41
Related Party Transactions.................................. 56
Principal Stockholders...................................... 59
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 69
Index to Financial Statements............................... F-1
</TABLE>
--------------
Kinzan, the Kinzan logo, Siteman, Siteman Storefront and
Webmaster-on-Call are trademarks and service marks of Kinzan, Inc. All other
company, product or service names contained in this prospectus are trademarks
and service marks of their respective owners.
--------------
Our executive offices are located at 2111 Palomar Airport Road, Suite
250, Carlsbad, California 92009, and our telephone number is (760) 602-2900. Our
Web site is located at http://www.kinzan.com. Any information that is included
on or linked to our Web site is not a part of this prospectus.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION. IN THIS PROSPECTUS, "KINZAN," "WE," "US,"
AND "OUR" REFER TO KINZAN, INC., UNLESS THE CONTEXT OTHERWISE DICTATES.
KINZAN
We provide a leading platform for extending and managing business
relationship networks on the Internet. A business relationship network consists
of a central organization and its many affiliated vendors, partners, members,
representatives and other entities. By utilizing our hosted platform, with its
content management and electronic commerce applications, a central organization
is able to maintain its brand integrity, efficiently distribute time-sensitive
product and service information to affiliates, control company-specific
guidelines and streamline administrative functions. Our platform also enables
affiliates within the network to leverage their relationships with the central
organization and easily and cost-effectively transition their businesses onto
the Internet. By bringing their relationship network online through our
platform, both the central organization and its affiliates can enhance their
business relationships, reduce costs and create incremental revenue.
The rapid expansion in the number of Internet users combined with the
efficiencies gained by conducting business online will continue to facilitate
substantial growth in electronic commerce. International Data Corporation
estimates that there were 1.7 billion URLs as of December 1999 and that this
number will grow to 13 billion URLs by 2003. Large, traditional organizations
have recognized the importance of establishing an online presence. Initially,
central organizations focused their efforts on creating a Web site to be used as
a simple marketing vehicle, or online brochure, that communicated basic
information about the organization and its products or services. Web sites have
quickly evolved to include the ability to sell, take immediate payment, arrange
for delivery of goods and services online and personalize the user experience.
To effectively use the power of the Internet, many central organizations now
realize that they must go beyond simply expanding the capabilities of their
central Web sites. They must integrate their affiliates into their overall
Internet strategy.
Our platform is designed to integrate central organizations and their
affiliates online. It includes a brandable suite of Web applications,
configurable hardware, scalable hosting services, development and deployment
capabilities and customer care programs. We maintain an open-standards platform
which allows third-party service providers to utilize our platform and rapidly
deploy our solution. In addition, our flexible platform allows the central
organization to easily integrate value-added applications and services. We
target large, traditional offline customers including manufacturers of retail
products, major franchisors, automobile manufacturers, media companies,
professional associations and other central organizations that depend on a
network of affiliates to conduct business. We also provide products and services
to newly formed online companies that are aggregating affiliates to consolidate
content and conduct business over the Internet.
Because we market our platform to large, central organizations that
manage business relationship networks with many affiliates, we believe we can
capitalize on the marketing efforts of our customers to accelerate deployment of
our applications with their affiliates. In addition, we intend to expand our
relationships with systems integrators and Internet consultants to increase
adoption of our platform. We generate substantially all of our revenues from two
sources: (1) hosting fees charged to customers who use our Web applications to
deploy Web sites and conduct electronic commerce and (2) service fees for the
implementation of our customers' branded versions of our hosted applications.
Our customers include AutoTrader.com, Avon, Carlson Wagonlit Travel, Chase
Merchant Services, KnightRidder.com, loancity.com, Maytag, MeetChina.com, Vital
Processing and the YMCA.
1
<PAGE>
We were formed in November 1998 to acquire a business unit of iXL
Enterprises, Inc. and commenced operations in January 1999. Our operating
history and revenues derived from operations are therefore limited. We have
incurred net losses since we began operations.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Kinzan............... shares
Common stock to be outstanding after this shares
offering...................................
Use of proceeds.............................. For general corporate purposes, including:
(1) operational expenses, such as personnel,
research and development and sales and
marketing,
(2) capital expenditures and (3)
international expansion.
Proposed Nasdaq National Market Symbol....... KNZN
</TABLE>
The number of shares to be outstanding after the offering does not
include:
- 2,705,000 shares of our common stock issuable upon exercise of options
outstanding at March 31, 2000 under our 1999 Stock Option/Stock
Issuance Plan, with a weighted average exercise price of $0.68 per
share;
- 26,250 shares of our common stock issuable upon exercise of warrants
outstanding at March 31, 2000 at an exercise price of $4.00 per share;
and
- 157,000 additional shares of our common stock available for future
grant under our 1999 Stock Option/Stock Issuance Plan and an
additional 2,000,000 shares of our common stock available for future
grant under our 2000 Stock Option Plan and 2000 Employee Stock
Purchase Plan, which will become effective upon completion of this
offering.
Unless otherwise noted, all information in this prospectus:
- assumes our reincorporation in the State of Delaware and our change of
name from Kinzan.com to Kinzan, Inc.;
- is based on our shares outstanding as of March 31, 2000;
- assumes the conversion of all our outstanding redeemable convertible
preferred stock into common stock on a one-for-one basis upon
completion of this offering; and
- assumes the exercise of warrants to purchase 8,250 shares of our
common stock upon completion of this offering; and
- assumes no exercise by the underwriters of their option to purchase
additional shares of our common stock to cover over-allotments, if
any.
2
<PAGE>
SUMMARY FINANCIAL DATA
THE FOLLOWING TABLES SET FORTH SUMMARY FINANCIAL DATA FOR THE PERIODS
INDICATED. YOU SHOULD READ THIS INFORMATION TOGETHER WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS AND THE INFORMATION UNDER "SELECTED FINANCIAL DATA" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS."
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------- ----------------------------------
THREE MONTHS
YEAR ENDED JANUARY 1 TO JANUARY 29 ENDED
DECEMBER 31, JANUARY 28, (INCEPTION) TO MARCH 31, 2000
1998 1999 DECEMBER 31, 1999 (UNAUDITED)
------------ ------------ ----------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 1,566,149 $ 123,207 $ 1,972,564 $ 828,528
Cost of revenues..................... 1,106,331 152,562 1,745,417 797,591
----------- --------- ----------- -----------
Gross profit......................... 459,818 (29,355) 227,147 30,937
Total operating expenses............. 1,817,212 88,613 4,542,095 2,486,367
----------- --------- ----------- -----------
Operating loss....................... (1,357,394) (117,968) (4,314,948) (2,455,430)
Net loss............................. $(1,357,394) $(117,968) $(4,331,898) $(2,276,597)
=========== ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
COMPANY
---------------------------------------
AS OF MARCH 31, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $12,707,272 $29,867,259 $
Working capital........................................ 11,663,816 28,823,803
Total assets........................................... 17,172,785 34,332,772
Total redeemable convertible preferred stock........... 20,837,976 --
Total stockholders' equity (deficit)................... (6,097,886) 31,900,077
</TABLE>
The pro forma data assumes that our Series C redeemable convertible
preferred stock offering closed as of March 31, 2000 and also assumes the
conversion of all of the shares of our outstanding redeemable convertible
preferred stock and the issuance of 8,250 shares of our common stock upon
exercise of warrants upon completion of this offering. The pro forma as adjusted
data gives effect to the foregoing and to the sale of _____ shares of our common
stock that we are offering under this prospectus at an assumed initial offering
price of $____ per share and after deducting the underwriting discounts and
commissions and estimated offering expenses.
3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED
BELOW BEFORE PURCHASING SHARES OF OUR COMMON STOCK IN THIS OFFERING. IF ANY ONE
OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION COULD SUFFER, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND
WE FACE RISKS ASSOCIATED WITH EARLY STAGE COMPANIES THAT MAY CAUSE OUR BUSINESS
TO SUFFER.
We began operations in January 1999 and have a limited operating
history. As a result, it is difficult to evaluate our business. Our business and
prospects must be considered in light of the risks and uncertainties frequently
encountered by companies in the early stages of development, particularly
companies like ours that operate in new and rapidly evolving markets. Our
failure to adequately address the risks and uncertainties we face could cause
our business to suffer. These risks and uncertainties include our ability to:
- expand sales and marketing activities to increase sales;
- expand our customer base and retain key customers;
- manage growing domestic and international operations;
- create and maintain strategic relationships;
- introduce enhancements to our current products and services and
develop additional products and services;
- upgrade our systems and infrastructure as necessary to handle
increases in the number of Web sites we host on our platform;
- compete effectively against existing or potential competitors; and
- recruit and train key personnel.
We cannot be certain that we will successfully address any of these
risks and uncertainties and our failure to do so may cause our business to
suffer.
WE HAVE A HISTORY OF NET LOSSES WHICH WILL CONTINUE FOR THE FORESEEABLE FUTURE.
We have incurred net losses in each fiscal quarter since our inception.
We incurred a net loss of $4.3 million for the year ended December 31, 1999 and
$2.3 million for the three months ended March 31, 2000. As of March 31, 2000,
our accumulated deficit was $6.6 million. We have not achieved profitability and
we expect to continue to incur net losses for the foreseeable future. To date,
we have primarily funded our operations from the sale of equity securities and
have not generated significant cash from our operations. We expect to continue
to incur substantial product development, sales and marketing and administrative
expenses and, as a result, we will need to generate significant revenues to
achieve and maintain profitability. Although our revenues have increased in
recent quarters, we cannot be sure that we can sustain these growth rates or
that we will achieve sufficient revenues for profitability. In addition, if we
do achieve profitability, we may be unable to sustain or increase profitability
on a quarterly or annual basis in the future.
4
<PAGE>
OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE IN THE FUTURE.
Our revenues and operating results may vary significantly from quarter
to quarter. A number of factors are likely to cause these variations, including
the following:
- acceptance of our platform by central organizations and, in turn,
their ability to market our platform to affiliates in their business
relationship networks;
- our ability to attract new customers and maintain customer
satisfaction;
- the timing of sales and the implementation of our products and
services;
- our ability to establish and maintain strategic relationships;
- increased expenses, including those related to sales and marketing,
research and development, administration or international expansion;
- our ability to enhance our products and services, whether internally
or through the integration of third-party applications;
- the ability of third parties to develop additional applications for
our platform;
- the announcement or introduction of new or enhanced products and
services by competitors;
- continued growth of the Internet and electronic commerce; and
- governmental regulation surrounding the Internet.
Accordingly, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful. You should not rely on the
results of one quarter as an indication of our future performance.
We plan to increase our operating expenses to expand our sales and
marketing activities, fund greater levels of research and development, hire
additional personnel and support and improve our operational and financial
systems. If our revenues do not increase along with these expenses, our business
could suffer and net losses in a given quarter would be even greater than
expected.
THE MARKET FOR PRODUCTS AND SERVICES THAT EXTEND BUSINESS RELATIONSHIP NETWORKS
ONTO THE INTERNET IS NEW AND EVOLVING AND WE CANNOT BE CERTAIN THAT A VIABLE
MARKET FOR OUR PRODUCTS AND SERVICES WILL EMERGE OR BE SUBSTANTIAL.
The market for products and services that extend business relationship
networks onto the Internet is new and evolving. We cannot estimate the size or
growth rate of the potential market for our products and services and we do not
know whether our products and services will achieve broad market acceptance.
Accordingly, we cannot be certain that a viable market for our products and
services will emerge or be sustainable. We expect that we will continue to need
intensive sales and marketing efforts to educate prospective customers about the
uses and benefits of our products and services. Organizations that have already
invested substantial resources in particular methods of conducting business
across their business relationship networks may be reluctant or slow to adopt
new approaches to conducting their business. Similarly, affiliates of some
business relationship networks may be hesitant to conduct their business online.
These factors could inhibit the growth and acceptance of our products and
services. If the market for our business relationship network products and
services fails to grow or grows more slowly than we anticipate, our business
would suffer.
5
<PAGE>
IF OUR CUSTOMERS DO NOT EFFECTIVELY INTRODUCE OUR PRODUCTS AND SERVICES TO THEIR
AFFILIATES OR THEIR AFFILIATES DO NOT ACCEPT OUR PRODUCTS AND SERVICES, OUR
REVENUES WOULD BE NEGATIVELY IMPACTED AND OUR BUSINESS WOULD SUFFER.
We focus our sales efforts on large, central organizations with business
relationship networks consisting of thousands of affiliates. Although our
strategy provides us with numerous potential end-users, we will not receive the
benefits of our strategy unless our products and services are used throughout
the business relationship networks of our customers. Accordingly, we rely on our
customers to market our services to their affiliates. Because our pricing model
is based in large part on the number of Web sites established by the affiliates
of our customers, our revenues from an individual contract depend on the success
of our customers in marketing and deploying our products and services to their
affiliates. We cannot be certain that our customers will expend the effort
required to attract a sufficiently large number of their affiliates to our
products and services. In addition, even if our customers spend the time
necessary to market our products and services to their affiliates, we cannot be
sure that the affiliates will accept our products and services and extend their
operations online. If our customers fail to market our products and services to
their affiliates or the affiliates do not accept our products and services, our
revenues will be negatively impacted and our business would suffer.
IF WE FAIL TO ATTRACT, RETAIN OR SUCCESSFULLY INTEGRATE OUR SALES AND MARKETING
PERSONNEL, OUR BUSINESS COULD SUFFER.
Our ability to increase our revenues will depend on our ability to
successfully recruit, train, integrate and retain sales and marketing personnel.
Our products and services are complex and require highly trained sales and
marketing personnel to educate prospective customers regarding their uses and
benefits. Accordingly, we plan to continue to invest significant resources to
expand and train our sales and marketing groups. Competition for additional
qualified personnel, however, is intense and we may not be able to hire and
retain sales and marketing personnel with relevant experience or may be required
to pay more for their services. Additionally, our new hires will require time
and training before they are fully integrated into our sales and marketing
groups. Many current members of our sales and marketing groups have recently
joined us and have limited experience working together. As of December 31, 1999,
we had 18 employees in our sales and marketing groups and as of March 31, 2000
we had 24. If we encounter any delays or difficulties in our staffing efforts or
are unsuccessful in integrating our newly hired sales and marketing personnel,
we may not be able to compete against companies with larger and more experienced
sales and marketing groups. Any difficulties could impair our ability to attract
new customers and enhance our relationships with existing customers which would
impact the timing and extent of our revenues.
OUR SALES CYCLE MAY BE LENGTHY DUE TO THE COMPREHENSIVE NATURE OF OUR PLATFORM,
WHICH COULD MAKE IT DIFFICULT TO FORECAST OUR FUTURE REVENUES.
Prior to completing a sale, our sales staff typically spends a
significant amount of time educating potential customers regarding the uses and
benefits of our products and services for their business relationship networks.
Additionally, because our platform offers a solution for a network of
affiliates, our sales efforts are often targeted at senior management of central
organizations. For example, during our sales cycle we consult with and
demonstrate our products and services for various representatives of central
organizations, including the Chief Financial Officer, the Chief Information
Officer, and leaders of the electronic business, marketing and new media groups,
prior to making a sale. As a result, sales of our products and services can take
anywhere from three to nine months from the time we make initial contact with
our customers. Also, we cannot be sure that we will be successful in our sales
efforts. Our business could suffer if we dedicate significant resources to a
particular sale and do not complete it successfully. Our potentially long and
unpredictable sales cycle may make it difficult to forecast our future revenues.
6
<PAGE>
WE DEPEND ON A SMALL NUMBER OF LARGE CUSTOMERS AND OUR REVENUES AND OPERATING
RESULTS COULD BE LOWER THAN WE EXPECT IF WE LOSE A MAJOR CUSTOMER.
We currently derive a significant portion of our revenues from a small
number of relatively large customers. For example, Encanto Networks, Inc.
accounted for 38% of our revenues, AutoTrader.com accounted for 32% of our
revenues and TASQ Technology accounted for 10% of our revenues for 1999. In
addition, Ares International accounted for 36% of our revenues, AutoTrader.com
accounted for 34% of our revenues and Chase Merchant Services accounted for 14%
of our revenues for the three months ended March 31, 2000. We expect to continue
to derive the majority of our revenues from a small number of large customers
because we focus our sales efforts on large, central organizations with
thousands of affiliates in their networks. The loss of a large customer or our
inability to attract new large customers would cause our business to suffer.
IF WE FAIL TO ESTABLISH AND MAINTAIN OUR RELATIONSHIPS WITH SYSTEMS INTEGRATORS
AND CONSULTING FIRMS, THE GROWTH OF OUR BUSINESS MAY BE IMPAIRED.
In order to execute our business plan, we intend to continue to form
distribution, implementation or other alliance relationships to reach a larger
customer base than we could reach through our direct sales and marketing
efforts. We intend to target systems integrators, consulting firms and other
third parties that develop and deploy Internet applications for their customers.
For example, we currently have relationships with a number of Internet
consulting firms, including iXL Enterprises and marchFirst, Inc., the company
resulting from the merger of USWeb/CKS and Whittman-Hart. We cannot be certain
that we will be able to enter into these relationships on commercially
reasonable terms or at all in the future and, if we successfully establish these
relationships, whether we will be able to maintain them. If we are unable to
establish distribution and implementation relationships, we would be required to
devote substantially more resources to the sale and marketing of our products
and services than we would otherwise need to do. Furthermore, as a result of our
emphasis on these relationships, our success will depend in part both on the
ultimate success of the parties we select and their ability to market our
products and services effectively. The failure of these relationships to result
in the development of an additional sales channel for our products and services
could limit the expansion of our business.
Any distribution or implementation relationship we establish may not
afford us any exclusive rights. In addition, the other parties to these
relationships may not view their relationship with us as significant to their
own businesses. Therefore, they could reduce their commitments to us at any time
in the future. These parties could also pursue alternative technologies or
develop competing products and services either on their own or in alliance with
others. Losing the support of these third parties may limit our ability to
penetrate our markets. If we are unable to enter into distribution or
implementation relationships or maintain those relationships once established,
we may be unable to expand our business.
OUR FAILURE TO PROCURE, MAINTAIN OR INTEGRATE THIRD-PARTY APPLICATIONS TO
ENHANCE OUR PLATFORM COULD CAUSE OUR BUSINESS TO SUFFER AND EXPOSE US TO
ADDITIONAL RISKS.
In order to enhance the benefits our platform offers, we will continue
to enter into licenses and other arrangements with third parties to provide
additional applications for our customers. For example, we currently have
arrangements with Clear Commerce, CyberCash and Signio, Inc., a subsidiary of
VeriSign, Inc., to provide electronic commerce payment services, CommTouch to
provide email services, Mapquest.com, Inc. to provide locator software, Getty
Images to provide visual content and MyComputer.com, Inc. to provide statistical
reporting services to our customers. Our market is new and rapidly evolving and
we will need to enter into additional arrangements to provide further benefits
to our customers and remain competitive. We may not be able to procure these
additional applications on commercially reasonable terms or at all in the
future. If we are unable to enter into arrangements for additional applications,
we may lose our competitive position and our business could suffer.
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Our reliance on third-party applications may expose us to increased
risks, including risks related to the integration of new technology, the
diversion of resources from the development of proprietary technology and an
inability to generate revenues from new technology sufficient to offset
associated acquisition and maintenance costs. If we are unable to obtain any of
these applications, the development of our products and services could be
delayed until equivalent technology can be identified, licensed and integrated.
Any delays could cause us to lose our competitive position and cause our
business to suffer.
IF WE ARE UNABLE TO MANAGE OUR GROWTH AND EXPANSION EFFECTIVELY, OUR BUSINESS
AND OPERATING RESULTS COULD SUFFER.
In order to be successful, we must continue to expand our operations
significantly. Our continued expansion will place a significant burden on our
management, reporting systems and other resources. To manage future growth, we
will need to improve our existing operational, customer service and financial
systems, procedures and controls. Any failure to properly manage these systems
and procedural transitions could impair our ability to attract and service
customers and could cause us to incur higher operating costs. We will also need
to continue the expansion of our operations and employee base. Our number of
employees has increased from 20 at March 31, 1999 to 70 at March 31, 2000. Our
management may not be able to recruit, hire, train, retain, motivate and manage
required personnel. If we cannot manage our growth effectively, our business and
operating results could suffer.
IF WE FAIL TO MANAGE OUR FINANCIAL AND ACCOUNTING SYSTEMS, OUR BUSINESS COULD
SUFFER.
To manage the expected growth of our operations and personnel, we will
need to improve our financial and accounting systems, transaction processing,
procedures and controls. To that end, we must:
- develop our operating, administrative, financial and accounting
systems and controls;
- improve coordination among our engineering, accounting, finance,
marketing and operations personnel; and
- hire and train additional finance and accounting personnel.
If we cannot accomplish these objectives, we may not be able to
adequately support our future operations and our business could suffer.
IF WE FAIL TO TAKE ADVANTAGE OF OUR COMPETITIVE POSITION IN OUR MARKET OR
ADDRESS ADDITIONAL COMPETITION IN THE FUTURE, OUR BUSINESS COULD SUFFER.
Our market is new and rapidly evolving, and we expect competition to
increase significantly in the future. Currently, our direct competition comes
from the internal or outsourced development of custom, proprietary solutions by
or for large organizations. However, we believe few companies offer a platform
specifically designed to manage content, commerce and brand across large numbers
of affiliated Web sites. If we fail to attract and retain a large customer base
and do not establish a prominent market position before our competitors, our
ability to grow our business will be inhibited and our business could suffer.
While we currently do not face significant direct competition, there are
various types of companies that compete with us in different areas including:
- Web site publishing companies such as Netopia, Nextron Communications
and Orbit Commerce;
- providers of integrated electronic business applications such as IBM
and BroadVision;
- Web authoring software providers such as Microsoft, NetObjects and
Adobe;
- content management software vendors such as Interwoven and Vignette;
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- catalog software providers such as BigStep, CNET Store, Open Market,
InterShop and Yahoo Store!;
- community management systems developers such as Homestead.com,
MyFamily.com, Homepage.com and Koz.com;
- providers of infrastructure enabling software such as BEA Systems and
Tibco; and
- numerous small companies offering some form of Web content or
electronic commerce systems.
Many of these companies have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do and may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many of these companies have wider
name recognition and more extensive customer bases that could be leveraged,
thereby gaining market share at our expense. These companies may be able to
undertake more comprehensive promotional activities, adopt more aggressive
pricing policies and offer more attractive terms to customers than we can. In
addition, these companies may establish cooperative relationships among
themselves or with third parties to enhance their products and services.
Accordingly, it is possible that new competitors may emerge and rapidly acquire
significant market share.
We licensed to Encanto Networks, Inc. the right to use and distribute
our electronic commerce software, including modifications and enhancements, in
exchange for $325,000 and 300,000 shares of Encanto common stock valued at $0.17
per share. While Encanto does not currently compete directly with us, the terms
of this license agreement do not prohibit Encanto from engaging in such
activities.
Increased competition could negatively impact our ability to obtain
revenues from new or existing customers on terms favorable to us. Further,
competitive pressures may require us to reduce the prices of our products and
services. In either case, our business would suffer. We cannot be certain that
we will be able to compete effectively with existing or new competitors or that
increased competition will not harm our business.
IF WE LOSE THE SERVICES OF OUR SENIOR MANAGEMENT TEAM OR ARE UNABLE TO ATTRACT
AND RETAIN OTHER QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER.
Our success depends largely on the skills, experience and performance of
our senior management team. In particular, the success of our business depends
on the services of Gari L. Cheever, our President and Chief Executive Officer,
and Garland Wong, our Chief Technology Officer. We do not maintain key person
life insurance policies on any of our employees. If we are unable to retain the
services of Mr. Cheever, Mr. Wong or other members of our senior management
team, our business could suffer.
Our future success also depends largely on our ability to continue to
attract and retain highly qualified personnel. Competition for qualified
personnel, particularly with Internet-related experience, is intense and we may
be unable to attract the necessary personnel as our business grows. Furthermore,
new employees require training, take time to achieve full productivity and may
be difficult to retain. If we are unable to hire, train and retain qualified
personnel, our business could suffer.
IF WE DO NOT ADDRESS SUCCESSFULLY THE RISKS INHERENT IN OUR PLANNED
INTERNATIONAL EXPANSION, OUR BUSINESS COULD SUFFER.
We intend to expand our operations into international markets both
directly by deploying our sales force and indirectly by entering into reseller
relationships or joint ventures with various partners that operate in our target
international markets. For example, we intend to establish joint ventures in
Asia in 2000. Once established, we plan to license our products to the joint
ventures and provide our joint venture partners with training regarding our
products, services and systems. We expect that our joint venture
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partners will independently perform the day-to-day operations of our joint
ventures and will be beyond our immediate control. Any failure by our joint
venture partners to successfully implement or maintain services could result in
negative publicity and have an unfavorable impact on the perception of our
business.
We have limited experience in tailoring our products and services to
foreign markets and developing international relationships. If revenues from our
international expansion do not exceed the expense of establishing these
operations, our business could suffer. We face various risks inherent in
expanding our business internationally, such as:
- selecting qualified local partners for our international joint
ventures;
- difficulties and costs of monitoring our international operations;
- varying technology standards;
- difficulties and costs of tailoring our products and services to meet
the demands of foreign markets;
- legal uncertainty regarding liability;
- unexpected changes in regulatory requirements;
- political and economic instability;
- fluctuations in currency exchange rates;
- potentially adverse tax consequences; and
- reduced protection of intellectual property rights in some countries.
IF WE ARE UNABLE TO ATTRACT AND RETAIN THIRD-PARTY SERVICE PROVIDERS TO CONDUCT
OUR BASIC CUSTOMER SERVICE FUNCTIONS, OUR BUSINESS COULD SUFFER.
We rely on third-party service providers to assist us with some of our
basic customer service functions, such as outsourced email and call center
management and staffing. We cannot be certain that we will be able to attract
and retain additional third-party service providers to assist our customers with
the implementation of our products and services. While we provide various
advanced services to our customers, we do not believe that our in-house customer
service professionals will be able to fulfill the expected demand for basic
customer support services as our business grows. We supplement the capabilities
of our customer service professionals through additional third-party service
providers. We may not be successful in attracting these third-party service
providers or retaining our current third-party service providers. In addition,
these third parties may not devote sufficient resources to our service
activities. A shortfall in service capabilities may affect our ability to sell
our products and services.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS, WE
MAY FACE ADDITIONAL COMPETITION AND OUR BUSINESS COULD SUFFER.
We consider our patent, copyrights, software, service marks, trademarks,
trade secrets and other intellectual property to be important to our success. We
rely on patent, trademark, copyright and trade secret law and confidentiality
and license agreements with employees, customers and other third parties to
protect our intellectual property and proprietary rights. Despite these
precautions, unauthorized third parties may infringe our intellectual property,
copy portions of our products and services or reverse-engineer or otherwise
obtain and use software or information we regard as proprietary. End-user
license provisions protecting against unauthorized use, copying, transfer and
disclosure of the licensed product may be unenforceable under the laws of
various states and foreign countries. The status of patent protection in the
software industry is not well defined and will evolve as the U.S. Patent and
Trademark
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Office grants additional patents and pending court cases are resolved. We
currently hold one patent and have additional applications pending in the United
States. We may also seek additional patents in the future. We do not know if our
patent applications or any future patent applications will be issued or as
extensive as we originally sought, or whether our patent or any future patents
will be challenged or invalidated.
While we protect our source code for our software and related items
through copyright and trade secret laws, these laws do not prohibit the
independent development of the same or similar items by third parties. In
addition, the laws of some foreign countries do not protect proprietary rights
to the same extent as the laws of the United States do. Our means of protecting
proprietary rights in the United States or abroad may not be adequate and our
competitors may independently develop similar technologies. Policing
unauthorized use of our software is difficult and litigation may be necessary in
the future to enforce our intellectual property rights, protect our trade
secrets, determine the validity and scope of proprietary rights of others or
defend claims against infringement or invalidity. Any failure by us to protect
our intellectual property could cause our business to suffer.
WE MAY BE SUBJECT TO CLAIMS OF PATENT INFRINGEMENT WHICH MAY BE TIME-CONSUMING
AND EXPENSIVE.
Patent litigation has recently increased in the software and Internet
industries due to increased competition and the unsettled state of the law
regarding patents for software and business methods. Although we have not
received notice of any alleged infringement by us, we cannot be sure that our
products and services do not and will not be alleged to infringe upon issued
patents of third parties that may relate to our products and services. In
addition, because patent applications in the United States are not publicly
disclosed until the patent is issued, applications may have been filed by third
parties which relate to our software. We may be subject to legal proceedings and
claims from time to time in the ordinary course of business, including alleged
infringement of intellectual property rights of third parties. Intellectual
property litigation is expensive and time-consuming, regardless of the merits of
any claims against us, and could divert the attention of management from
operating our business. In addition, if we were to lose an infringement suit, we
could be forced to pay costly damages or license fees or be required to stop
using or selling a particular product or service until it was properly modified.
Any of these events could cause our business to suffer.
OUR PRODUCTS AND SERVICES COULD HAVE UNKNOWN DEFECTS OR ERRORS, WHICH COULD
RESULT IN A LOSS OF OR DELAY IN REVENUES.
Software products and services as complex as those we offer or develop
often contain undetected defects and errors. Despite testing, defects and errors
may occur in our existing or new products and services which could result in
loss of or delay in revenues, decrease in market share, failure to achieve broad
market acceptance, diversion of development resources, injury to our reputation,
warranty claims and increased insurance, service or warranty costs, any one of
which could harm our business. Furthermore, we often provide implementation,
customization, consulting and other technical services in connection with our
products and services. The performance of these services involves working with
sophisticated software, computing and communications systems. Our failure or
inability to meet customer expectations or project requirements in a timely
manner could also result in the loss of or delay in revenues, decrease in market
share, failure to achieve broad market acceptance, injury to our reputation and
increased costs.
UNPLANNED SYSTEMS INTERRUPTIONS COULD REDUCE OUR ABILITY TO PROVIDE OUR SERVICES
AND CAUSE OUR BUSINESS TO SUFFER.
We depend on the uninterrupted operation of our systems to serve our
customers effectively. We must protect our systems from loss, damage or
interruption caused by fire, earthquake, power loss, telecommunications failure
or other events beyond our control. Most of our systems are currently located
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at, and most of our customer information is stored in, a third-party facility in
Memphis, Tennessee. We have a disaster recovery facility in San Jose,
California, an area susceptible to earthquakes. Any damage or failure that
causes interruptions in our systems could subject us to increased operating
costs and cause our business to suffer. In addition, our products and services
depend on the efficient operation of the Internet through Web browsers, Internet
service providers and Internet backbone service providers, all of which have had
periodic operational problems or experienced outages in the past. Any of these
problems or periodic outages could decrease our customer satisfaction and cause
our business to suffer.
Our standard service agreement with our customers requires us to provide
virtually uninterrupted service. Our ability to provide this level of service
depends on the integrity of our systems and the ability of our third-party
service providers to maintain their systems. If we fail to provide the required
levels of service to our customers due to interruptions in our systems or those
of our third-party providers, our customers could terminate their relationships
with us and we could be subject to contractual monetary penalties. Unplanned
service interruptions may negatively affect our ability to attract and retain
customers.
ANY BREACHES OF OUR NETWORK SECURITY COULD SUBJECT US TO INCREASED OPERATING
COSTS AND CAUSE OUR BUSINESS TO SUFFER.
The secure transmission of confidential information over the Internet is
essential to maintaining customer confidence in our business. It is critical to
our business strategy that our facilities and infrastructure remain, and are
perceived by the marketplace to be, secure. If third parties breach our
security, confidential information of our customers and their affiliates could
be compromised. Our infrastructure may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. It is possible that
advances in computer capabilities, new discoveries or other developments could
result in a compromise or breach of the technology that we use to protect
confidential information. We cannot be certain that our security measures will
prevent security breaches. Substantial, ongoing or highly-publicized breaches of
security on our systems or the systems of other companies could significantly
harm our business. We may incur substantial expense to protect against and
remedy security breaches and their consequences. In addition, if our customers
are harmed as a result of any breaches of our security, they could seek damages
from us for their losses. Any claim brought against us, even if not successful,
would likely be time-consuming and costly. Any penetration of our network
security or misappropriation of our or our customers' confidential information
could cause interruptions in our operations and subject us to liability, which
could cause our business to suffer.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, WHICH COULD LIMIT THE
GROWTH OF OUR BUSINESS.
We currently anticipate that the net proceeds of this offering, together
with our current cash, will be sufficient to satisfy our anticipated needs for
working capital, capital expenditures and business expansion for at least the
next 12 months. After that time, we may need additional capital. However, if our
growth rate exceeds our expectations, we may need to raise additional funds
sooner in order to fund expansion, develop new or enhanced services or respond
to competitive pressures.
Additional financing may not be available to us on commercially
reasonable terms or at all. If adequate funds are not available on acceptable
terms, we may not be able to continue to expand our business operations and our
business could suffer. If we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our existing
stockholders will be diluted. Furthermore, any new securities could have rights,
preferences and privileges senior to those of our common stock.
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RISKS RELATED TO THE INTERNET INDUSTRY
OUR PERFORMANCE WILL DEPEND ON THE GROWTH AND ACCEPTANCE OF ELECTRONIC COMMERCE
AS A COMMERCIAL MEDIUM.
Our future success depends heavily on the acceptance and wide use of the
Internet for electronic commerce. If electronic commerce does not continue to
grow or grows more slowly than expected, demand for our products and services
will be reduced. Consumers and businesses may not accept the Internet as a
viable commercial medium for a number of reasons, including potentially
inadequate network infrastructure, slow development of technologies,
insufficient commercial support or privacy concerns. The Internet's
infrastructure may not be able to support the demands placed on it by increased
usage. In addition, delays in the development or adoption of new standards and
protocols required to handle increased levels of activity could cause the
Internet to lose its viability as a commercial medium. Even if the required
infrastructure, standards, protocols and complementary products, services and
facilities are developed, we may incur substantial expenses adapting our
solution to changing or emerging technologies.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES COULD IMPAIR THE GROWTH OF THE
INTERNET AND DECREASE DEMAND FOR OUR PRODUCTS AND SERVICES OR INCREASE OUR COST
OF DOING BUSINESS.
A number of laws in the United States and other countries have been
enacted or proposed involving the Internet, including laws addressing user
privacy, taxes, libel, obscenity and consumer protection. The adoption of
additional laws or regulations may impair the growth of the Internet, which
could decrease the demand for our products and services, increase our cost of
doing business and ultimately cause our business to suffer. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve.
IF WE ARE UNABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGES RELATING TO THE
INTERNET, OUR BUSINESS WILL SUFFER.
The market for our products and services is marked by rapid
technological change, frequent new product and service introductions and
Internet-related technology enhancements, uncertain product life cycles, changes
in customer demands and evolving industry standards. We cannot be certain that
we will successfully develop and market new products and services or
enhancements that comply with present or emerging Internet technology standards.
New products or services based on new technologies or industry standards could
render our products and services obsolete or unmarketable. To succeed, we will
need to enhance our current products and services and develop new products and
services in a timely manner to keep pace with developments related to Internet
technology and satisfy the increasingly sophisticated requirements of customers.
Electronic business technology is complex and new products and services or the
enhancement of existing products and services often requires long development
and testing periods. Any delays in developing and releasing enhanced or new
products and services could cause us to lose revenue opportunities and customers
which would cause our business to suffer.
RISKS RELATED TO THIS OFFERING
PRIOR TO THIS OFFERING, THERE HAS BEEN NO MARKET FOR OUR COMMON STOCK, AND WE
CANNOT GUARANTEE THAT AN ACTIVE MARKET WILL DEVELOP FOLLOWING COMPLETION OF THIS
OFFERING.
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which a market will develop or how liquid
that market will eventually become. The initial public offering price for the
shares of our common stock will be determined by negotiations among us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market.
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YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION FOLLOWING COMPLETION OF
THIS OFFERING.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock. The pro forma net tangible book
value of our common stock as of March 31, 2000 was $30.1 million, or
approximately $1.71 per share. To the extent options or warrants are exercised
following the completion of this offering, you will experience further dilution.
OUR STOCK PRICE COULD BE VOLATILE AND MAY DECLINE FOLLOWING THIS OFFERING.
The stock market has recently experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly
Internet-related companies, have been highly volatile. Trading prices may
fluctuate in response to a number of events and factors including:
- introduction of new products and services and strategic developments
by us or our competitors;
- quarterly variations in our operating results;
- changes in expectations as to our future performance, including
financial estimates by securities analysts and investors;
- our failure to meet the expectations of securities analysts or
investors;
- announcements of significant claims or legal proceedings against us;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic relationships, joint ventures or capital
commitments;
- departures of key personnel; and
- future sales of our common stock.
The trading price for our common stock may decline below the initial
offering price and you may not be able to resell your shares at or above the
initial public offering price.
In the past, some companies that have experienced volatility in the
market price of their stock have been subject to securities class action
litigation. Securities class action litigation involving us would result in
substantial costs and a diversion of management's attention and resources and
would harm our stock price.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS OF THIS
OFFERING AND MAY NOT USE THE PROCEEDS FOR PURPOSES YOU APPROVE.
Our management will have broad discretion with respect to the use of the
net proceeds from this offering. Although we currently intend to use the net
proceeds from this offering for the purposes we describe, we operate in a
dynamic and rapidly changing industry, and it is possible that unforeseen events
will require us to adapt or change our plans in order to remain competitive. As
a result, we cannot assure you that management will use the net proceeds from
this offering for purposes you approve.
OUR EXECUTIVE OFFICERS, DIRECTORS AND SOME OF OUR STOCKHOLDERS EXERCISE
SIGNIFICANT CONTROL OVER OUR BUSINESS AND MAY HAVE INTERESTS THAT ARE DIFFERENT
THAN YOURS.
Upon completion of this offering, our executive officers, directors and
some of our stockholders, and related entities controlled by them, will, in the
aggregate, own approximately % of our outstanding common stock. As a result,
these persons, acting together, will have the ability to influence all matters
submitted to the stockholders for approval, including the election and removal
of directors and any merger, consolidation or sale of all or substantially all
of our assets. Accordingly, this concentration of ownership may have the effect
of delaying, deferring or preventing a change in control, impeding a merger,
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consolidation, takeover or other business combination or discouraging a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of our business, even if the transaction would be beneficial to other
stockholders.
FUTURE SALES OF OUR STOCK BY EXISTING STOCKHOLDERS COULD CAUSE OUR STOCK PRICE
TO DECLINE.
The sale of a substantial number of shares of our common stock in the
public market following this offering could cause the market price of our common
stock to decline, possibly significantly. In addition, the sale of these shares
could impair our ability to raise capital through the sale of additional equity
securities in the future. Upon completion of this offering, we will have
shares outstanding, shares if the underwriters exercise
their over-allotment option in full. All of our executive officers and
directors, the holders of % of our of common stock and the holders of % of
our options have agreed, for a period of 180 days from the date of this
prospectus, without the prior written consent of Chase Securities Inc., not to,
directly or indirectly, sell or otherwise dispose of any of their shares. When
these lock-up agreements expire, these shares and the shares underlying any
options held by these individuals will become eligible for sale, in some cases
subject only to the volume, manner of sale and notice requirements of Rule 144
of the Securities Act of 1933.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS WILL CONTAIN PROVISIONS WHICH COULD
DELAY OR PREVENT A CHANGE OF CONTROL.
Our certificate of incorporation and bylaws will contain provisions that
could delay or prevent a change of control of our company. These provisions
could limit the price that investors might be willing to pay in the future for
shares of our common stock. Some of these provisions will:
- authorize the issuance of preferred stock which can be created and
issued by the board of directors without prior stockholder approval,
commonly referred to as "blank check" preferred stock, with rights and
preferences senior to those of common stock;
- prohibit cumulative voting in the election of our directors;
- limit the persons who may call special meetings of stockholders;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can
be acted upon by stockholders at a meeting.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties. Forward-looking statements include the words "believe,"
"may," "will," "estimate," "intend," "continue," "pro forma," "expect,"
"anticipate" or other similar words. All forward-looking statements speak only
as of the date of this prospectus. The forward-looking statements contained in
this prospectus are generally located in "Prospectus Summary," "Risk Factors,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," but may also be found in other
sections of this prospectus. These forward-looking statements generally relate
to our plans and objectives for future operations and are based on management's
estimates of future results or trends. Although we believe that our plans and
objectives reflected in or suggested by these forward-looking statements are
reasonable, we may not achieve the plans or objectives and cannot guarantee
future results, levels of activity, performance or achievements. Actual results
may differ from projected results due to unforeseen developments, including
those discussed in "Risk Factors."
You should read this prospectus completely and with the understanding
that actual results may be materially different from what we expect. Except as
required by law, we undertake no obligation after the date of this prospectus to
update any forward-looking statements even though our situation may change in
the future.
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USE OF PROCEEDS
We estimate that the net proceeds from this offering will be
approximately $ million, or $ million if the underwriters exercise their
over-allotment option in full, assuming an initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and other estimated offering expenses.
We intend to use the net proceeds of this offering for general corporate
purposes, including: (1) operational expenses, such as personnel, research and
development and sales and marketing, (2) capital expenditures and
(3) international expansion. At this time, we cannot assign any particular
amount to a specific use. The amounts and timing of our capital expenditures
will depend on numerous factors, including the status of our marketing and
branding activities, the need to hire new employees and the amount of cash
generated or used by our operations. We may also use a portion of the net
proceeds, currently intended for general corporate purposes, to acquire or
invest in complementary businesses, technologies, products or services. We have
no present plans or commitments and we are not currently engaged in negotiations
for any such transactions. Our management will retain broad discretion in the
allocation of the net proceeds of this offering.
Pending use of the net proceeds, we intend to invest the funds in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock
since our inception and we do not intend to pay any cash dividends on our common
stock for the foreseeable future. We intend to retain future earnings, if any,
to finance the expansion of our business. Any future payment of dividends will
be at the discretion of our board of directors and will depend upon such factors
as future earnings, capital requirements, our financial condition and general
business conditions.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis;
- on a pro forma basis after giving effect to the issuance of
1,392,438 shares of our Series C redeemable convertible preferred
stock on April 19 and 26, 2000 for approximately $17.1 million, the
conversion of all outstanding shares of our redeemable convertible
preferred stock into an aggregate of 11,143,445 shares of our common
stock upon the closing of this offering and the issuance of
8,250 shares of our common stock upon exercise of warrants upon
completion of this offering; and
- on a pro forma basis as adjusted to reflect the sale of
shares of our common stock in this offering and the receipt of
the estimated net proceeds of this offering, after deducting
underwriting discounts and commissions and estimated offering
expenses.
You should read the information below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the notes to those financial statements appearing
at the end of this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Redeemable Convertible Preferred Stock, no par value;
10,847,895 shares authorized actual, 13,347,895
shares authorized pro forma, no shares authorized
pro forma as adjusted; 9,751,007 shares issued and
outstanding actual, 11,151,695 shares issued and
outstanding pro forma and no shares issued and
outstanding pro forma as adjusted................... $20,837,976 $ -- $ --
Stockholders' equity (deficit):
Common Stock, no par value; 70,000,000 shares
authorized actual, 70,000,000 shares authorized
pro forma, 100,000,000 shares authorized pro
forma as adjusted; 6,489,754 shares issued and
outstanding actual, 17,641,449 shares issued and
outstanding pro forma, shares issued and
outstanding pro forma as adjusted............... 2,370,826 40,368,789
Note receivable from related parties.............. (511,545) (511,545)
Deferred compensation............................. (1,348,672) (1,348,672)
Accumulated deficit............................... (6,608,495) (6,608,495)
----------- ----------- -------
Total stockholders' equity (deficit)............ (6,097,886) (31,900,077)
----------- ----------- -------
Total capitalization.......................... $14,740,090 $31,900,077 $
=========== =========== =======
</TABLE>
The information regarding the number of shares of common stock to be
outstanding after this offering does not include:
- 2,705,000 shares of our common stock issuable upon exercise of options
outstanding at March 31, 2000 under our 1999 Stock Option/Stock
Issuance Plan, with a weighted average exercise price of $0.68 per
share;
- 26,250 shares of our common stock issuable upon exercise of warrants
outstanding at March 31, 2000 at an exercise price of $4.00 per share;
and
- 157,000 additional shares of our common stock available for future
grant under our 1999 Stock Option/Stock Issuance Plan and an
additional 2,000,000 shares of our common stock available for future
grant under our 2000 Stock Option Plan and our 2000 Employee Stock
Purchase Plan, which will become effective upon completion of this
offering.
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was
approximately $30.1 million, or approximately $1.71 per share of common stock.
Pro forma net tangible book value per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total number of shares of our common stock outstanding, after giving effect
to the sale by us of 1,392,438 shares of our Series C redeemable convertible
preferred in April 2000 to several private investors, the conversion of all
outstanding shares of redeemable convertible preferred stock into common stock
and the assumed issuance of 8,250 shares of our common stock upon conversion and
exercise of warrants upon completion of this offering. Assuming the sale by us
of shares of our common stock in this offering at an assumed initial
public offering price of $ per share, and after deducting assumed underwriting
discounts and commissions and estimated expenses, the as adjusted pro forma net
tangible book value of our common stock as of March 31, 2000 would have been
$ , or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate and substantial dilution in pro forma net tangible book value of
$ per share to new public investors. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 2000................................................ $1.71
Increase per share attributable to new investors.......... $
-----
Pro forma net tangible book value per share after this
offering.................................................. $
----------
Dilution in pro forma net tangible book value per share to
new investors
==========
</TABLE>
The following table summarizes, on a pro forma basis as of March 31,
2000 after giving effect to the sale by us of 1,392,438 shares of our Series C
redeemable convertible preferred stock in April 2000 to several private
investors, the assumed issuance of 8,250 shares of our common stock upon
conversion and exercise of warrants upon completion of this offering and the
sale of shares of our common stock in this offering at an assumed
initial public offering price of $ per share, and after deducting the
underwriting discounts and commissions and estimated expenses, the differences
between existing stockholders and new public investors in this offering with
respect to the number of shares of common stock purchased from us, the total
consideration paid for those shares and the average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 17,641,449 $40,368,789 $2.29
New investors..................
--- ---
Total........................ 100% 100%
========== === =========== ===
</TABLE>
The foregoing tables and calculations do not include:
- 2,705,000 shares of our common stock issuable upon exercise of options
outstanding at March 31, 2000 under our 1999 Stock Option/Stock
Issuance Plan, with a weighted average exercise price of $0.68 per
share;
- 26,250 shares of our common stock issuable upon exercise of warrants
outstanding at March 31, 2000 at an exercise price of $4.00 per share;
and
- 157,000 additional shares of our common stock available for future
grant under our 1999 Stock Option/Stock Issuance Plan and an
additional 2,000,000 shares of our common stock available for future
grant under our 2000 Stock Option Plan and our 2000 Employee Stock
Purchase Plan which will become effective upon completion of this
offering.
To the extent outstanding options and warrants are exercised, there will
be further dilution to the new investors.
19
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected historical financial data
together with the financial statements and the notes to those statements
appearing elsewhere in this prospectus and the information under "Management's
Discussion and Analysis of Financial Condition and Operating Results." We
derived the statements of operations data of our predecessor for the year ended
December 31, 1998 and the period from January 1 to January 28, 1999 and the
balance sheet data of our predecessor as of December 31, 1998 and January 28,
1999 from the financial statements of our predecessor audited by Ernst & Young
LLP, which appear elsewhere in this prospectus. We derived our statements of
operations data for the period from January 29, 1999 to December 31, 1999 and
our balance sheet data as of December 31, 1999 from our financial statements
audited by Ernst & Young LLP, which appear elsewhere in this prospectus. Our
statements of operations data for the period from January 29, 1999 to March 31,
1999 and the three months ended March 31, 2000 and our balance sheet data as of
March 31, 2000 are derived from our unaudited financial results included
elsewhere in this prospectus. We have prepared our unaudited financial
statements on the same basis as our audited financial statements. In the opinion
of our management, our unaudited financial statements include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the information in those statements. Our historical results are
not necessarily indicative of operating results to be expected in the future.
The following pro forma data assumes that our Series C redeemable
convertible preferred stock offering closed as of March 31, 2000 and also
assumes the conversion of all of the shares of our outstanding redeemable
convertible preferred stock and the issuance of 8,250 shares of our common stock
upon exercise of warrants upon completion of this offering. The following pro
forma as adjusted data gives effect to the foregoing and to the sale of
shares of our common stock that we are offering under this prospectus at an
assumed initial offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses. For a
description of the computation of the historical net loss per share and the
number of shares used in the historical per share calculation, see note 5 to our
financial statements included in this prospectus.
20
<PAGE>
<TABLE>
PREDECESSOR COMPANY
----------------------- --------------------------------------
JANUARY 29 THREE
(INCEPTION) MONTHS
YEAR ENDED JANUARY 1 TO JANUARY 29 ENDED
DECEMBER TO DECEMBER TO MARCH 31,
JANUARY MARCH 31,
31, 28, 31, 1999 2000
1998 1999 1999
----------- --------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $1,566,149 $123,207 $1,972,564 $ 254,094 $ 828,528
Cost of revenues................ 1,106,331 152,562 1,745,417 189,200 797,591
----------- --------- ----------- ---------- -----------
Gross profit.................... 459,818 (29,355) 227,147 64,894 30,937
Operating expenses:
Selling and marketing......... 613,365 36,068 2,261,951 112,793 1,544,270
Research and development...... 764,036 10,845 1,353,749 90,672 349,802
General and administrative.... 439,811 41,700 461,988 45,716 401,224
Amortization of intangibles... -- -- 427,174 77,668 116,501
Amortization of deferred
compensation................ -- -- 37,233 849 74,570
----------- --------- ----------- ---------- -----------
Total operating expenses........ 1,817,212 88,613 4,542,095 327,698 2,486,367
----------- --------- ----------- ---------- -----------
Operating loss.................. (1,357,394) (117,968) (4,314,948) (262,804) (2,455,430)
----------- --------- ----------- ---------- -----------
Interest income (expense),
net........................... -- -- (16,950) (23,364) 178,833
----------- --------- ----------- ---------- -----------
Net loss........................ $(1,357,394) $(117,968) $(4,331,898) $(286,168) $(2,276,597)
=========== ========= =========== ========== ===========
Basic and diluted net loss per
share......................... $ -- $ -- $ (1.50) $ (0.13) $ (0.67)
=========== ========= =========== ========== ===========
Shares used in computing basic
and diluted net loss per
share......................... -- -- 2,896,145 2,213,714 3,418,664
=========== ========= =========== ========== ===========
Pro forma basic and diluted net
loss per share (unaudited).... $ (0.59) $ (0.13) $ (0.17)
=========== ========== ===========
Pro forma shares used in
computing basic and diluted
net loss per share
(unaudited)................... 7,382,055 2,213,714 13,168,599
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ -----------------------------------------------------
MARCH 31, 2000
---------------------------------------
DECEMBER 31, DECEMBER PRO PRO FORMA
1998 31, 1999 ACTUAL FORMA AS ADJUSTED
------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........ $ -- $13,802,332 $12,707,272 $29,867,259 $
Working capital.................. 196,989 13,822,370 11,663,816 28,823,803
Total assets..................... 400,967 17,725,618 17,172,785 34,332,772
Total redeemable convertible
preferred stock................ -- 20,828,976 20,837,976 --
Total stockholders' equity
(deficit)...................... 374,417 (4,073,665) (6,097,886) 31,900,077
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH OUR FINANCIAL DATA
AND RELATED NOTES AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS
PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND
OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING INFORMATION THAT INVOLVES
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED BY THE FORWARD-LOOKING INFORMATION DUE TO THE FACTORS DISCUSSED IN
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide a leading platform for extending and managing business
relationship networks on the Internet. We began operations on January 29, 1999
after we purchased Siteman, a small business unit of iXL Enterprises, Inc.
Siteman offered a hosted Web application that enabled customers to develop and
manage multiple Web sites. The following discussion includes financial
information for the Siteman business, as it existed under the ownership of iXL
for the year ended December 31, 1998 and the period from January 1 to
January 28, 1999.
The following discussion includes financial information for the period
from January 29 (inception) to December 31, 1999 and the three months ended
March 31, 2000. We did not include a discussion of our financial information for
the period from January 29 to March 31, 1999 as we believe this information is
not meaningful to you. Our operating history and revenues derived from
operations are limited and we have incurred net losses since we began
operations. As of March 31, 2000, we had an accumulated deficit of $6.6 million
derived from a net loss of $4.3 million for the period from our inception to
December 31, 1999 and $2.3 million for the three months ended March 31, 2000.
Since early 1999, we have focused on building our sales and services
organizations as well as our network operations infrastructure to support the
delivery of our hosted Web applications to customers. In addition, we expended
significant efforts to build our underlying platform and enhance our Web
applications. We anticipate that we will derive the substantial majority of our
future revenues from the sale of our hosted Web applications through our selling
efforts and through selling arrangements with channel and alliance partners. We
expect to continue to incur losses over at least the next two years as we expand
operations and increase our product development and selling and marketing
activities.
In January 1999, we purchased the Siteman business unit from iXL. We
received a patent, licenses, equipment and acquired some customer accounts in
exchange for a cash payment of $2.0 million and the issuance of a convertible
promissory note for $500,000. In connection with this transaction, we recorded
an intangible asset consisting of patents and licenses of $2.3 million. In
April 1999, the promissory note was converted into 561,339 shares of our
Series A redeemable convertible preferred stock.
We derive revenues primarily from: (1) hosting fees charged to customers
who use our Web applications to deploy Web sites and conduct electronic
commerce, (2) service fees for the implementation of our customers' branded
versions of our hosted applications, (3) engineering and related services in
connection with application development and (4) customer technical support and
maintenance.
We recognize revenues for hosting services on a straight-line basis over
the term of the hosting agreement for customers who sign one to two year
agreements and pay an upfront fee. We recognize revenues for customers who do
not pay an upfront fee based on the number of affiliate Web sites as and when
such Web sites are deployed, pursuant to the hosting agreement. Services
rendered for the implementation of our customers' branded versions of our hosted
applications are recorded as revenue after the services are rendered.
Engineering and related services for application development are recorded as
revenue when the services are rendered and after there are no obligations
remaining to the customer relating to the services rendered. Customer support
and maintenance fees are recorded as revenue based on a per Web site charge as
Web sites are deployed. Certain agreements contain minimum fees for
22
<PAGE>
customer support unrelated to the number of Web sites deployed. These revenues
are recognized on a monthly basis per the terms of the agreement. We record
amounts billed to customers in excess of recognized revenue as deferred revenue
on our balance sheet. As of March 31, 2000, we had $900,000 of deferred revenue.
Many of our new customer agreements include upfront payments for hosting
services, fees for services rendered to implement our customers' branded
versions of our hosted applications and fees for customer support over one to
two year terms. The upfront fees are fully utilized after a certain number of
Web sites are deployed. Thereafter, we receive hosting fees for each Web site
deployed under the terms of the agreement. Once the minimum number of Web sites
deployed per the term of the agreement is exceeded, we earn revenues for
customer support and maintenance based on the number of Web sites deployed. Some
of our agreements include one-time set up fees and domain name registration fees
for each new Web site deployed. Moreover, we often receive revenues for
application and content development requested by our customers.
Our cost of revenues consists primarily of salaries and benefits for
network operation, engineering, project management and customer support
personnel associated with the delivery of our services as well as an allocation
of facility and depreciation expenses.
RESULTS OF OPERATIONS
PREDECESSOR COMPANY RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
PERIOD FROM JANUARY 1 TO JANUARY 28, 1999, AND OUR OPERATING RESULTS FROM
JANUARY 29 (INCEPTION) TO DECEMBER 31, 1999 AND THE THREE MONTHS ENDED
MARCH 31, 2000.
REVENUES. Predecessor company revenues totaled $1.6 million for the
year ended December 31, 1998 and $123,000 for the period from January 1 to
January 28, 1999. Included in these amounts were $354,000 for 1998 and $42,000
for the four weeks ended January 28, 1999 derived from a two-year hosting
agreement with WebMD not assumed by us as part of the asset purchase agreement.
Our revenues totaled $2.0 million for the period from inception to December 31,
1999 of which $1.1 million was derived from hosting fees, $318,000 from
professional services and $18,000 from customer support. In addition, we earned
one-time fees totaling $525,000 for application development. 80% of our 1999
revenues were derived from three customers.
Our revenues for the first quarter of 2000 totaled $829,000 of which
$324,000 was from hosting services, $493,000 from professional services and
$11,000 from customer support. We anticipate that revenues from hosting fees
will grow as a percentage of overall revenues as additional Web sites are
deployed for current and new customers. Further, our revenues from any one
individual customer as a percentage of total revenues will lessen over time as
we obtain more customers. Our mix of revenues will fluctuate from quarter to
quarter depending on the amount of revenues recognized for services rendered.
THE FOLLOWING DISCUSSION OF EXPENSES INCLUDES INFORMATION FOR OUR
COMPANY ONLY. THE PREDECESSOR COMPANY OPERATED AS A SMALL BUSINESS UNIT WITHIN A
MUCH LARGER ORGANIZATION, AND THEREFORE, COMPARISONS TO THE EXPENSES OF THE
PREDECESSOR COMPANY ARE NOT MEANINGFUL.
COST OF REVENUES. Our cost of revenues totaled $1.7 million for the
period from inception to December 31, 1999 and $798,000 for the first quarter of
2000. During mid-1999, we expended significant efforts toward the creation of
our primary data center in Memphis, Tennessee for hosting our Web applications
and a disaster recovery facility in San Jose, California. The primary data
center became operational during the fourth quarter of 1999. We expect our
disaster recovery facility to become a full data center by the end of 2000. The
allocation of network personnel towards this effort was charged to research and
development expense until the primary data center became operational, and
thereafter, was included in cost of revenues. As a result, our gross margins
fluctuated from quarter to quarter and may fluctuate from quarter to quarter in
the future. We expect to hire additional personnel in network
23
<PAGE>
operations, project management, engineering and customer support and maintenance
in support of our anticipated new customers. In addition, we intend to make
substantial capital investments in new computer equipment for our data centers
to support the anticipated expanded customer base. As a result, we expect cost
of revenues to increase substantially in absolute dollars during 2000.
SELLING AND MARKETING EXPENSES. Our selling and marketing expenses
totaled $2.3 million during the period from inception to December 31, 1999 and
$1.5 million for the first quarter of 2000. Our selling and marketing expenses
consisted primarily of salaries, commissions, bonuses, benefits, travel and
related expenses of personnel engaged in sales and marketing activities. In
addition, selling and marketing expenses included spending for advertising,
promotional and public relations campaigns. We intend to work with marketing
partners to sell our hosted Web applications. Our current marketing agreements
typically require us to pay our partners a commission on upfront and recurring
hosting fees. We anticipate that the future marketing arrangements we enter into
will have similar terms. These commissions are expensed in the period a customer
agreement is signed for upfront fees and as Web sites are deployed for recurring
hosting fees. We expect our selling and marketing expenses to increase
significantly as we expand our marketing and public relations programs, hire
additional personnel and pay commissions to our marketing and alliance partners.
Our selling and marketing expense will further increase as we intend to expand
our operations into international markets both directly through our sales force
and indirectly by entering into reseller relationships or joint ventures with
various partners. For example, we expect to finalize joint ventures in Asia in
2000.
RESEARCH AND DEVELOPMENT EXPENSES. Our research and development
expenses totaled $1.4 million for the period from inception to December 31, 1999
and $350,000 for the first quarter of 2000. Our research and development
expenses consisted primarily of salaries for engineering and network operations
personnel, consultants and an allocation of facility and depreciation expenses.
We expense all research and development costs as incurred. To date, we have not
capitalized application development costs. We expect to continue to devote
substantial resources to research and development as we develop new applications
and enhance our underlying platform infrastructure.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses totaled $462,000 for the period from inception to December 31, 1999 and
$401,000 for the first quarter of 2000. Our general and administrative expenses
consisted primarily of salaries, benefits and related expenses for our
executive, accounting, and administrative personnel as well as third party
professional service fees and allocated facility and depreciation expenses. We
expect general and administrative expenses to increase in the future, reflecting
growth in our operations and increased expenses associated with being a public
company.
AMORTIZATION OF INTANGIBLES. In connection with the purchase of the
Siteman business unit from iXL, we recorded an intangible asset consisting of a
patent and licenses of $2.3 million. This amount is being amortized on a
straight-line basis over five years. We recognized $427,000 of amortization
expense for the period from inception to December 31, 1999 and $117,000 for the
first quarter of 2000.
AMORTIZATION OF DEFERRED COMPENSATION. As a result of the grant of
stock options during the period from inception to December 31, 1999, we recorded
$950,000 in deferred stock-based compensation within stockholders' equity.
During the first quarter of 2000, we recorded an additional $510,000 of deferred
stock-based compensation. These options were considered compensatory because the
deemed fair value, as determined solely for financial reporting purposes, was
greater than the exercise prices determined by the board of directors on the
date of grant. We are amortizing deferred stock-based compensation on a
straight-line basis over the vesting period of the related options, which is
generally four years. As of December 31, 1999, we had approximately $913,000 of
deferred stock-based compensation remaining to be amortized as follows: $237,000
during fiscal years 2000, 2001 and 2002 and $202,000 during 2003.
24
<PAGE>
Our financial statements do not reflect any income tax benefit arising
from our historical losses because we have recorded a full valuation allowance
against any deferred tax assets available to us for use in future periods.
Realization of these assets is primarily dependent on generating taxable net
income in the future. As of December 31, 1999, we had net operating loss
carryforwards of approximately $4.1 million for federal and California reporting
purposes. The federal loss carryforwards will begin expiring in 2019, unless
previously utilized, while the California losses will begin expiring in 2007.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly operating information
for the period from inception to March 31, 1999 and for each of the subsequent
four quarters. This data has been prepared on the same basis as the audited
financial statements contained elsewhere in this prospectus and, in the opinion
of management, includes all adjustments necessary for the fair presentation of
the information for the periods presented. This information should be read in
conjunction with the consolidated financial statements and related notes
appearing elsewhere in this prospectus. Due to our limited operating history and
the rapidly evolving nature of our business, we believe that period-to-period
comparisons of our results are not meaningful and should not be relied upon as
an indicator of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 29 ------------------------------------------------------
TO MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
------------ --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ 254,094 $ 399,020 $ 572,328 $ 747,122 $ 828,528
Cost of revenues.................. 189,200 359,071 528,623 668,523 797,591
--------- --------- ----------- ----------- -----------
Gross profit...................... 64,894 39,949 43,705 78,599 30,937
Operating expenses:
Selling and marketing........... 112,793 416,469 781,020 951,669 1,544,270
Research and development........ 90,672 280,490 477,012 505,575 349,802
General and administrative...... 45,716 93,074 156,386 166,812 401,224
Amortization of intangibles..... 77,668 116,502 116,502 116,502 116,501
Amortization of deferred
compensation.................. 849 2,546 4,016 29,822 74,570
--------- --------- ----------- ----------- -----------
Total operating expenses.......... 327,698 909,081 1,534,936 1,770,380 2,486,367
Operating loss.................... (262,804) (869,132) (1,491,231) (1,691,781) (2,455,430)
Interest income (expense), net.... (23,364) (1,959) 6,104 2,268 178,833
--------- --------- ----------- ----------- -----------
Net loss.......................... $(286,168) $(871,091) $(1,485,127) $(1,689,513) $(2,276,597)
========= ========= =========== =========== ===========
</TABLE>
Our gross profit and research and development expenses have fluctuated
in the past. During mid-1999, we expended significant efforts towards the
creation of our primary data center in Memphis for hosting our Web applications
and a disaster recovery facility in San Jose. The primary data center became
operational during the fourth quarter of 1999. We expect our disaster recovery
facility to become a full data center by the end of 2000. The allocation of
network operations personnel towards this effort was charged to research and
development expense until the primary data center became operational and
thereafter was included in cost of revenues. As a result, our gross profit and
research and development expenses fluctuated significantly during these periods.
We expect to purchase additional equipment, build new data centers and perform
research and development to enhance our underlying platform infrastructure.
Thus, our gross profit and research and development expenses may continue to
fluctuate from quarter to quarter in the future.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the
private sale of equity securities and through short-term debt. At March 31,
2000, we had cash and cash equivalents of $12.7 million and an accumulated
deficit of $6.6 million. During April 2000, we sold 1,392,438 shares of
Series C redeemable convertible preferred stock and raised net proceeds of
approximately $17.1 million.
Net cash used in operating activities was $3.7 million for the period
from inception to December 31, 1999 and $921,000 for the quarter ended
March 31, 2000. The cash used in operations reflects our net loss partially
offset by depreciation and amortization, an increase in accounts receivable and
a decrease in accounts payable and accrued payroll expenses.
Net cash used in investing activities was $3.0 million during the period
from inception to December 31, 1999 and $360,000 for the quarter ended
March 31, 2000. Net cash used in investing activities during 1999 was made up
primarily of cash paid to iXL in connection with the purchase of the Siteman
business unit in January 1999 totaling $2.0 million. As part of the acquisition,
we agreed to purchase from iXL, directly or through our customers or
contractors, $1.5 million of services within 30 months from the acquistion date.
If iXL has not been engaged by us or our designees to perform services totaling
$1.5 million by July 2001, we will be required to pay iXL a lump sum payment for
the difference between the original obligation and the fees received by iXL
during the 30 month period. As of March 31, 2000, we have expended $515,000
under the service agreement with iXL. We anticipate no difficulties in engaging
iXL to render the appropriate services to satisfy the remaining amount.
Net cash used in investing activities was also affected by the purchase
of capital equipment in the amount of $1.0 million and $360,000 for the period
from inception to December 31, 1999 and for the quarter ended March 31, 2000,
respectively. In March 2000, we signed an agreement with a leasing company that
will provide an equipment lease credit line of $3.0 million to finance new and
used equipment purchases. The lease is secured by the equipment financed.
Principal and interest payments on the outstanding amounts drawn are payable
over a 42 month term. We issued warrants to purchase 26,250 shares of our
Series B redeemable convertible preferred stock to the leasing company. In
addition, the leasing company was granted the right to purchase shares of our
Series C redeemable convertible preferred stock with a minimum purchase of
$250,000. In April 2000, the leasing company exercised this right and purchased
20,325 shares of our Series C redeemable convertible preferred stock for
$250,000. We have drawn down $292,000 of this lease credit line as of
April 2000. We expect interest expense to increase in the future as a result of
this lease line.
Net cash provided by financing activities was $20.5 million for the
period from inception to December 31, 1999 and $187,000 for the quarter ended
March 31, 2000. In April 1999, we received net proceeds of $4.7 million from the
sale of Series A redeemable convertible preferred stock. In December 1999, we
received net proceeds of $15.6 million from the sale of Series B redeemable
convertible preferred stock. Net cash from financing activities during the first
quarter of 2000 consisted primarily of cash received from the exercise of stock
options. This was partially offset by promissory notes from certain employees
who exercised stock options. In April 2000, we sold 1,392,438 shares of
Series C redeemable convertible preferred stock and raised net proceeds of
approximately $17.1 million.
We believe our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs through at least the next 12 months. If cash
generated from operations is insufficient to satisfy our liquidity requirements,
we may seek to sell additional equity or debt securities or attempt to obtain a
larger credit facility. Additional debt would result in increased expenses and
could result in covenants that would restrict our operations. We have not made
arrangements to obtain additional financing and there is no assurance that
additional financing, if required, will be available in amounts or on terms
acceptable to us, if available at all.
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RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1) "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires companies to
capitalize qualifying computer software costs that are incurred during the
application development stage and amortize these costs over the estimated useful
life of the software. SOP 98-1 was effective for fiscal years beginning after
December 15, 1998. We adopted SOP 98-1 effective January 1, 1999 with no
material effect on the financial statements. In the future, accounting for
transactions under SOP 98-1 could result in the capitalization of significant
amounts of computer software and Web site development costs.
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 will require all
derivatives to be reported on the balance sheet at fair value. The FASB has
subsequently delayed implementation of the standard to fiscal years beginning
after June 15, 2000. We expect to adopt SFAS 133 effective January 1, 2001. The
impact on our financial statements is not expected to be material.
In December 1998, the SEC, issued Staff Accounting Bulletin No. 101
(SAB 101), "Revenue Recognition". SAB 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Management believes that our revenue recognition policies comply with the
provisions of SAB 101.
INTEREST RATE RISK
We are exposed to changes in interest rates primarily from our
investments in cash equivalents. Under our current policies, we do not use
interest rate derivative instruments to manage exposure to interest rate
changes.
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BUSINESS
OVERVIEW
We provide a leading platform for extending and managing business
relationship networks on the Internet. By utilizing our outsourced and hosted
platform with its content management and electronic commerce applications, our
customers are able to transition their businesses online, while maintaining the
integrity of their brands and controlling the distribution of company-specific
content. We offer an open-standards platform which allows third-party service
providers to more easily utilize our platform as well as speed deployment of our
solution. Our flexible platform allows central organizations to easily integrate
value-added applications and services.
We target large, traditional offline central organizations that depend
on a network of affiliates to conduct business. We also provide products and
services to newly formed online companies that are aggregating affiliates to
consolidate content and conduct business over the Internet. We offer our
solution as an integrated, outsourced and hosted service to our customers. We
generate substantially all of our revenues from two sources: (1) hosting fees
charged to customers who use our web applications to deploy Web sites and
conduct electronic commerce and (2) service fees to implement our customers'
branded versions of our hosted applications. Our customers include
AutoTrader.com, Avon, Carlson Wagonlit Travel, Chase Merchant Services,
KnightRidder.com, loancity.com, Maytag, MeetChina.com, Vital Processing and the
YMCA. We believe that by using our platform, our customers will be able to
strengthen their business relationship networks and develop incremental revenue
streams.
INDUSTRY BACKGROUND
The Internet has emerged as a unique global communications medium,
enabling millions of people to interact and conduct business electronically.
International Data Corporation, or IDC, estimates that there were 1.7 billion
URLs as of December 1999 and that this number will grow to 13 billion URLs by
2003. Furthermore, IDC estimates that U.S. businesses will spend $2.2 trillion
by 2004 on developing an Internet presence. The rapid expansion of the Internet
combined with its business efficiencies will continue to facilitate growth in
electronic business and attract a broad group of users. We believe a significant
portion of the future growth of the Internet will result from large, traditional
organizations extending their operations online.
Large, traditional organizations conduct their operations through
complex and dynamic relationships with numerous affiliated individuals or
entities. These interactions form the basis for their business relationship
networks. A business relationship network typically consists of a central
organization and its distributed affiliated companies or individuals that
inter-operate in order to conduct business. Examples of these networks include:
- automobile manufacturers, appliance manufacturers and consumer
electronics companies and their affiliated dealer networks;
- franchisors and thousands of their local franchisees, such as
fast-food restaurant chains and their local restaurants, or global
petroleum companies and their gas stations;
- real estate firms, insurance companies, travel agencies and other
service companies and their local agents or representatives;
- television networks, radio stations, theater chains, newspapers and
other media organizations, and their local affiliated stations,
theaters, publications or other entities;
- banks, brokerage firms and similar financial institutions with their
local branches and small business customer relationships;
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- dealer/distributor arrangements in which branded products are sold
through affiliated representatives, such as direct marketing
organizations;
- professional associations, such as the American Medical Association
and the American Bar Association, which include a central membership
organization and its numerous local chapters and individual members;
and
- social, charitable and religious organizations and their regional and
local chapters and members.
A strong business relationship network provides large organizations with
a key competitive advantage. For example, according to the International
Franchise Association, more than 50% of all U.S. retail sales in 1999 were made
through franchised businesses. In addition, according to the American Society of
Association Executives, nine out of ten Americans are affiliated with a
membership association.
Many large, central organizations have spent millions of dollars to
establish their businesses online, but few have been able to effectively
transition their relationship networks onto the Internet. Initially, central
organizations focused their efforts on creating a central Web site to be used as
a simple marketing vehicle, or online brochure, that communicated basic
information about the organization and its products or services. Due to wide
public acceptance of the use of business Web sites as well as rapid innovation
in Internet technology, the Web sites of these central organizations quickly
evolved to include the ability to sell, take immediate payment and arrange for
delivery of goods and services online. From that point, these Web sites quickly
matured to include personalization of the electronic commerce experience and
online interactive customer support, as well as numerous other capabilities
designed to make it easier for customers to conduct business. However, this
rapid expansion focused principally on increasing the functionality of the
single, centrally-controlled Web site of the central organization. Other than
simple locators that enabled customers to obtain the name, address and phone
number of local affiliates, central organizations have rarely expanded their
Internet operations to include any part of their relationship networks.
Many organizations are realizing that they must extend their existing
relationship networks online in order to effectively implement an Internet
strategy that integrates their most valuable assets, their affiliates. In some
cases, affiliates have started to establish their own online offerings on an
individual basis, separate from the central organization. However, these
affiliates are learning that maintaining an association with and obtaining
support from their central organization is essential in order to compete
effectively on the Internet. Therefore, many central organizations are seeking a
way to quickly and effectively transition their traditional business
relationship networks online. Likewise, their affiliates are looking for a
cost-effective way to move online in an effort to leverage the benefits of their
relationship with the central organization, use the Internet as a new
distribution channel and participate in rapidly growing electronic commerce
opportunities. Finally, many newly-formed online companies have realized that
establishing a strong online business relationship network may be the key to a
successful operation. To date, there has been no coordinated, simple solution to
translate these complex business relationship networks and their business
standards online.
THE KINZAN SOLUTION
We provide a leading platform for enabling organizations to extend and
manage their business relationship networks on the Internet. Our platform
facilitates the development and deployment of rich, hosted Internet
applications, and consists of proprietary software technology, scalable hardware
and sophisticated processes and methodologies. We have designed our platform to
be extendable, configurable and brandable to meet the diverse needs of our
customers. Our target customers are large, traditional offline organizations
that are extending their relationship networks online, and include manufacturers
of retail products, major franchisors, automobile manufacturers, media
companies, professional associations and other central organizations whose
operations depend on a network of affiliates. We also target online
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companies that are aggregating affiliates to consolidate content and conduct
business over the Internet. Because we offer our platform as an outsourced,
hosted solution, neither central organizations nor their affiliates are required
to develop the expertise or hire the technical personnel that would be necessary
to internally create an Internet presence across the organization. Our solution
enables the central organization to effectively manage its business relationship
network by efficiently distributing content, commerce and other information and
creating additional revenue opportunities for the entire network.
We offer our central organization customers the following key benefits:
- CREATION AND MANAGEMENT OF ONLINE BUSINESS RELATIONSHIP
NETWORKS. Many organizations have built valuable networks of
relationships as part of their traditional offline businesses. Our
solution allows our customers to rapidly and easily transition those
relationships onto the Internet. We enable our customers to retain
control of the key elements of their business by allowing them to
effectively manage a widely distributed, often highly diverse,
affiliate network. Furthermore, the central organization has the
ability to provide access to proprietary content and information,
useful business services and highly targeted programs that can improve
communication throughout the network.
- THE TRANSFER AND EVOLUTION OF BUSINESS PRACTICES ONLINE. We believe
that in order to evolve into a successful online business relationship
network, the central organization must develop practices similar to
those that have been established to manage traditional, offline
business relationship networks. In those traditional relationships,
the larger organization typically has guidelines regarding use of
branding and marketing messages, as well as standards for pricing and
managing preferred vendors and potential distribution channel
conflicts.
- IMPROVED BRAND MANAGEMENT. Our solution allows central organizations
to control their brand and marketing messages across their affiliate
networks even as additional affiliates move online. Logos, marketing
messages, color schemes and other important branding elements appear
consistently across all Web sites in the relationship network. Rather
than allowing each individual affiliate to move online independently,
which creates the potential for massive brand dilution, our flexible
platform enables the central organization to specify the level of
customization permitted by each affiliate. This allows the central
organization to control the business and brand elements it views as
critical while providing its affiliates the ability to specify those
elements of the business most applicable to their local competitive
positioning.
- STRENGTHENED RELATIONSHIP NETWORKS AND INCREASED AFFILIATE
LOYALTY. By extending its relationship network online, the central
organization can strengthen its network of affiliates and make its
overall operations more efficient. Our solution enables central
organizations to automate many administrative tasks, such as ordering,
billing and reporting, which eliminates a significant amount of
paperwork for the affiliates. Additionally, the central organization
is able to distribute information and content throughout its network
quickly and inexpensively. As the number of affiliates creating Web
sites and the amount of business conducted online increase, the
interdependence among the central organization and its affiliates will
solidify the relationship network. This interdependence will make it
less likely that affiliates will discontinue doing business with the
central organization.
- INCREMENTAL REVENUE OPPORTUNITIES. Our solution creates additional
revenue opportunities for central organizations by enabling them to
offer their affiliates a base Internet business platform as well as
value-added services. The central organization typically offers our
Internet business platform to its affiliates as a monthly subscription
service, creating a recurring revenue source. Furthermore, affiliates
may select value-added services such as email, that would provide an
incremental revenue stream for the central organization.
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Our platform offers affiliates of the central organization the following
key benefits:
- SIMPLIFIED MIGRATION ONLINE. Our hosted Internet business platform
offers affiliates of the central organization the ability to quickly
and cost-effectively establish an online presence. Affiliates are
offered a customized solution, designed by the central organization,
avoiding the need to separately transition their offline businesses to
the Internet.
- INCREMENTAL REVENUE OPPORTUNITIES AND COST SAVINGS. With our
outsourced solution, affiliates gain access to a new commerce channel.
Affiliates are directly linked to their central organization, allowing
for the sharing of business leads, additional promotional materials
and critical business data, which can result in higher sales
generation. In addition, by integrating their business processes with
the central organization, affiliates can take advantage of the
automation of traditional administrative tasks, such as ordering,
billing and reporting, and eliminate much of the time and expense
traditionally associated with these responsibilities.
- BRAND LEVERAGE. Our solution allows affiliates to more effectively
leverage the brand and marketing resources of the central
organization. By offering our services directly to its affiliates, the
central organization can control the use of its brand, which allows it
to permit broader and more effective use of the brand by affiliates of
the central organization than in an independent, uncontrolled setting.
- ACCESS TO INFORMATION AND CONTENT FROM THE CENTRAL ORGANIZATION. By
effectively extending existing traditional relationships onto the
Internet, we enable affiliates to leverage content, commerce and
community offerings available from their central organization. The
content provided by the central organization can be integrated in the
Web sites of affiliates, creating more impressive and competitive Web
sites throughout the relationship network.
- LOWER TOTAL COST OF OWNERSHIP. We believe that the cost of
developing, operating and maintaining a competitive Internet business
is beyond the resources of many individual affiliates of larger
organizations. With our hosted platform, affiliates do not need to
develop, lease, buy or continually upgrade existing hardware and
software to deploy their Internet businesses. In addition, affiliates
do not have to participate in the expensive and often difficult
process of recruiting and retaining software and operations engineers
to create and maintain their Web sites.
STRATEGY
Our objective is to provide the leading platform for enabling
organizations to extend and manage their business relationship networks on the
Internet. Key elements of our strategy are to:
- LEVERAGE THE BRAND AND EXISTING AFFILIATE RELATIONSHIPS OF OUR CENTRAL
ORGANIZATION CUSTOMERS. We will leverage the ability of our customers
to deploy our platform throughout their business relationship
networks. We will focus our sales and marketing efforts on large,
central organizations that manage networks of thousands of affiliates.
Once central organizations select our services, they have an incentive
to move their affiliates online to derive the full benefit of
extending their relationship networks onto the Internet. We will rely
principally on the central organizations to market and sell their
branded versions of our services to their affiliates. As a result, we
can deploy our solution to a large number of affiliates by
capitalizing on the marketing efforts of our central organization
customers.
- OFFER ADDITIONAL VALUE-ADDED APPLICATIONS AND SERVICES AS PART OF OUR
PLATFORM. We plan to offer additional value-added applications and
services as part of our platform. We believe that our Internet
business platform will continue to serve as the foundation for a wide
range of applications and services. While we have developed certain
applications ourselves, such as our core commerce or content
management functions, we will leverage the development
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efforts of other leading Internet software and services providers to
extend the capabilities of the relationship network. We believe that
the flexibility and ease of incorporating additional applications and
services into our platform will differentiate us in the outsourced
Internet business services market. These additional applications and
services are intended to provide us with additional revenue
opportunities from our existing customers and enable us to attract new
customers.
- MAINTAIN AN OPEN-STANDARDS PLATFORM. In order to allow third-party
services providers to more easily utilize our platform as well as to
speed deployment of our solution, we intend to maintain open-standards
for our Internet business platform. As part of this effort, we will
continue to train professional services firms in the core tools and
processes required to develop applications and services on our
Internet business platform. In addition, we are developing tools and
standard interfaces for our platform to allow other software
developers to more easily integrate their software and services into
our solution.
- DEVELOP ADDITIONAL STRATEGIC RELATIONSHIPS. We intend to expand our
marketing and distribution channels through strategic relationships
with key Internet infrastructure and software vendors, professional
services providers, telecommunications and Web hosting companies, and
major corporations and professional groups. For example, we will
continue to establish distribution and implementation relationships
with various Internet professional services firms in order to
accelerate the deployment of our Internet business platform. In
addition, we will pursue strategic relationships with other leading
Internet software and service providers to expand the functionality we
offer to our customers and generate additional revenue streams. We
intend to leverage our existing and future strategic relationships in
order to expand into new domestic and international markets.
- PURSUE INTERNATIONAL EXPANSION. To capitalize on the global nature of
the Internet and the international needs of our target customers, we
intend to establish operations in other countries. We intend to expand
our operations into international markets both directly by deploying
our sales force and indirectly by entering into reseller relationships
or joint ventures with various partners that operate in our target
international markets. For example, we expect to finalize joint
ventures in Asia in 2000. In addition, we plan to localize our
platform and application interfaces in a variety of languages and
dialects.
PRODUCTS AND SERVICES
We offer our solution as an integrated, outsourced and hosted service to
our customers. Our solution is based on our proprietary technology platform
which allows our customers to rapidly and easily deploy applications to manage
and strengthen their business relationship networks. Due to the open nature of
our solution, customers can also integrate existing enterprise applications or
applications developed by third parties. Pricing for our services is generally a
per month charge based on the level of usage, including the number of Web sites,
and the functionality of the applications deployed on our platform. Our target
customers are traditional offline organizations that are extending their
relationship networks to include an online dimension, including large
manufacturers of retail products, major franchisors, automobile manufacturers,
televisions networks, professional associations and other substantial central
organizations that depend on a network of affiliates.
KINZAN TECHNOLOGY PLATFORM. Our proprietary technology platform
combines an enterprise-class Internet application platform, development tools
and implementation, hosting and support services. Our platform forms the
foundation of our product and service offerings and is designed to provide our
customers a high degree of flexibility in the design and implementation of their
business relationship network applications. Our open standards environment
allows third-party developers to easily write applications to be deployed on our
platform. This also allows our customers to rapidly create an Internet
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presence by deploying one of our pre-built applications or developing a
custom-built application solution. Our customers can designate the level of
control they give their affiliates in designing and deploying their online
businesses, allowing a great deal of customization within our basic core
applications.
Our internally-developed applications offer content and electronic
commerce management. These initial applications are used to create, publish and
maintain Web sites for our customers and their affiliates. In addition to our
proprietary software and services, our software platform also allows for the
easy integration of third-party applications, such as email and locator
services.
CONTENT MANAGEMENT APPLICATIONS. Our content management applications
enable central organizations to quickly, easily and cost-effectively create
large networks of branded Web sites with a consistent look and feel, while
maintaining the flexibility to update the content as necessary. Our application
offers Web site publishing, advanced content management and Web site
administration capabilities without the requirement of a programming background.
ELECTRONIC COMMERCE APPLICATION. Our electronic commerce application
allows users to include catalogs, shopping baskets and payment solutions. Our
electronic commerce application is a complete solution for small businesses,
allowing users to set up a catalog, create departments and products, provide
offline and online payment options, create shipping structures and configure
store taxes.
THIRD-PARTY APPLICATIONS. We also currently offer our customers a
number of third-party applications that are integrated into our platform,
including the following:
- email services provided by CommTouch;
- locator software provided by Mapquest;
- email management provided by eGain;
- affiliate marketing programs provided by Commission Junction;
- visual content provided by Getty Images;
- electronic commerce payment services provided by Signio, Clear
Commerce and CyberCash; and
- statistical reporting services provided by MyComputer.com.
We intend to offer additional value-added applications and services to
our platform, both through internal development as well as through the
integration of additional third-party applications.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
In addition to working with third-party system integrators, we provide
professional services to our customers, including programming, implementation
and design services to support the deployment of our technology platform and
deployed applications. We have also developed a professional service called
Extranet to train and educate external designers and developers regarding the
deployment of our platform.
We provide customer support 24 hours a day, seven days a week to our
central organization customers and we offer our customer support services to
their affiliates for a fee. We classify customer support requests according to a
two-tiered system. Tier 1 customer support includes technical support in
response to general inquiries and is generally outsourced to third-party
technical support firms or provided by our customers directly to their
affiliates. Tier 2 customer support includes technical assistance for our
customers and their affiliates via toll-free telephone access and email
correspondence managed by our team of trained technical support representatives.
We also offer a service to assist the affiliates of our customers in building
their Web sites and catalogs.
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CASE STUDIES
The following case studies illustrate the experiences of and the
potential benefits realized by three representative clients utilizing our
business relationship network platform.
AUTOTRADER.COM
AutoTrader.com, with listings of over 1.5 million used vehicles, is the
leading Internet destination and marketplace for buyers of used vehicles and
consumers seeking information regarding automotive products and services. In
establishing its business online, AutoTrader.com encountered a significant
challenge because most independent and franchised dealers lacked a sophisticated
online presence. AutoTrader.com needed a platform that would enable dealers to
conveniently and cost-effectively transition themselves online.
AutoTrader.com selected our solution to create its business relationship
network of used vehicle dealers on the Internet. By utilizing our content
management and Web site editing tools, AutoTrader.com is able to provide its
dealers with a cost-effective way to create, edit and manage their own Web
sites. Dealers have access to AutoTrader.com's online database of used vehicles
and can receive direct sales leads. As more dealers move online, the scalability
of our platform enables AutoTrader.com to easily refine and simplify its Web
site templates. AutoTrader.com has also created a revenue stream by offering our
Web site creation and management services to dealers for a monthly fee.
CHASE MERCHANT SERVICES
Chase Merchant Services, L.L.C., is a joint venture between Chase
Merchant Ventures, Inc., a subsidiary of The Chase Manhattan Bank, and First
Data Merchant Services, a subsidiary of First Data Corp. Chase Merchant Services
wanted to leverage its relationships with approximately 340,000 small businesses
to secure a market leading position in small business electronic commerce and
transaction services. Chase Merchant Services believed it could strengthen its
relationships with its broad range of small business customers by offering them
the ability to create electronic commerce enabled Web sites. At the same time,
Chase Merchant Services wanted to communicate important information and
promotional events online to its customers. In order to accomplish this goal,
Chase Merchant Services needed a product that could support its transaction
processing capability while providing a high degree of flexibility for its
network of small business customers.
To meet the specific needs of its broad base of small business
customers, Chase Merchant Services selected our solution to power its branded
eWEBuilder-SM- application. eWEBuilder allows small business customers to
transition their operations online by creating customized Web sites quickly and
inexpensively. The Web sites can be enhanced with images, text and a catalog of
products and services. By extending eWEBuilder to its small business customers,
Chase Merchant Services is able to secure long-term relationships, as customers
rely on the support and services of the online network relationship. Chase
Merchant Services offers eWEBuilder for a monthly fee and plans to integrate
additional value-added functionality and applications in the future. Chase
Securities Inc., a subsidiary of the Chase Manhattan Corporation, is serving as
a representative of the underwriters in this offering.
AVON
Avon Products, Inc. is the largest direct seller of beauty and related
products, marketing its products to women in 135 countries through its
approximately three million independent sales representatives worldwide.
Recently Avon.com, a division of Avon Products, was formed to develop an online
presence that could facilitate electronic commerce by its domestic
representatives, create efficiencies in its administrative processes and provide
convenient access to time-sensitive information for its representatives and
their customers. Avon required a solution that would allow its representatives
to
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customize their own Web sites while ensuring Avon maintained the integrity of
its brand, consistency of its marketing message and adherence to its standard
business practices.
Avon recently selected our solution as part of its multi-vendor
E-Representative strategy to enable its U.S. representatives to create, edit and
maintain an online presence. By extending their businesses online, the
representatives will gain access to an additional distribution channel, as well
as information and content generated by Avon. In addition, representatives will
be able to streamline many of the traditionally time-consuming elements of their
businesses, such as product ordering. Avon will be able to protect its brand and
control product related content. Avon expects to deploy its E-Representative
strategy domestically in late 2000 and thereafter to selected global locations.
STRATEGIC RELATIONSHIPS
A key element of our strategy is to establish strategic relationships to
expand our marketing and distribution channels and enhance our platform by
offering additional applications. Our strategic relationships fall into two
categories: (1) distribution and implementation relationships and (2)
applications relationships.
DISTRIBUTION AND IMPLEMENTATION RELATIONSHIPS. We focus on establishing
distribution and implementation relationships with Internet infrastructure and
software vendors, professional services providers, telecommunications and Web
hosting companies, and major corporations and professional groups to expand our
marketing and distribution channels. For example, we currently have distribution
and implementation relationships with Internet professional services firms,
including iXL Enterprises and marchFirst, Inc., the company resulting from the
merger of USWeb/CKS and Whittman-Hart, to accelerate the deployment of our
Internet business platform. These companies will introduce our platform as part
of their services when undertaking systems integration, electronic commerce
solution or network design projects for their customers. We will continue to
pursue these relationships to gain market presence and increase our market
share. Through these relationships, we will be able to reach a broader domestic
and international customer base than we could solely through our direct sales
and marketing efforts. In addition, we believe that we will be able to shorten
our sales cycle and increase our revenues by leveraging our distribution and
implementation relationships.
APPLICATIONS RELATIONSHIPS. We believe that our open-standards platform
is extremely valuable to our customers. As the needs of a business relationship
network expand, we can add additional applications to our platform to enhance
our offerings. While we will continue to develop applications internally, we
believe we can offer a broader range of applications to our customers by
establishing relationships with leading Internet software and service providers.
For example, we currently have relationships with CommTouch for email services,
eGain for email management services, Getty Images for visual content and
imagery, Commission Junction for affiliate marketing programs, Mapquest for
locator services, MyComputer.com for statistical reporting services and Signio,
Clear Commerce and CyberCash for electronic payment services. These
relationships not only increase the functionality we offer to our customers,
they also generate additional revenue streams for us. We will continue to deploy
additional third-party applications in an effort to provide more value-added
services to our customers.
SALES AND MARKETING
We offer our products and services through direct and indirect sales
channels. We maintain our own direct sales force organized geographically and by
industry segment to introduce and educate prospective customers and partners
about our products and services. Our target customers are large, central
organizations that are extending their relationship networks onto the Internet
and include manufacturers of retail products, major franchisors, Fortune 500
organizations with dealer/distributor channels, automobile manufacturers and
dealers, media companies, professional associations and other
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central organizations which depend on large distributed networks of affiliates.
As of March 31, 2000, we had 24 employees in our sales and marketing group.
We currently have domestic sales offices or sales representatives in the
Atlanta, Boston, Dallas, New York, San Diego and San Jose metropolitan areas and
an international sales office in Germany. Within our direct sales group, our
client strategy and account management teams focus on pre-sale consulting and
strategy to determine the needs of our customers, and post-sale follow-up to
retain our customers and increase their use of our products and services. Our
client strategy and account management groups are critical to ensuring both
pre-engagement planning and post-launch satisfaction and success by educating
our customers about the benefits of our products and services.
Our indirect sales channel uses the sales forces of third parties to
offer our services to their affiliates. To gain market presence and market
share, we team with leading consulting organizations, interactive agencies,
system integrators, advertising agencies and technology resellers that have
strong industry backgrounds and market presence in their respective markets and
geographic regions, as well as those that have a strong presence in targeted
vertical markets.
Our marketing strategy is focused on media relations and public
relations in order to develop a reputation as an industry leader. We use focused
print and online advertising campaigns to create awareness of and demand for our
products and services. We use direct marketing to target customer segments and
generate leads. As the cornerstone of our direct marketing efforts, we will
participate in focused executive forums and targeted trade shows. We will also
use co-branded and cooperative marketing arrangements with key partners to
leverage indirect channels. In addition, we will partner closely with particular
customers to highlight our success within market segments and use industry
events, forums and trade shows to promote our business-to business brand
presence.
RESEARCH AND DEVELOPMENT
We believe that our future success will depend in large part on our
ability to continue to maintain and enhance our platform offerings. To this end,
we are continuing to enhance our technology platform and develop additional
applications, as well as integrate additional third-party applications. Research
and development expenses were approximately $1.4 million in the period from our
inception to December 31, 1999 and approximately $350,000 for the three months
ended March 31, 2000. We intend to continue to recruit and hire experienced
research and development personnel and to make investments in research and
development.
TECHNOLOGY
In offering our products and services, we employ advanced software and
hardware, combining our internal expertise with industry standard technology to
create our proprietary platform. We utilize an integrated set of software
applications, components, services, toolkits and server infrastructure which
collectively make up our platform. This platform serves as the foundation for
our Web network management solution and the integrated Web sites of our
customers and their affiliates. We have designed the various modules of our
technology platform to support its extension to and integration with external
services and third-party developers. We can also replicate the various modules
of our platform in order to manage an increase in the number of our customers
and offer redundancy in our systems. The major elements of our proprietary
technology platform include:
SOFTWARE PLATFORM. Our software platform is an integrated suite of
components that form the foundation of our product and service offerings. We are
actively leveraging and extending the latest Java technologies as the technical
foundation of our technology platform. We have made a significant commitment to
a Java 2 platform from Sun Microsystems. We believe Java-based technologies
provide us the ability to build scaleable, extendable and configurable Web-based
solutions for our customers. Our technology team has many years of experience in
successfully deploying server- and Java-based Internet
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solutions, including the deployment of one of the first Java servelet-based
electronic commerce solutions in 1997. In addition, we utilize database systems
from Oracle and Sybase to provide highly reliable and scaleable information
management for our platform.
In addition to our proprietary software and services, our software
platform integrates third-party applications, such as email services provided by
CommTouch, Web site hit tracking and reporting by MyComputer.com and locator
services provided by Mapquest. Our software platform also integrates third-
party services such as domain name registration services from Network Solutions,
affiliate marketing with Commission Junction and an image library from Getty
Images. Our software platform hosts externally developed services, such as
electronic payment engines from Clear Commerce, Signio and Cybercash. We support
an integrated application development kit that enables third-party developers to
integrate additional functionality into our software platform. We are currently
developing a series of integrated processes that will allow third-party
developers to develop, test and deploy applications on our technology platform.
Our software platform also contains support for security management, application
state management and templated assembly of components into Web-based
applications.
APPLICATION WIZARDS AND BUILDERS. We have developed a library of
application components, wizards and builders that assist in the rapid
development of applications using our proprietary technology platform. We are in
the process of integrating some of our development tools with tools commonly
used by third-party developers.
APPLICATIONS. We currently provide three of our own applications. These
applications are used to create, publish and maintain large networks of
distributed Web sites, including electronic commerce sites, for our customers
and their affiliates. These applications, used individually or in any
combination, can be rapidly assembled, modified, configured and branded into an
integrated offering for our customers. Any future applications we develop for
our platform will be designed to enhance and extend the integrated branded
offerings of our customers.
COMMON PRESENTATION LAYER. We have developed template languages that
allow for rapid configuration and branding of all of our applications. We
provide a service to our customers that allows them to define the parameters of
their systems. Central organizations employing our solution are able to provide
their affiliates with branded content because they are able to control the
templates available to affiliates.
INFRASTRUCTURE
We believe that our highly reliable and scalable operations
infrastructure represents a strategic advantage in providing distributed Web
site solutions. Our primary data center, located in Memphis, Tennessee, operates
24 hours a day, seven days a week and supports all aspects of the Web site
networks we host. By leveraging our platform architecture, we can optimize the
functionality of our data center by configuring it based on customer
requirements for availability, capacity and accessibility. Our second facility
in San Jose, California is currently a disaster recovery facility and is
scheduled to become a full data center later this year with capabilities similar
to those of our Memphis facility. Once completed, our San Jose facility will
provide geographical load-balancing and redundancy between Memphis and San Jose.
Both of our data centers are operated remotely from our network operations
center in Carlsbad, California. Key features of our infrastructure include the
following:
DISTRIBUTED SERVERS. We deploy a large number of high-speed redundant
servers to support capacity, availability and accessibility demands. We can
deploy additional servers to support increases in Web site traffic and the
number of Web sites we host and the introduction of new services without
interruptions or time degradation. Our technology platform architecture provides
automatic fail-over, load-balancing and threshold monitoring on our critical
servers.
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<PAGE>
ADVANCED TELECOMMUNICATIONS. We deploy redundant telecommunications and
routing hardware. We also co-locate our data centers in hosting facilities that
maintain multiple high-speed peering connections to multiple tier one network
providers to ensure that our services are readily available to our customers at
all times.
NETWORK SECURITY. We incorporate advanced architectural concepts such
as protected domains, restricted nodes and distributed access control in our
systems architecture. We have also developed a strongly authenticated
communications protocol within and between our technology platform architecture
modules that we believe will restrict our vulnerability to most electronic
attacks and limit any potential exposure of our customers. In addition, we use
the latest network security technologies, including firewalls and intrusion
detection software. We also periodically employ security consultants who perform
security risk audits of our systems. We plan to continue to evaluate and deploy
new technological defenses as they become available.
EXTERNAL INTEGRATION. We are developing processes that allow companies
who furnish additional applications to our platform to deploy their
customizations and configurations on our common infrastructure. This process
includes mechanisms that enable us to perform quality assurance and acceptance
tests before we deploy externally developed software to our common
infrastructure.
DISASTER RECOVERY PLANS. While we believe our operations facilities are
highly resistant to systems failure and sabotage, we have developed a disaster
recovery and contingency operations plan. All of our customers' Web sites are
linked to advanced storage systems that provide data protection through
techniques such as mirroring and replication. Currently, if we were to lose our
primary facility in Memphis, we would manually transfer data from our Memphis
storage systems to our San Jose facility and could be fully operational within
approximately 24 to 48 hours. We are in the process of expanding our San Jose
facility to include redundancy and load-balancing which would allow for the
uninterrupted operation of our customers' Web sites. We expect the San Jose
facility to be fully operational by the end of 2000.
INTELLECTUAL PROPERTY
Our success and competitive position depend on our ability to develop,
maintain and protect the proprietary aspects of our technology and to operate
without infringing the proprietary rights of others. We rely on a combination of
patent, trademark, copyright and trade secret laws and confidentiality and
license agreements to protect our intellectual property and proprietary rights.
These laws, however, afford only limited protection for our technology. We
currently hold one patent and have another application pending in the United
States. We may also seek additional patents in the future. We seek to protect
our source code, software, documentation and other written materials under trade
secret and copyright laws. Finally, we seek to prevent disclosure of our
intellectual property by requiring our employees and consultants with access to
our proprietary information to execute confidentiality agreements with us.
Despite our efforts to protect our proprietary rights, unauthorized
third-parties may attempt to copy aspects of our products and services or obtain
and use software or information we regard as proprietary. Policing unauthorized
use of our products and services is difficult and litigation may be necessary in
the future to enforce our intellectual property rights, protect our trade
secrets, determine the validity and scope of proprietary rights of others or
defend claims against infringement or invalidity. Any resulting litigation could
result in substantial costs and diversion of resources and could cause our
business to suffer. We cannot be certain that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology. Any failure by us to protect our
intellectual property could cause our business to suffer.
To date, we have not been notified that our products or services
infringe the proprietary rights of third parties, but we cannot be certain that
third-parties will not claim infringement with respect to our
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<PAGE>
current or future products. As the number of products and competitors in our
industry grows and the functionality of products overlaps, we expect that
software developers will increasingly be subject to infringement claims. Patent
litigation has recently increased in the software and Internet industry, due to
increased competition and the unsettled state of the law regarding patents for
software and business methods. Any infringement claims, whether with or without
merit, could be time-consuming to defend, result in costly litigation, divert
the attention of management, cause product delays or force us to enter into
royalty or license agreements. These royalty or license agreements may not be
available on terms acceptable to us or at all. In addition, if we were to lose
an infringement suit, we would be forced to pay costly damages or license fees
and/or to stop using or selling a particular product or service until it is
properly modified. A successful claim of patent infringement against us or our
failure or inability to license the infringed technology or to develop or
license technology with comparable functionality would cause our business to
suffer.
COMPETITION
Our market is new and rapidly evolving and we expect competition to
increase significantly in the future. We believe few companies currently have a
solution specifically designed to manage content, commerce and brand across
large numbers of affiliated Web sites. To date, organizations that have created
large numbers of related Web sites have done so through the development of a
custom, proprietary solution, which can be time-consuming and expensive.
Accordingly, we believe that there may be a significant advantage in
establishing a large customer base before current competitors increase the
sophistication of their product offerings and new participants enter the market.
If we fail to attract and retain a large customer base and do not establish a
prominent market position, our ability to grow our business will be inhibited
and our business could suffer.
While we currently do not face significant direct competition, there are
various types of companies that compete with us in different areas. These
companies include:
- Web site publishing such as Netopia, Nextron Communications and Orbit
Commerce;
- providers of integrated electronic business applications such as IBM
and BroadVision;
- Web authoring software providers such as Microsoft, Netobjects and
Adobe;
- content management software vendors such as Interwoven and Vignette;
- catalog software providers such as BigStep, CNET Store, Open Market,
InterShop and Yahoo Store!;
- community management systems developers such as Homestead.com,
MyFamily.com, Homepage.com and Koz.com;
- providers of infrastructure enabling software such as BEA Systems and
Tibco; and
- numerous small companies offering some form of Web content or
electronic commerce systems.
Many of these companies have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do and may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many of these companies have wider
name recognition and more extensive customer bases that could be leveraged,
thereby gaining market share at our expense. These companies may be able to
undertake more extensive promotional activities, adopt more aggressive pricing
policies and offer more attractive terms to customers than we can. In addition,
these companies may establish cooperative relationships among themselves or with
third parties to enhance their products and services. Accordingly, it is
possible that new competitors may emerge and rapidly acquire significant market
share.
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Increased competition could materially and adversely affect our ability
to obtain revenues from new or existing customers on terms favorable to us.
Further, competitive pressures may require us to reduce the prices of our
products and services. In either case, our business would be materially harmed.
We cannot be certain that we will be able to compete effectively with existing
or new competitors or that increased competition will not harm our business.
PROPERTIES
Our headquarters are currently located in a leased facility in Carlsbad,
California, consisting of approximately 3,500 square feet under a lease that
expires in August 2003. Under our lease, we have an option to lease
approximately 1,500 square feet of additional office space in our current
building. In addition, we have temporary use license agreements for two
additional office suites in our current building consisting of approximately
4,900 square feet. This agreement expires in September 2000. We also have leased
domestic sales offices in the Boston and San Jose metropolitan areas.
EMPLOYEES
As of March 31, 2000, we had 70 employees. Of our total number of
employees, 25 were in engineering, 24 were in sales and marketing, 16 were in
professional services and five were in finance and administration. Our future
success will depend in large part on our ability to attract, retain and motivate
highly qualified technical and management personnel, for whom competition is
intense. Our employees are not represented by a collective bargaining unit and
we have never experienced a work stoppage. We believe our relations with our
employees are good.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information, as of March 31, 2000, with
respect to those individuals who serve as members of our Board of Directors or
as our executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- -----------
<S> <C> <C>
Robert J. Frankenberg (1) (2)........ 52 Chairman and Director
Gari L. Cheever...................... 43 President, Chief Executive Officer and Director
Dana S. McGowan...................... 41 Chief Financial Officer and Vice President--Finance
Garland Wong......................... 37 Chief Technology Officer
Douglas J. Perry..................... 52 Chief Operating Officer and Vice President--Services
Thomas M. Aitchison.................. 39 Vice President--Sales
Lauren J. Essex...................... 38 Vice President--Marketing
Ray Ghanbari, Ph.D................... 33 Vice President--Engineering
Jeffrey P. Higgins................... Vice President--Corporate Development and General
34 Counsel
H. Dubose Montgomery (1)............. 51 Director
Alejandro Perez (2).................. 51 Director
Peter S. Sealey, Ph.D (1)............ 59 Director
Kenneth Tai (2)...................... 49 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
ROBERT J. FRANKENBERG has served as Chairman of our board of directors
since he co-founded the company in 1998. Mr. Frankenberg is currently serving as
Chairman of the Board, President and Chief Executive Officer of Encanto
Networks, Inc., a provider of small business Internet solutions, and has been
with Encanto since 1997. From 1994 to 1997, he served as Chairman of the Board,
President and Chief Executive Officer of Novell, Inc. Prior to that time,
Mr. Frankenberg served 25 years at Hewlett-Packard Company, during which time he
served as Vice President and General Manager of the Personal Information
Products Group. Mr. Frankenberg serves on the board of directors of several
companies, including the following public companies: Daw Technologies, Inc.,
ElectroGlas, Inc., National Semiconductor, Inc, Secure Computing, Inc. and
Scansoft. In addition, Mr. Frankenberg serves on the board of directors of the
following organizations: the Sundance Film Festival, Utah Valley State College
and Westminster College. Mr. Frankenberg received a Bachelor of Science degree
from San Jose State University and is a graduate of the executive program of the
Stanford University School of Business.
GARI L. CHEEVER has served as our President, Chief Executive Officer and
a member of our board of directors since he co-founded our company in
November 1998. From 1997 to 1999 Mr. Cheever served as Executive Vice President
and Chief Financial Officer of Encanto Networks, Inc. From 1990 to 1997,
Mr. Cheever was a partner at the law firm of Brobeck, Phleger & Harrison and
from 1986 to 1990 he was an associate at the firm, where he specialized in
securities and corporate law. Mr. Cheever received two Bachelor of Science
degrees from Arizona State University and a Juris Doctor degree from Stanford
University.
DANA S. MCGOWAN has served as our Vice President--Finance and Chief
Financial Officer since December 1999. From January 1994 to April 1999,
Ms. McGowan served as Vice President, Finance and Chief Financial Officer at
DepoTech Corporation, a biotechnology firm, that was acquired by SkyePharma PLC
in April 1999. From May 1994 to November 1994, Ms. McGowan also worked as an
independent consultant to various biotechnology companies. Prior to that time,
Ms. McGowan held financial management positions with Alliance Pharmaceutical
Corporation and Cytel Corporation. In addition, Ms. McGowan worked for
approximately five years in various financial positions at SAIC, a Fortune 500
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company with businesses ranging from technology to health care. Ms. McGowan is a
certified public accountant. She received a Bachelor of Science degree from San
Diego State University.
GARLAND WONG has served as our Chief Technology Officer since he
co-founded our company in November 1998. Mr. Wong also served as our Vice
President--Engineering from November 1998 to February 2000. From July 1998 to
February 1999, Mr. Wong served as General Manager of the Siteman division of iXL
Enterprises and from July 1991 to July 1998 and he served as Chief Technology
Officer of CommerceWAVE, Inc., an electronic commerce company. Since 1994,
Mr. Wong has had extensive involvement with electronic commerce, serving as one
of the primary architects of CyberCash, one of the first secure real-time
Internet credit card payment system, and as a consultant to CyberCoin, one of
the first micropayment systems. Mr. Wong holds a patent on the management of
electronic storefronts using only a browser. Mr. Wong received a Bachelor of
Science degree from the University of California at San Diego.
DOUGLAS J. PERRY has served as our Vice President--Services and our
Chief Operating Officer since March 2000. From September 1999 to March 2000, he
served as our Vice President--Marketing and Vice President--Network Services.
From September 1997 to January 1999, Mr. Perry served as Vice President of
Service and Support of Encanto Networks, Inc. and from January 1999 to
September 1999 he also served as Vice President of Engineering of Encanto
Networks. From January 1995 to September 1997, Mr. Perry directed New Media
Technologies for the Applied Information Management Institute, a non-profit
enterprise focused on facilitating information technology growth. Mr. Perry has
also served as Vice President of Marketing for Inacom, a national distributor
and integrator of computer and communications products and services, and held
various management roles with US West. Mr. Perry received Bachelor of Science
and Master of Science degrees from Stanford University.
THOMAS M. AITCHISON has served as our Vice President--Sales since
March 1999. From 1998 to February 1999, Mr. Aitchison served as Vice
President--North American Sales of Live Picture, Inc. While at Live Picture,
Mr. Aitchison established the North American sales organization, working with
interactive agencies and integrators to deliver Internet imaging solutions. From
1995 to 1998, Mr. Aitchison served as Director of Sales for McAfee Associates.
From 1991 to 1995, Mr. Aitchison served as Director of Northwestern and Western
Canadian Sales for Legent Corporation and from 1988 to 1991 he worked with
Computer Associates International. Mr. Aitchison received a Bachelor of Science
degree from Arizona State University.
LAUREN J. ESSEX has served as our Vice President--Marketing since
February 2000. From 1998 to 1999, Ms. Essex served as Vice President, Consumer
Marketing at Women First HealthCare where she was responsible for the launch of
womenfirst.com, a comprehensive health resource and electronic commerce
marketplace for midlife women. From 1997 to 1998, Ms. Essex served as Vice
President, Marketing for Cosmederm Technologies from and from 1994 to 1997 she
served as Vice President, Marketing, Sales and Customer Service for La Costa
Products International. From 1984 to 1994, Ms. Essex held a variety of brand
management positions at Helene Curtis where she was responsible for nationally
advertised consumer brands. Ms. Essex received a Bachelor of Arts degree from
the University of Rochester and a Master of Management degree from J.L. Kellogg
Graduate School of Management at Northwestern University.
RAY GHANBARI, PH.D. has served as Vice President--Engineering since
February 2000. From July 1999 to February 2000, Dr. Ghanbari served as Vice
President--Engineering of MedData Healthcare Systems. From April 1998 to
July 1999, Dr. Ghanbari served as Director of Information Architecture of
Agouron Pharmaceuticals, and from March 1995 to April 1998, he served as
Director of Research Computing at the Mayo Clinic. From November 1991 to
June 1996, Dr. Ghanbari founded and served as Principal of Digital Tool Works.
Dr. Ghanbari received a Bachelor of Science degree from the University of
Illinois--Urbana, a Master of Philosophy degree from Cambridge University and a
Doctor of Philosophy degree from the Massachusetts Institute of Technology.
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<PAGE>
JEFFREY P. HIGGINS has served as our Vice President--Corporate
Development and General Counsel since February 2000. From September 1997 to
February 2000, Mr. Higgins was a partner at the law firm of Gunderson, Dettmer,
Stough, Villeneuve, Franklin & Hachigian LLP. From January 1997 to
September 1997, Mr. Higgins was a partner at the law firm of Brobeck, Phleger &
Harrison and from September 1990 to January 1997 he was an associate at that
firm. Mr. Higgins received a Bachelor of Arts degree from Claremont McKenna
College and a Juris Doctor degree from Hastings College of Law.
H. DUBOSE MONTGOMERY has served as a member of our board of directors
since December 1999. Mr. Montgomery is a General Partner and the Managing
Director of Menlo Ventures, a venture capital firm which he co-founded in 1976.
He currently serves as a director of many of the firm's privately-held
companies. Prior to founding Menlo Ventures, he worked as a small business
management consultant and a communications researcher for Bell Laboratories.
Mr. Montgomery received Bachelor of Science and Master of Science degrees from
the Massachusetts Institute of Technology and a Master of Business
Administration degree from the Harvard University Graduate School of Business
Administration.
ALEJANDRO PEREZ has served as a member of our board of directors since
December 1998. Since 1991, Mr. Perez has served in various capacities at Pulsar
Internacional S.A. de C.V., a company headquartered in Monterey, Mexico.
Mr. Perez currently serves as the President of the Technology Group of Pulsar
Internacional, where he manages investments in several technology companies.
Mr. Perez serves on the board of directors of Binova Holding Corporation,
Weblink Wireless, Encanto Networks, Inc., Dextra Technology, Merkafon and
Novaweb Technology.
PETER S. SEALEY, PH.D. has served as a member of our board of directors
since September 1999. Since April 1995, Dr. Sealey has been employed by the Haas
School of Business at the University of California at Berkeley as a visiting
lecturer and adjunct professor of marketing. Since 1998, he has served as a
co-director of the Center of Marketing and Technology at the Haas School of
Business. Dr. Sealey is also currently the President and Chairman of The Los
Altos Group, Inc., a venture capital and marketing consulting firm, which he
founded in 1997. Through contacts made with The Los Altos Group, Dr. Sealey has
consulted for numerous companes, including Sony New Technologies, Inc., Visa
U.S.A., Nokia, Hewlett-Packard and The Eastman Kodak Company, among others.
Prior to his employment with the University of California at Berkeley,
Dr. Sealey served as President and Chief Operating Officer of Interactive
Network, Inc., a subscription-based media company. He also held various
executive positions including Senior Vice President of Global Marketing at The
Coca-Cola Company where he served for a total of twenty-two years. Dr. Sealey
serves on the boards of directors of AutoWeb.com, Encanto Networks, Inc.,
CyberGold, Inc, L 90, Inc., marchFirst, Inc., MediaPlex, Inc., T/R
Systems, Inc. and United Parcel Service Capital Corporation. Dr. Sealey received
a Bachelor of Science degree from the University of Florida, a Master of
Industrial Administration degree from Yale University and Master of Arts and
Doctor of Philosophy degrees from the Peter F. Drucker Graduate Management
Center at The Claremont Graduate School.
KENNETH TAI has served as a member of our board of directors since
December 1999. Mr. Tai is the Chairman of Investar Capital, Inc., a venture
capital firm, a position he has held since April 1996. Since April 1998, he has
served as the Chairman of DigiTimes Publication, Inc., a daily electronic
newspaper reporting on technology issues in Taiwan. From March 1993 to
December 1995, Mr. Tai served as the Vice-Chairman of UMAX USA, a computer
peripherals manufacturer. From 1990 to March 1993, Mr. Tai co-founded the Acer
Group and held various executive positions including Vice President of Worldwide
Sales and Marketing and President. Mr. Tai serves on the board of directors of
Altigen Communications and Sage, Inc. Mr. Tai received a Master of Business
Administration from Tamkang University in Taiwan.
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<PAGE>
BOARD COMPOSITION
We currently have six directors. Mr. Perez is currently serving on our
board of directors as a representative of the holders of our Series A redeemable
convertible preferred stock and Messrs. Montgomery and Tai are currently serving
as representatives of the holders of our Series B redeemable convertible
preferred stock. The holders of our Series A redeemable convertible preferred
stock are entitled to elect one director and the holders of our Series B
redeemable convertible preferred stock are entitled to elect two directors, all
as set forth in our current amended and restated certificate of incorporation.
Upon the closing of this offering, the outstanding shares of each class of our
redeemable convertible preferred stock will convert into shares of our common
stock and the holders of our redeemable convertible preferred stock will no
longer have the right to appoint any directors. All of our directors are elected
to hold office until our next annual meeting of stockholders and until their
successors have been elected.
Each of our officers is elected by our board of directors at the first
board of directors meeting following the annual meeting of stockholders at which
the directors are elected. Each officer serves at the discretion of our board of
directors. Our officers and directors, other than our non-employee directors,
devote their full time to our affairs. Our non-employee directors devote their
time to our affairs as is necessary to satisfy their duties. There is no family
relationship among any of our directors, officers or key employees.
BOARD COMMITTEES
The audit committee of our board of directors reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants. The audit committee consists of Messrs. Frankenberg,
Perez and Tai.
The compensation committee of our board of directors reviews the
compensation and benefits provided of all our executive officers, recommends the
amounts of compensation we pay to our executive officers, administers our stock
option plan and establishes general policies relating to compensation of our
employees. The compensation committee consists of Messrs. Frankenberg,
Montgomery and Sealey.
DIRECTOR COMPENSATION
We do not currently compensate our directors for the services they
provide to us as members of our board of directors, although we do reimburse
them for expenses incurred in connection with attendance at board and committee
meetings. We also do not compensate our directors for committee participation or
special assignments. We have granted some of our directors options to purchase
shares of our common stock under our 1999 Stock Option/Stock Issuance Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, compensation decisions were made by our entire board of
directors. Mr. Cheever served as both an executive officer and a director during
1999 and participated in deliberations of our board of directors concerning
compensation of executive officers. As of April 2000, compensation decisions are
made by the compensation committee of the board of directors, which consists of
Messrs. Frankenberg, Montgomery and Sealey. Mr. Frankenberg is President, Chief
Executive Officer and Chairman of the board of directors of Encanto Networks.
Mr. Sealey is a member of the board of directors of Encanto Networks.
44
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by us
during the fiscal year ended December 31, 1999 to our Chief Executive Officer
and our other executive officers whose salary and bonus exceeded $100,000 during
our last fiscal year for services rendered in all capacities to us.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY (2) BONUS COMPENSATION COMPENSATION
- --------------------------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Gari L. Cheever,
President and Chief Executive Officer.... $102,083 $ -- $ -- $ --
Thomas M. Aitchison,
Vice President--Sales.................... 139,221 12,000 -- --
Garland Wong,
Chief Technology Officer................. 131,826 -- -- --
</TABLE>
- ------------------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
perquisite and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the named executive
officer.
(2) The amounts shown represent the salaries of the executive officers for only
part of 1999. Mr. Cheever began receiving his salary in June, Mr. Aitchison
began receiving his salary in March and Mr. Wong began receiving his salary
in February.
45
<PAGE>
OPTION GRANTS
The following table sets forth information for the year ended
December 31, 1999 with respect to each grant of stock options to the named
executive officers:
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM (4)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ------------------------------
NAME GRANTED IN 1999 (3) PER SHARE DATE 0% 5% 10%
- ---- ---------- ----------- -------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gari L. Cheever (1).. 1,600,000 29.6% $0.10 3/21/09 $ $ $
Thomas M. Aitchison
(1) (2)............ 275,000 5.1 0.10 3/21/09
Garland Wong (1)..... 600,000 11.1 0.10 3/21/09
</TABLE>
- ------------------------
(1) Each of these options was granted under our 1999 Stock Option/Stock Purchase
Plan and is subject to the terms of that plan. Except as otherwise noted,
these options were granted at an exercise price equal to the fair market
value of our common stock as determined by our board of directors on the
date of grant and, as long as the optionee remains in continuous employment
with us, vest over a four year period at a rate of 25% after the first year
and in 36 equal monthly installments thereafter. All of the options granted
to each executive officer were immediately exercisable upon grant and are
subject to particular rights of repurchase in the event the optionee does
not remain in continuous employment with us.
(2) Options granted to Mr. Aitchison to purchase 25,000 shares of our common
stock vest on March 15, 2006.
(3) In 1999, we granted employees and directors options to purchase an aggregate
of 5,422,000 shares of our common stock.
(4) The assumed annual rates of stock price appreciation are required by the
rules of the SEC and do not represent our estimate or projection of our
future stock price. The potential realizable value is calculated by assuming
that the estimated initial public offering price of $ per share
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day at
the appreciated price. The potential realizable value is net of the
applicable exercise price, but does not take into account applicable federal
or state income tax consequences and other expenses of option exercises.
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<PAGE>
The following table provides summary information concerning the shares
of common stock acquired upon exercise of options in 1999, and the year-end
number and value of unvested options with respect to each of the officers listed
in the summary compensation table as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND DECEMBER 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF IN-THE-
NUMBER OF MONEY
OPTIONS OPTIONS AT
SHARES AT DECEMBER 31, DECEMBER 31,
ACQUIRED 1999 (2) 1999 (3)
UPON OPTIONS VALUE -------------------- --------------------
NAME EXERCISE REALIZED (1) VESTED UNVESTED VESTED UNVESTED
- ---- ------------- ------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gari L. Cheever............. 1,600,000 $ 0 0 1,600,000
Thomas M. Aitchison......... -- -- 0 275,000
Garland Wong................ -- -- 0 600,000
</TABLE>
- ------------------------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for the shares.
(2) The options are immediately exercisable for all of the shares issuable
thereunder, but any shares purchased under those options will be subject to
repurchase by us at the original exercise price paid per share, if the
optionee ceases service with us before vesting in those shares. The heading
"vested" refers to those shares that are no longer subject to repurchase and
the heading "unvested" refers to those shares subject to repurchase as of
December 31, 1999.
(3) Based upon the assumed initial public offering price of $ per share less
the exercise price per share.
EMPLOYMENT AGREEMENT
We entered into an employment agreement with Gari L. Cheever on June 1,
1999. Under his employment agreement, Mr. Cheever will serve as our President
and Chief Executive Officer through June 1, 2002. During the period of his
employment, Mr. Cheever is required to devote sufficient time and energy to
fulfill his responsibilities to our business and shall not engage in any
competitive business activity, other than certain passive investments, without
our express written consent. Mr. Cheever has also agreed not to use or disclose
any of our proprietary information or encourage or solicit any of our employees
or affiliates to leave us for a period of one year following his termination.
Mr. Cheever's compensation under his employment agreement includes a
base salary of $175,000 for the initial 12 months of his employment, and
thereafter an amount to be mutually agreed upon by Mr. Cheever and the
compensation committee of our board of directors. Mr. Cheever's base salary is
subject to increase at any time during his employment at the sole discretion of
the compensation committee of our board of directors without the consent of
Mr. Cheever. Mr. Cheever is also eligible for a bonus as determined by our board
of directors and all benefits that are generally available to our other
executives. In addition, we granted Mr. Cheever options to purchase 1,600,000
shares of our common stock at an exercise price of $0.10 per share under his
employment agreement. The first 25% of Mr. Cheever's options vested on
January 29, 2000 and the remaining 75% will vest in 36 equal monthly
installments commencing on January 29, 2000. Mr. Cheever's options will vest in
full upon a change of control of our company.
Mr. Cheever's employment agreement provides that if he is terminated by
us without cause, he shall be entitled to payment of his base salary for a
period of one year following the date of his termination by us. However, if
Mr. Cheever is terminated for cause, voluntarily departs, dies or becomes
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<PAGE>
incapacitated, he will not be entitled to any additional compensation or other
rights or benefits from us and we shall only be obligated to pay that portion of
his base salary earned by Mr. Cheever prior to his termination.
BENEFIT PLANS
1999 STOCK OPTION/STOCK ISSUANCE PLAN
INTRODUCTION. We adopted on March 22, 1999, and our shareholders
approved in April 1999, our 1999 Stock Option/Stock Issuance Plan. The purpose
of the 1999 plan is to attract and retain the best available personnel by
providing them with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in our company. The 1999 plan is
divided into two separate equity programs, consisting of an option grant program
and a stock issuance program.
ADMINISTRATION. The 1999 plan is administered by our board of directors
or a committee thereof comprised of two or more members of the board. The plan
administrator has power and authority, among other things, to:
- determine the persons eligible to receive, and the terms and
conditions relating to, stock options or stock issuances;
- establish any rules and regulations for proper administration of the
1999 plan; and
- make determinations under, and issue interpretations of, the 1999 plan
and any outstanding stock options or stock issuances.
ELIGIBILITY. Persons eligible to participate in the 1999 plan are
employees, non-employee members of the board of directors, and consultants
providing services to us.
SHARES AVAILABLE. A maximum of 6,300,000 shares of our common stock is
reserved for issuance under the 1999 plan, subject to appropriate adjustment for
particular events affecting our outstanding common stock as a class without our
receipt of consideration. To the extent a stock option granted under the 1999
plan expires, terminates or is cancelled, the shares subject to such option are
available for subsequent issuance under the 1999 plan. Any unvested shares
issued under the 1999 plan and subsequently repurchased by us pursuant to our
repurchase rights also are available for reissuance under the 1999 plan.
OPTION GRANT PROGRAM. A stock option granted under the 1999 plan may be
either an "incentive stock option" as that term is defined in Section 422 of the
Internal Revenue Code or an option that does not so qualify. The terms and
conditions of each option grant are determined by the plan administrator and set
forth in a stock option agreement. Each option grant must comply with the
following requirements:
- The exercise price per share is determined by the plan administrator.
The exercise price may not be less than 85% of the fair market value
per share of our common stock on the option grant date. However, in
the case of a participant who is a 10% stockholder, the exercise price
may not be less than 110% of the fair market value.
- The exercise and term of each stock option are determined by the plan
administrator. However, if the grant is made to an individual who is
not an officer or member of our board of directors, or a consultant to
us, at least 20% of the total number of shares subject to each option
grant must become exercisable each year, beginning no later than the
option grant date. In addition, no stock option may have a term that
exceeds 10 years from the option grant date.
- In the event a participant terminates service with us other than by
reason of misconduct or dies, the participant or, if applicable, the
executors or personal administrator of the participant's estate or the
person(s) who acquired the options by beneficiary designation,
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<PAGE>
bequest or inheritance, has a period of time to exercise any stock
options held by the participant to the extent the options are vested
and, after that period, the options will lapse. Upon a participant's
termination of service, any stock options held by the participant will
lapse to the extent it is unvested as of the date of termination of
service. The plan administrator has discretion at the time a stock
option is granted or while the option remains outstanding to extend
the period of exercise following a participant termination of service
or death and permit the exercise of one or more installments of shares
in which the participant would have vested had the participant
continued service. However, in no event may a stock option be
exercised after its expiration date.
- In the event a participant's service is terminated for misconduct, all
stock optons held by the participant terminate immediately.
- The plan administrator may grant options exercisable for unvested
shares of our common stock. In the event that a participant terminates
service with us while holding any unvested shares subject to options,
we have the right to repurchase, at the exercise price, all or any
unvested shares.
- The plan administrator has the authority to cancel any or all
outstanding stock options and to grant in substitution therefor new
options in accordance with the 1999 plan.
- Any incentive stock option granted under the 1999 plan also must
comply with the incentive stock option provisions of the plan.
STOCK ISSUANCE PROGRAM. We may issue shares of our common stock through
immediate purchase of shares or as a bonus for services. The terms and
conditions of each stock issuance are determined by the plan administrator and
set forth in a stock issuance agreement. Each stock issuance must comply with
the following requirements:
- The purchase price per share is determined by the plan administrator.
The purchase price may not be less than 85% of the fair market value
per share of our common stock on the stock issuance date. However, in
the case of a participant who is a 10% shareholder, the purchase price
may not be less than 110% of the fair market value. Consideration for
the purchase price includes past services rendered to us.
- The vesting of each stock issuance is determined by the plan
administrator. Shares may be fully and immediately vested upon
issuance or may vest in one or more installments over the
participant's period of service or attainment of specified performance
objectives. However, if the stock issuance is made to an individual
who is not an officer or member of our board of directors, or a
consultant to us, at least 20% of the total number of shares subject
to each issuance grant must become vested each year, beginning no
later than one year after the stock issuance date.
FIRST REFUSAL RIGHTS. Until our common stock is registered under
Section 12(g) of the Securities Exchange Act of 1934, we have a right of first
refusal regarding any proposed disposition of any shares of our common stock
issued under the 1999 plan.
CORPORATE TRANSACTION. In the event of a change of control of our
company or the sale, transfer or other disposition of all or substantially all
of our assets in complete liquidation or dissolution of our company:
- all outstanding stock options will automatically accelerate and become
fully exercisable immediately prior to the effective date of such
event, except to the extent (1) the options are assumed by the
successor corporation or its parent and our repurchase rights with
respect to the unvested option shares are assigned to the successor
corporation or its parent, (2) the
49
<PAGE>
options are replaced with a substantially similar equity incentive
program of the successor corporation, or (3) the acceleration is
subject to other limitations imposed by the plan administrator at the
time of the grant;
- all outstanding repurchase rights will automatically terminate, and
the shares subject to those rights will vest in full, except to the
extent (1) our repurchase rights are assigned to the successor
corporation or its parent or (2) the accelerated vesting is precluded
by other limitations imposed by the plan administrator at the time the
repurchase right is issued;
- all outstanding stock options terminate and cease to be outstanding
immediately following the consummation of such event, except to the
extent assumed by the successor corporation or its parent; and
- each option which is assumed will be appropriately adjusted.
Notwithstanding that any stock options are to be assumed and any
repurchase rights are to be assigned in connection with a change of control of
our company or the sale, transfer or other disposition of all or substantially
all of our assets in complete liquidation or dissolution of our company, the
plan administrator has discretion:
- to provide for automatic acceleration in whole or part of one or more
outstanding options, and immediate termination of the repurchase
rights with respect to the shares subject to such options, upon the
occurrence of such event;
- to grant stock options which automatically accelerate in the event of
a participant's involuntary termination within a period not to exceed
18 months following the event, with the options to remain exercisable
until the earlier of (1) the expiration of such options or (2) one
year from the date of such involuntary termination, and to provide
that one or more of our repurchase rights with respect to shares held
by the participant at the time of the involuntary termination will
immediately terminate and the shares subject to those repurchase
rights will vest in full; and
- to provide that repurchase rights with respect to unvested shares will
automatically terminate and the shares subject to those terminated
rights will immediately vest in the event of a participant's
involuntary termination within a period not to exceed 18 months
following such event.
TERM OF PLAN. The 1999 plan terminates upon the earliest of
(1) March 21, 2009, (2) the date on which all shares available for issuance have
been issued in connection with the exercise of options or issuance of shares
under the plan, or (3) the termination of all outstanding options in connection
with a transaction described above.
AMENDMENT OF PLAN. Our board of directors may amend the plan, but no
amendment may negatively impact the rights and obligations with respect to
outstanding options or unvested stock issuances without the consent of the
participant, as applicable.
2000 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION. Our 2000 Employee Stock Purchase Plan was adopted by our
board of directors on April 28, 2000 and will be submitted to our stockholders
for their approval prior to the completion of this offering. The 2000 stock
purchase plan is intended to qualify under Section 423 of the Internal Revenue
Code and is designed to allow our eligible employees to purchase shares of our
common stock by accumulated payroll deductions.
SHARES AVAILABLE. 500,000 shares of our common stock are available for
issuance under the 2000 stock purchase plan during the 10 years following its
adoption.
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<PAGE>
ELIGIBILITY. All employees who have been continuously employed by us
for at least six months and who regularly work more than 20 hours a week and
more than five months a year are eligible to participate in the 2000 stock
purchase plan. Any individual whose employment with us terminates for any
reason, other than disability, before the end of an offering will become
ineligible to purchase common stock under the 2000 stock purchase plan.
OFFERING PERIODS. We will make six-month offerings beginning on
January 1 and July 1 of each year, commencing at a time as determined at our
discretion, and may make additional offerings for different periods, provided
that each period does not exceed 27 months.
PURCHASE PRICE. The purchase price per share is equal to 85% of the
lesser of the fair market value of a share on the first day of the offering
period or the fair market value of a share on the last day of the offering
period.
PURCHASE OF SHARES. Eligible employees may accumulate savings through
payroll deductions over an offering period in order to purchase common stock at
the end of that period. Purchases of our common stock under the 2000 stock
purchase plan may only be made with accumulated savings from payroll deductions,
and an employee cannot complete a purchase using other resources. The
accumulated savings for an offering will be automatically applied at the end of
offering period to purchase as many shares of common stock as feasible, and the
unused balance shall be carried over to the next offering.
PAYROLL DEDUCTIONS. The rate of an employee's payroll deduction must be
established before the offering, and we reserve the right to establish a minimum
and maximum rate applicable to all eligible employees. An employee's payroll
deduction authorization for one offering will apply to successive offerings
unless the employee changes the authorization. An employee may reduce, but not
increase, his or her rate of payroll deductions during an offering or withdraw
from an offering at any time. Upon withdrawal from any offering, the employee's
accumulated savings for the offering shall be returned, without interest, to the
employee.
LIMITATIONS AND RESTRICTIONS. In no event shall the fair market value
of all shares purchased by an employee under the 2000 stock purchase plan exceed
$25,000 with respect to any calendar year. Further, no employee will be
permitted to complete the purchase of common stock under the 2000 stock purchase
plan if, immediately after the purchase, the employee would own shares
possessing at least 5% of our total combined voting power
MERGERS OR OTHER CONSOLIDATIONS. In the event we are a party to a
merger or consolidation, outstanding options under the 2000 stock purchase plan
will be subject to the agreement of merger or consolidation, which, without the
consent of any participant, may provide for:
- the continuation of any outstanding options by us if we are the
surviving corporation;
- the assumption of the 2000 stock purchase plan and any outstanding
options by the surviving corporation or its parent;
- the substitution by the surviving entity or its parent of options with
substantially similar terms; or
- the cancellation of any outstanding options without payment of any
consideration other than the return of contributions credited to
participant accounts, without interest.
AMENDMENT OR TERMINATION OF PLAN. Our board of directors may amend or
terminate the 2000 stock purchase plan at any time; provided, however, that no
increase in the number of shares of our common stock reserved for issuance under
the 2000 stock purchase plan may be made without shareholder approval.
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<PAGE>
2000 STOCK PLAN
INTRODUCTION. Our 2000 Stock Plan was adopted by our board of directors
on April 28, 2000 and will be submitted to our stockholders for their approval
prior to the completion of this offering. The purpose of the 2000 plan is to
attract and retain the best available personnel by providing them with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in our company. The 2000 plan provides for the direct
award or sale of shares of our common stock and for the grant of options to
purchase shares. As of the effective date of the 2000 plan, no stock option
grants of such issuances will be made under the 1999 plan.
ADMINISTRATION. The 2000 plan is administered by one or more committees
comprised of one or more members of our board of directors. Each committee has
authority and responsibility for functions our board of directors has assigned
to it. If no committee has been appointed, the entire board of directors will
administer the 2000 plan. Subject to the foregoing, our board of directors will
establish a committee comprised solely of not less than two members of the our
board of directors who each qualify as (1) a "non-employee director" within the
meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934 and
(2) an "outside director" within the meaning of Section 162(m) of the Internal
Revenue Code, and unless our board of directors determines otherwise, the
committee will have authority to make awards or sales of shares or grants of
stock options to employees who generally qualify as "covered employees" within
the meaning of Section 162(m). References to our board of directors with respect
to this summary of the 2000 plan should be construed as the context requires as
a reference to the committee, if any, to whom our board of directors has
assigned a particular function. The authority of our board of directors includes
determining the persons to whom awards or sales are made or stock options are
granted, and the terms and conditions relating thereto.
ELIGIBILITY. Persons eligible to participate in the 2000 plan are
employees, non-employee members of the board of directors, and consultants
providing services to us, as determined by our board of directors.
SHARES AVAILABLE. A maximum of 1,500,000 shares of our common stock are
reserved for issuance under the 2000 plan, plus (1) an additional number of
shares of our common stock as of the first day of each calendar year equal to
500,000 shares, (2) shares available for issuance under the 1999 plan, and
(3) shares issued or issuable under the 2000 plan by reason of options or other
rights being assumed or substituted, in all cases, subject to appropriate
adjustment for particular events affecting our outstanding common stock. To the
extent shares subject to stock options or other rights granted under the 1999 or
2000 plan expire, terminate or are cancelled, or shares are issued under the
1999 or 2000 plan and reacquired by us pursuant to any forfeiture, right of
repurchase or right of first refusal provision, these shares will again be
available for purposes of the 2000 plan. The maximum number of shares underlying
all options or other rights granted under the 2000 plan that may be granted to
any single employee, including as a director or consultant, over any three-year
period during the term of the plan is 500,000 shares, subject to appropriate
adjustment for particular events affecting our outstanding common stock.
TERMS AND CONDITIONS OF AWARDS OR SALES. Each award or sale of shares,
other than upon exercise of a stock option, is evidenced by a stock purchase
agreement. The award or sale is subject to the terms and conditions of the 2000
plan and may be subject to any other terms and conditions not inconsistent with
the plan as determined by our board of directors.
- Any right to acquire shares under the 2000 plan, other than a stock
option, automatically expires if not exercised by the participant
within 30 days after grant of such right.
- The purchase price per share is determined by our board of directors.
Consideration for the purchase price includes past services rendered
to us.
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- The vesting, special forfeiture conditions, rights of repurchase,
rights of first refusal and other transfer restrictions applicable to
each award or sale of shares are determined by our board of directors.
TERMS AND CONDITIONS OF OPTIONS. Each grant of a stock option is
evidenced by a stock option agreement. The option is subject to the terms and
conditions of the 2000 plan and may be subject to any other terms and conditions
not inconsistent with the plan as determined by our board of directors.
- The number of shares subject to the option, and whether the option is
an incentive stock option or a non-qualified stock option if
determined by our board of directors. Any incentive stock option
granted under the 2000 plan also must comply with the incentive stock
option provisions of the plan.
- The exercise price is determined by our board of directors. The
exercise price of an incentive stock option will not be less than 100%
of the fair market value per share of our common stock on the option
grant date.
- The vesting and exercisability relating to the option are determined
by our board of directors. Unless the stock option agreement provides
otherwise, all of an participant's options will become exercisable in
full if we experience a change of control before the participant's
service terminates, we do not continue the options, and the surviving
corporation or its parent does not assume the options or does not
substitute its options with substantially the same terms for the
options.
- The term of the option is determined by our board of directors.
However, no option may have a term that exceeds 10 years from the
option grant date.
- In the event a participant terminates service with us, other than for
cause, or dies, the participant or, if applicable, the executors or
personal administrator of the participant's estate or the person(s)
who acquired the options by beneficiary designation, bequest or
inheritance, has a prescribed period of time to exercise any stock
options held by the participant to the extent the options are vested
and exercisable and, after the period, the options will lapse. Upon a
participant's termination of service, any stock options held by the
participant will lapse to the extent it is unvested as of the date of
termination of service. However, in no event may a stock option be
exercised after its expiration date.
- Unless otherwise determined by our board of directors, all stock
options, whether vested or unvested, held by a participant are
cancelled and forfeited upon the termination of a participant's
service for cause.
- Our board of directors may modify, extend or assume any outstanding
options or may provide for the cancellation of outstanding options in
return for the grant of new options in accordance with the 2000 plan,
but no such modification will, without the consent of the participant,
negatively impact the participant's right or increase the
participant's obligations under the option.
- The vesting, special forfeiture conditions, rights of repurchase,
rights of first refusal and other transfer restrictions applicable to
the shares issued upon exercise of an option are determined by our
board of directors.
PERFORMANCE MEASURES. In the event of an award or sale of shares or
grant of stock options with a purchase or exercise price of less than fair
market value at the time of such award, sale or grant, the committee comprised
of non-employee directors and outside directors may at its discretion determine
and administer the terms and conditions of such award, sale or grant so as to
qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code. The grant, payment, vesting and/or
exercisability of the award, sale or grant will be subject to the achievement
during a
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performance period or periods of a level or levels of one or more performance
measures, in each case as established at the discretion of the committee. The
establishment of performance measures applicable to any award, sale or grant
will be made before either 90 days or 25% of the applicable performance period
have elapsed. The amount of compensation payable under the terms of any the
award, sale or grant upon the achievement of any applicable performance measure
will not be subject to any increase as a result of discretion exercised,
directly or indirectly, by the committee. No compensation attributable to an
award, sale or grant will be paid to or otherwise received by an employee who
generally qualifies as a "covered employee" within the meaning of
Section 162(m) of the Internal Revenue Code with respect to any performance
period until the committee certifies in writing that the performance measures
applicable to the award, sale or grant and the performance period have been
satisfied.
CHANGE IN CONTROL. Unless otherwise provided in the stock purchase
agreement or stock option agreement, upon the consummation of a change of
control or the sale, transfer or other disposition of all or substantially all
of our assets before a participant's service terminates, any right to repurchase
the participant's shares at the original purchase, if any, or exercise price
upon termination of the participant's service will lapse and all of the shares
will become vested, at the discretion of our board of directors.
MERGERS OR OTHER CONSOLIDATIONS. In the event we are a party to a
merger or consolidation, outstanding options under the 2000 plan will be subject
to the agreement of merger or consolidation, which, without the consent of any
participant, may provide for:
- the continuation of any outstanding options by us if we are the
surviving corporation;
- the assumption of the 2000 plan and any outstanding options by the
surviving corporation or its parent;
- the substitution by the surviving entity or its parent of options with
substantially similar terms; or
- the cancellation of the vested portion, and not the unvested portion,
of outstanding options or other rights by cash payment of the excess,
if any, of the fair market value of shares subject to the vested
portion of any such option or other right over the aggregate exercise
with respect to such portion.
TERM OF PLAN. The 2000 plan became effective April 28, 2000, subject to
our shareholder approval. In the event that shareholder approval is not obtained
within 12 months after the adoption of this 2000 plan, any sales, awards or
grants that already have occurred will be rescinded, and no additional sales,
awards or grants will be made thereafter under the 2000 plan. The 2000 plan
automatically terminates 10 years after its adoption, but may be earlier
terminated by our board of directors.
AMENDMENT OR TERMINATION OF PLAN. Our board of directors may amend or
terminate the 2000 plan at any time; provided, however, that no increase in the
number of shares of our common stock reserved for issuance under the 2000 plan
and no material change in the class of persons who are eligible for incentive
stock options may be made without stockholder approval.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by Delaware law, we will adopt provisions in our amended
and restated certificate of incorporation and bylaws that limit or eliminate the
personal liability of our directors for a breach of their fiduciary duty of care
as a director. The duty of care generally requires that, when acting on behalf
of the corporation, directors exercise an informed business judgment based on
all material information reasonably available to them. Consequently, a director
will not be personally liable to us or our
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stockholders for monetary damages for breach of their fiduciary duties as
directors, except liability arising from:
- a breach of their duty of loyalty to us or our 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 purchases or
redemptions; or
- any transaction from which the director derived an improper benefit.
Our amended and restated certificate of incorporation and bylaws will
provide that we shall indemnify our directors, officers, employees and other
agents to the fullest extent permitted by Delaware law. Our amended and restated
certificate of incorporation and bylaws will also permit us to secure insurance
on behalf of any of our directors, officers, employees or other agents for any
liability arising out of his or her actions in that capacity.
We have entered into agreements to indemnify our directors and officers,
in addition to the indemnification provided by our amended and restated
certificate of incorporation and bylaws. These agreements, among other things,
indemnify our directors and officers for particular expenses, including
attorneys' fees, judgments, fines and settlement amounts incurred by the
director or officer in any action or proceeding arising out of the director's or
officer's services as one of our directors, officers, agents or fiduciaries or
services provided to any other company or enterprise at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as our directors and officers.
Presently, there is no pending litigation or proceeding involving any of
our directors or officers in which indemnification is required or permitted, and
we are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.
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RELATED PARTY TRANSACTIONS
PREFERRED STOCK FINANCINGS
Since our inception, we have issued shares of our redeemable convertible
preferred stock to investors in the following private placement transactions: a
total of 5,847,895 shares of our Series A redeemable convertible preferred stock
at a price of $0.90 per share between April and July 1999, a total of 3,903,112
shares of our Series B redeemable convertible preferred stock at a price of
$4.00 per share between December 1999 and February 2000, and 1,392,438 shares of
our Series C redeemable convertible preferred stock at a price of $12.30 per
share in April 2000. The following table sets forth the number of shares of our
preferred stock purchased by our executive officers, directors and 5%
stockholders and persons and entities associated with them in these private
placement transactions. All of our shares of preferred stock will convert into
common stock on a one-for-one basis upon completion of this offering.
<TABLE>
<CAPTION>
SERIES A SERIES B TOTAL
PREFERRED STOCK PREFERRED STOCK CONSIDERATION
--------------- --------------- -------------
<S> <C> <C> <C>
Entities affiliated with InveStar Capital, Inc....... 833,334 500,000 $2,750,000
Entities affiliated with Menlo Ventures.............. - 1,312,500 5,250,000
Luna Mare, LLC....................................... 1,234,946 450,000 2,911,451
Gari L. Cheever...................................... 814,694 - 733,224
Robert J. Frankenberg................................ 728,584 - 655,725
Garland Wong......................................... 100,000 - 90,000
</TABLE>
Kenneth Tai, H. Dubose Montgomery and Alejandro Perez each serve as
members of our board of directors as representatives of the holders of our
redeemable convertible preferred stock. Mr. Perez is currently serving on our
board of directors as a representative of the holders of our Series A redeemable
convertible preferred stock and Messrs. Montgomery and Tai are currently serving
as representatives of the holders of our Series B redeemable convertible
preferred stock. Kenneth Tai is the Chairman of InveStar Capital, Inc., an
affiliate of InveStar Excelsus Venture Capital (Int'l), Inc. LDC, Forefront
Venture Partners, L.P., InveStar Burgeon Venture Capital, Inc. and InveStar
Dayspring Venture Capital, Inc., each of which are record holders of our
Series A or Series B redeemable convertible preferred stock. Mr. Montgomery is a
managing member of MV Management VIII, L.L.C., the ultimate general partner of
Menlo Ventures VIII, L.P., Menlo Entrepreneurs Fund VIII, L.P. and MMEF VIII,
L.P., each of which are record holders of our Series B redeemable convertible
preferred stock. Mr. Perez is the President of the Technology Group of Pulsar
International S.A. de C.V., the ultimate parent entity of Luna Mare, LLC.
Gari L. Cheever is our President, Chief Executive Officer and a
director, Robert J. Frankenberg is our Chairman and Garland Wong is our Chief
Technology Officer. In addition to Mr. Cheever's purchase of our Series A
redeemable convertible preferred stock, he also purchased 1,275,001 shares of
our common stock for an aggregate purchase price of $25,500 and exercised
options to purchase 1,600,000 shares of our common stock for an aggregate
exercise price of $160,000. In addition to Mr. Frankenberg's purchase of our
Series A redeemable convertible preferred stock, he also purchased 1,275,001
shares of our common stock for an aggregate purchase price of $25,500. Mr.
Frankenberg is also the Chairman of the Board, President and Chief Executive
Officer of Encanto Networks, Inc., one of our founding stockholders. In addition
to Mr. Wong's purchase of our Series A redeemable convertible preferred stock,
he also purchased 150,000 shares of our common stock for an aggregate purchase
price of $3,000 and exercised options to purchase 625,000 shares of our common
stock for an aggregate exercise price of $110,000.
LOANS TO EXECUTIVE OFFICERS FOR OPTION EXERCISES
In February and March 2000, the following executive officers delivered
promissory notes to us in the amounts set forth below to pay the exercise price
of their stock options:
- Dr. Ray Ghanbari, Vice President - Engineering: $80,000;
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- Jeffrey P. Higgins, Vice President - Corporate Development and General
Counsel: $320,000; and
- Garland Wong, Chief Technology Officer: $110,000.
The outstanding principal balance and accrued but unpaid interest on
each note must be paid to us on or before February 11, 2005 for Mr. Higgins and
March 16, 2005 for Dr. Ghanbari and Mr. Wong. Each loan accrues interest at a
rate of 6.8% per year until paid. Each note may be prepaid at the option of the
executive officer, in full or in part, at any time without premium or penalty.
Each note is full recourse to the executive officer and entitled to the benefits
of a pledge agreement entered into by us and each of the executive officers.
Dr. Ghanbari pledged 40,000 shares of our common stock, Mr. Higgins pledged
160,000 shares of our common stock and Mr. Wong pledged 625,000 shares of our
common stock to secure their notes. In the event that the executive officer
defaults on his note, we have the right to accelerate the payment or performance
of all obligations under the note and the pledge agreement and have all rights
and remedies under law, including the right to sell the shares of common stock
pledged as security.
COMMERCIAL RELATIONSHIPS
In August 1997, CommerceWave, one of our predecessors, entered into a
development and license agreement with Encanto Networks, Inc. under which
Encanto agreed to pay CommerceWave $205,200 in exchange for a license to use and
distribute, as part of an Encanto hardware product, a version of our electronic
commerce software, including modifications and enhancements to this software. In
January 1999, we amended the agreement to provide Encanto the right to use or
distribute this software other than as part of the Encanto hardware product. In
exchange for this amendment, Encanto paid us $325,000 and issued 300,000 shares
of Encanto common stock to us valued at $0.17 per share. At the same time, we
agreed to provide additional development services as well as electronic commerce
hosting services to Encanto for which we were paid a total of $425,000. Encanto
is one of our founding stockholders and holds a total of 350,000 shares of our
common stock.
In a separate arrangement with Encanto, Encanto's German subsidiary,
Encanto GmbH, will provide marketing and sales services to us in Europe. Under
this arrangement, we pay Encanto GmbH approximately half of its monthly rent and
personnel costs. Encanto is one of our founding stockholders and owns 350,000
shares of our common stock. In addition, Robert Frankenberg, one of our founders
and the chairman of our board of directors, is currently serving as Chairman,
Chief Executive Officer and President of Encanto. In addition, two of our
directors, Alejandro Perez and Peter S. Sealey, are members of the board of
directors of Encanto.
In January 1999, we acquired Siteman and various contracts relating to
Siteman from iXL Enterprises. As a result of this acquisition, we have several
agreements with iXL. Our primary license agreement gives iXL the right, subject
to the payment of royalties to us, to sublicense our electronic commerce and
content management software to the clients iXL hosts on its platform. We also
agreed to allow iXL to develop enhancements to our software, which we will own
jointly with iXL, and further agreed not to sue iXL at any time regarding the
patent relating to the browser-based storefront iXL assigned to us. As part of
the acquisition, we agreed to purchase from iXL, directly or through our
customers or contractors, $1,500,000 of services within 30 months from the
acquistion date. If iXL has not been engaged by us or our designees to perform
services totaling $1,500,000 by July 2001, we will be required to pay iXL a lump
sum payment for the difference between the original obligation and the fees
received by iXL during the 30 month period. As of March 31, 2000, we have
expended $515,010 under the service agreement with iXL. In addition, we have
subleased our corporate office space in Carlsbad, California from iXL for
approximately $8,500 per month through August 2003. iXL holds 561,339 shares of
our Series A redeemable convertible preferred stock.
In April 1999, we entered into a three-year consulting services
agreement with Dextra Technologies, Inc. under which Dextra is to provide
engineering consulting services to us on various
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negotiated projects for fees between $35 and $45 per hour. Dextra Technologies
is an affiliate of Pulsar International S.A. de C.V., the ultimate parent entity
of Luna Mare, LLC, a holder of two shares of our common stock, 1,234,946 shares
of our Series A redeemable convertible preferred stock and 450,000 of our
Series B redeemable convertible preferred stock. In addition, Alejandro Perez,
one of our directors, formerly served as president of Dextra Technologies and
currently serves on the Board of Directors of Dextra and as the President of the
Technology Group of Pulsar Internacional S.A. de C.V.
We believe that each of the foregoing transactions is in our best
interests, on terms no less favorable to us than we could obtain from
unaffiliated third parties and reasonably expected to benefit us.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
We have entered into agreements to indemnify our directors and officers,
in addition to the indemnification provided by our amended and restated
certificate of incorporation and bylaws. These agreements, among other things,
require us to indemnify our directors and officers for particular expenses,
including attorneys' fees, judgments, fines and settlement amounts incurred by
the director or officer in any action or proceeding arising out of the
director's or officer's services as one of our directors, officers, agents or
fiduciaries or services provided to any other company or enterprise at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as our directors and officers.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 26, 2000, as adjusted to reflect the
sale of shares in this offering, by:
- each person or group of affiliated persons known by us to own
beneficially more than 5% of the outstanding shares of our common
stock;
- each of our directors;
- each of our executive officers; and
- all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Unless otherwise noted in the footnotes to the table below, each
person or group identified possesses sole voting and investment power with
respect to the shares beneficially owned by the stockholder, subject to
applicable community property laws. Beneficial ownership percentage is based on
17,633,199 shares of common stock outstanding as of April 26, 2000. Shares of
common stock that a person has the right to acquire within 60 days of April 26,
2000 are deemed outstanding for purposes of computing the beneficial ownership
percentage of the person holding such rights, but are not deemed outstanding for
purposes of computing the beneficial ownership percentage of any other person,
except with respect to the beneficial ownership percentage of all directors and
executive officers as a group. The address for each officer and director is 2111
Palomar Airport Road, Suite 250, Carlsbad, California 92009.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------ -------- ---------
<S> <C> <C> <C>
Entities affiliated with InveStar Capital Inc. 1,614,862 9.2%
(1)...............................................
1737 North First Street, Suite 650
San Jose, California 95112
Entities affiliated with Menlo Ventures (2)......... 1,312,500 7.4%
3000 Sand Hill Road, Building 4
Menlo Park, California 94025
Luna Mare, LLC (3).................................. 2,034,948 11.5%
686 No. DuPont Blvd. #200
Milford, Delaware 19963
Robert J. Frankenberg (4)........................... 3,153,585 17.1%
Gari L. Cheever (5)................................. 3,689,695 20.9%
Dana S. McGowan (6)................................. 175,000 *
Garland Wong (7).................................... 875,000 5.0%
Douglas J. Perry (8)................................ 200,000 1.1%
Thomas M. Aitchison (9)............................. 275,000 1.5%
Lauren J. Essex (10)................................ 160,000 *
Ray Ghanbari (11)................................... 160,000 *
Jeffrey P. Higgins (12)............................. 185,000 1.0%
H. Dubose Montgomery (13)........................... 1,312,500 7.4%
Alejandro Perez (14)................................ 2,034,948 11.5%
Peter S. Sealey (15)................................ 635,555 3.6%
Kenneth Tai (16).................................... 1,614,862 9.2%
All directors and executive officers
as a group (13 persons) (17)...................... 14,471,145 75.0%
</TABLE>
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- ------------------------
* Less than 1%
(1) Consists of 833,334 shares held by InveStar Excelsus Venture Capital
(Int'l), Inc. LDC, 277,778 shares held by Forefront Venture Partners, L.P.,
250,000 shares held by InveStar Burgeon Venture Capital, Inc., 250,000
shares held by InveStar Dayspring Venture Capital, Inc. and 3,750 shares
subject to immediately exercisable warrants.
(2) Consists of 1,250,000 shares held by Menlo Ventures VIII, L.P., 49,500
shares held by Menlo Entrepreneurs Fund VIII, L.P. and 13,000 shares held
by MMEF VIII, L.P.
(3) Includes 350,000 shares held by Encanto Networks, Inc. Pulsar Internacional
S.A. de C.V., the majority stockholder of Encanto Networks, is the ultimate
parent entity of Luna Mare, LLC.
(4) Includes 800,000 immediately exercisable options, 533,333 of which are
subject to repurchase rights, and 350,000 shares held by Encanto Networks.
Mr. Frankenberg is the Chairman, Chief Executive Officer and President of
Encanto Networks, Inc. Mr. Frankenberg disclaims beneficial ownership of
the shares held by Encanto Networks.
(5) Includes 615,159 shares held by UMB Bank, N.A., as successor trustee of BPH
LLP Retirement Savings Trustee for Gari. L. Cheever. Includes
1,066,667 shares subject to repurchase rights.
(6) Consists solely of immediately exercisable options, all of which are
subject to repurchase rights.
(7) Includes 425,000 shares subject to repurchase rights.
(8) Consists solely of immediately exercisable options, all of which are
subject to repurchase rights.
(9) Includes 200,000 exercisable options and 196,875 shares subject to
repurchase rights.
(10) Consists solely of immediately exercisable options all of which are subject
to repurchase rights.
(11) Includes 120,000 immediately exercisable options and 160,000 shares which
are subject to repurchase rights.
(12) Includes 160,000 shares subject to repurchase rights.
(13) Consists of 1,250,000 shares held by Menlo Ventures VIII, L.P., 49,500
shares held by Menlo Entrepreneurs Fund VIII, L.P. and 13,000 shares held
by MMEF VIII, L.P. The ultimate general partner of Menlo Ventures VIII,
L.P., Menlo Entrepreneurs Fund VIII, L.P. and MMEF VIII, L.P. is MV
Management VIII, L.L.C., of which Mr. Montgomery is a managing member.
Mr. Montgomery disclaims beneficial ownership of the shares held by the
entities affiliated with Menlo Ventures except to the extent of his
pecuniary interest therein.
(14) Consists of 1,684,948 shares held by Luna Mare, LLC and 350,000 shares held
by Encanto Networks, Inc. Mr. Perez has been designated by Luna Mare, LLC
to serve on our board of directors. Pulsar Internacional S.A. de C.V. is
the majority stockholder of Encanto Networks. Mr. Perez is the president of
the Technology Group of Pulsar Internacional S.A. de C.V. Mr. Perez
disclaims beneficial ownership of the shares held by Luna Mare, LLC and
Encanto Networks except to the extent of his pecuniary interest therein.
(15) Consists of 555,555 shares held by Digacomm, LLC and 80,000 shares subject
to repurchase rights. Mr Sealy disclaims beneficial ownership of the shares
held by Digacomm, LLC except to the extent of his pecuniary interest
therein.
(16) Consists of 833,334 shares held by InveStar Excelsus Venture Capital
(Int'l), Inc. LDC, 277,778 shares held by Forefront Venture
Partners, L.P., 250,000 shares held by InveStar Burgeon Venture
Capital, Inc., 250,000 shares held by InveStar Dayspring Venture
Capital, Inc. and 3,750 shares subject to immediately exercisable warrants.
Mr. Tai is the Chairman of InveStar Capital, Inc. Mr. Tai disclaims
beneficial ownership of the shares held by the entities affiliated with
InveStar Capital, Inc. except to the extent of his pecuniary interest
therein.
(17) Includes 3,750 shares subject to immediate exercisable warrants, 1,655,000
immediately exercisable options and 3,156,875 shares subject to repurchase
rights.
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DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation, which will become
effective following our reincorporation in the State of Delaware, will authorize
the issuance of up to 100,000,000 shares of common stock, par value $0.001 per
share, and 5,000,000 shares of preferred stock, par value $0.001 per share, the
rights and privileges of which may be established by our board of directors. As
of April 26, 2000, after giving effect to the conversion of all of the
outstanding shares of our Series A, B and C preferred stock and the exercise of
8,250 warrants upon completion of this offering, 17,641,449 shares of our common
stock were issued and outstanding and held by approximately 90 stockholders.
The following is a summary description of our capital stock. Our amended
and restated certificate of incorporation and amended and restated bylaws will
provide further information about our capital stock.
COMMON STOCK
Each holder of our common stock will be entitled to one vote per share
on all matters to be voted upon by the stockholders. Subject to preferences that
may be applicable to any outstanding preferred stock, each holder of our common
stock will be entitled to receive dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available. In the
event of our liquidation, dissolution or winding up, each holder of our common
stock will be entitled to share ratably in all assets remaining after payment of
liabilities, subject to the rights of the holders of any class of preferred
stock then outstanding. The holders of our common stock will have no preemptive
or conversion rights or other subscription rights. There will be no redemption
or sinking fund provisions applicable to our common stock. All outstanding
shares of our common stock are fully paid and nonassessable.
PREFERRED STOCK
Our board of directors will have the authority to issue preferred stock
in one or more classes or series and to fix the rights, preferences, privileges
and related restrictions, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any class or series or the
designation of the class or series, without the approval of our stockholders.
The authority of our board of directors to issue preferred stock without
approval of our stockholders may have the effect of delaying, deferring or
preventing a change of control of our company and may adversely affect the
voting and other rights of the holders of our common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of our common stock, including the loss of voting
control to others. As of the closing of this offering, no shares of our
preferred stock will be outstanding.
REGISTRATION RIGHTS
Set forth below is a summary of the registration rights of the holders
of our Series A redeemable convertible preferred stock, Series B redeemable
convertible preferred stock and Series C redeemable convertible preferred stock,
each of which will convert into common stock upon consummation of this offering.
DEMAND REGISTRATION RIGHTS. At any time after six months following the
effective date of the registration statement relating to our initial public
offering, the holders of at least 50% of the shares with registration rights may
request us to register their shares if the anticipated aggregate offering price
is at least $20,000,000, subject to our right, upon advice from the
underwriters, to reduce the number of shares the holders propose to be
registered. If shares requested to be included in a registration must be
excluded based on the advice of the underwriters, the shares registered will be
allocated among all holders with rights to be included in the registration on a
pro rata basis. We are not obligated to effect a demand registrations under the
following circumstances: after we have effected two demand registrations; during
the period starting 60 days prior to filing of, and ending 180 days after the
effective date of, a registration initiated by us; or, if we shall furnish to
the holders requesting registration of their shares a certificate
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<PAGE>
signed by our Chief Executive Officer or Chairman of the Board stating that in
the good faith judgment of our board of directors, it would be seriously
detrimental to us and our stockholders for a registration statement to be
effected at that time. Upon the delivery of the certificate, we shall have the
right to defer the request for a period of not more than 90 days, provided that
we may not exercise the right of deferral more than once in any 12 month period.
PIGGYBACK REGISTRATION RIGHTS. The holders of shares with registration
rights have the right to include their shares in any registration we initiate
for our capital stock, other than registrations relating solely to the sale of
securities to participants in a stock plan, a registration relating to a
corporate reorganization or other transaction under Rule 145 of the Securities
Act, a registration on a form that does not include substantially the same
information as would be required to be included in a registration statement
covering their shares or a registration in which the only common stock being
registered is common stock issuable upon the conversion of debt securities also
being registered. In our initial registration, the underwriters may, in their
sole discretion, exclude all or part of the shares requested to be registered on
behalf of all holders having the right to include shares in the registration. In
our subsequent registrations, the underwriters may, in their sole discretion,
limit the number of shares requested to be registered on behalf of all holders
having the right to include shares in the registration to not less than 25%. If
shares to be included in a registration must be excluded based on the advice of
the underwriters, the shares registered will be allocated among all holders with
rights to be included in the registration on a pro rata basis. We have the right
to terminate any registration we initiate prior to its effectiveness regardless
of any request for inclusion by any stockholders.
FORM S-3 REGISTRATION RIGHTS. After we have qualified for registration
on Form S-3, which will not occur until at least 12 months after we become a
public reporting company, holders of at least 50% of the shares with
registration rights may request in writing that we effect a registration of
their shares on Form S-3. We are not obligated to effect a registration on
Form S-3 if Form S-3 is not available for the offering by the holders; the
holders, together with holders of any other securities entitled to inclusion in
the registration, propose to sell securities at an aggregate price to the public
of less than $500,000; we shall furnish to the holders requesting registration
of their shares a certificate signed by our Chief Executive Officer or Chairman
of the Board stating that in the good faith judgment of our board of directors,
it would be seriously detrimental to us and our stockholders for a registration
statement to be effected at that time; or, we have, within the 12 month period
preceding the date of the request, already effected two registrations on
Form S-3 for the holders of shares with registration rights.
TERMINATION OF REGISTRATION RIGHTS. No holder of shares with
registration rights shall be entitled to exercise any registration rights after
five years following the consummation of our initial public offering or, as to
any holder, such earlier time at which our common stock is traded on a
recognized national exchange, the holder owns less than 5% of our outstanding
shares and all registrable shares held by the holder can be sold under Rule 144
of the Securities Act during a three-month period without registration.
WARRANTS
As of March 31, 2000, we had outstanding warrants to purchase an
aggregate of 34,500 shares of our Series B redeemable convertible preferred
stock at an exercise price per share of $4.00. The exercise price and number of
shares of our Series B redeemable convertible preferred stock issuable in
connection with these warrants are subject to adjustment for subdivisions,
combinations and other issuances of our redeemable convertible preferred stock,
and for any reclassifications, capital reorganization or other change in our
redeemable convertible preferred stock. We issued 26,250 warrants to
Comdisco, Inc. in connection with equipment lease financing. These warrants are
exercisable for seven years from the date of issuance or five years after our
initial public offering of our common stock, whichever is earlier, and will be
exercisable for shares of common stock upon completion of this offering. The
remaining 8,250 warrants are exercisable until the earlier of September 30,
2001, our initial public offering or the sale of our company.
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ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW, OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND OUR AMENDED AND RESTATED BYLAWS
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We will be a Delaware corporation subject to the provisions of
Section 203 of the Delaware General Corporation Law. Section 203 generally
provides that a stockholder acquiring more than 15%, but less than 85%, of the
outstanding voting stock of a corporation subject to Section 203 may not engage
in a "business combination," as defined in Section 203, with the corporation for
a period of three years from the date on which that stockholder became an
"interested stockholder," as defined in Section 203, unless:
- prior to that date the board of directors of the corporation approved
either the business combination or the transaction in which the
stockholder became an interested stockholder; or
- the business combination is approved by the board of directors of the
corporation and authorized by the holders of at least 66 2/3% of the
outstanding voting stock of the corporation not owned by the
interested stockholder.
A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with its affiliates, owns, or
within three years prior to the determination of the interested stockholder
status, did own, 15% or more of the voting stock of the corporation.
Section 203 could prohibit or delay a merger or other takeover or change of
control transaction of Kinzan and, accordingly, may discourage actions that
could result in a premium over the market price for the shares held by our
stockholders.
ISSUANCE OF PREFERRED STOCK
Our board of directors will be authorized to issue 5,000,000 shares of
preferred stock and determine the powers, preferences and special rights of any
unissued series of preferred stock, including voting rights, dividend rights,
terms of redemption, conversion rights and the designation of the series,
without the approval of our stockholders. As a result, our board of directors
could issue preferred stock quickly and easily, which could adversely affect the
rights of holders of our common stock. Our board of directors could issue the
preferred stock with terms calculated to delay or prevent a change in control or
make removal of management more difficult.
STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS
Our amended and restated bylaws will provide that our stockholders may
not take action by written consent, and can only take action at a duly called
annual or special meeting of our stockholders. Our bylaws will further provide
that, unless otherwise prescribed by statute or by our amended and restated
certificate of incorporation, special meetings of our stockholders may only be
called by the Chairman of the Board, the President or the Secretary of our
company, at the written request of at least a majority of the entire board of
directors or the record holders of at least a majority of the outstanding shares
of our common stock. These provisions could discourage potential acquisition
proposals and could delay or prevent a change in control. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by the
board of directors and to discourage particular transactions that may involve an
actual or threatened change of control. These provisions are designed to reduce
our vulnerability to an unsolicited acquisition proposal and to discourage
particular tactics that may be used in proxy contests. These provisions could
have the effect of discouraging others from making tender offers for our shares.
NASDAQ SYMBOL
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol KNZN.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding an aggregate
of shares of common stock, assuming no exercise of the underwriters'
over-allotment option. All of the shares of common stock sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining shares of
our common stock held by existing stockholders are "restricted securities" as
that term is defined in Rule 144 of the Securities Act. These restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration under Rule 144 or 701 under the
Securities Act. These rules are summarized below.
Sales of substantial amounts of our common stock, including shares
issued upon exercise of outstanding options, in the public market after this
offering could cause the prevailing market price of our common stock to fall or
impair our ability to raise equity capital in the future. The following table
indicates when the approximately shares of our common stock that are not
being sold in the offering, but which will be outstanding upon completion of
this offering, will be eligible for sale into the public market:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S> <C>
0 ............. Immediately after the date of this prospectus
............. At various times after the date of this prospectus and
prior to 180 days after the effective date of the
registration statement containing this prospectus
............. 180 days after the effective date of the registration
statement containing this prospectus, subject in some cases
to volume limitations
............. At various times after 180 days following the effective
date of the registration statement containing this
prospectus
</TABLE>
LOCK-UP AGREEMENTS
All of our executive officers and directors, the holders of
approximately % of our common stock and the holders of % of our options have
agreed, for a period of 180 days from the date of this prospectus, without the
prior written consent of Chase Securities Inc., not to, directly or indirectly,
sell, offer, contract to sell, transfer the economic risk of ownership in, make
any short sale, pledge or otherwise dispose of any shares of our common stock or
any securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire our common stock, other than the exercise of stock
options and specific family and estate planning transfers. In addition, if the
holder is not an individual, the holder may transfer shares of our common stock
or any securities convertible into or exchangeable or exercisable for or any
other rights to purchase or acquire our common stock to its members,
stockholders, partners or affiliates, so long as the transferee agrees to be
bound by the terms of this paragraph. Chase Securities Inc. may remove these
lock-up restrictions prior to the expiration of the lock-up period without prior
public notice.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned shares of
our common stock for at least one year,
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including the holding period of any prior owner other than 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 our common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Kinzan.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares of our common
stock in connection with a compensatory stock or option plan or other written
agreement is eligible to resell those shares 90 days after the effective date of
this offering in reliance on Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Six months after the effective date of the registration statement
containing this prospectus, the holders of shares of our common
stock, or their transferees, will be entitled to registration rights under the
Securities Act. Please see "Description of Capital Stock--Registration Rights."
After registration, these shares will generally be freely tradable without
restriction under the Securities Act. These sales could cause the trading price
of our common stock to decline, perhaps substantially.
STOCK OPTIONS
As of March 31, 2000, we had granted options to purchase 6,168,000
shares of our common stock, of which 2,705,000 are outstanding. Within
12 months after this offering, we intend to file a registration statement under
the Securities Act covering 6,300,000 shares of our common stock issued or
reserved for issuance under our 1999 Stock Option/Stock Issuance Plan and
2,000,000 shares of our common stock available for future grant under our 2000
Stock Option Plan and our 2000 Employee Stock Purchase Plan which will become
effective upon completion of this offering. Shares of our common stock
registered under that registration statement will, subject to vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after any applicable 180-day lock-up
agreements expire or are terminated.
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UNDERWRITING
We have entered into an underwriting agreement with the underwriters
named below. Chase Securities Inc., Thomas Weisel Partners LLC and William
Blair & Company, L.L.C. are acting as representatives of the underwriters. Chase
H&Q is the business name Chase Securities Inc. uses to describe its equity
underwriting business. Subject to the terms and conditions of the underwriting
agreement, each underwriter has severally agreed to purchase the number of
shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Chase Securities Inc.....................................
Thomas Weisel Partners LLC...............................
William Blair & Company, L.L.C...........................
----------
Total....................................................
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to specified conditions, including the absence of any
material adverse change in our business and the receipt of certificates,
opinions and letters from us, our counsel and our independent auditors. The
underwriters are committed to purchase all the shares of common stock offered by
us, other than those shares covered by the over-allotment option described
below, if they purchase any of the shares.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price shown on the cover page of this
prospectus and to selected dealers at that price less a concession not in excess
of $ per share. The underwriters may allow, and those dealers may
re-allow, a concession not in excess of $ per share to other dealers.
After the initial public offering of shares, the underwriters may change the
public offering price and other selling terms. The representatives have advised
us that the underwriters do not intend to confirm discretionary sales in excess
of 5% of the shares of common stock offered hereby.
We have granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to
additional shares of common stock at the initial public offering
price, less the underwriting discounts shown on the cover page of this
prospectus. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of those additional shares which the number of shares of common stock
offered to be purchased by it shown in the above table bears to the total number
of shares of common stock offered by us. We will be obligated pursuant to this
option to sell shares to the underwriters to the extent the option is exercised.
The underwriters may exercise this option only to cover over-allotments made in
connection with the sale of shares of common stock offered by us.
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us in connection with this offering.
The underwriting discount was determined through negotiations with the
underwriters, and equals the public offering price per share of common stock,
less the amount paid by the underwriters to us per share of common stock. These
amounts are shown assuming
66
<PAGE>
both no exercise and full exercise of the underwriters' option to purchase
additional shares of our common stock.
<TABLE>
<CAPTION>
TOTAL
---------------------
WITHOUT WITH
OVER- OVER-
ALLOTMENT ALLOTMENT
--------- ---------
<S> <C> <C>
Per share............................................. $ $
Total.................................................
</TABLE>
We will pay the offering expenses, estimated to be $ million, excluding
the underwriting discounts and commissions.
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the underwriters may be required to make in respect of any of
those liabilities.
All of our executive officers, directors, the holders of % of our
common stock and the holders of % of our options have agreed, for a period of
180 days from the date of this prospectus, without the prior written consent of
Chase Securities Inc., not to sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise dispose
of any shares of our common stock or any securities convertible into our
exchangeable or exercisable for or any other rights to purchase or acquire our
common stock, other than the exercise of stock options and specific family and
estate planning transfers. In addition, if the holder is not an individual, the
holder may transfer shares of our common stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire our common stock to its members, stockholders, partners or affiliates,
so long as the transferee agrees to be bound by the terms of this paragraph.
During this period, each of our executive officers and directors, the holders of
% of our common stock and the holders of % of our options have agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of common stock or other securities issued by us for a period of 180
days from the date of this prospectus.
We have agreed that without the prior written consent of Chase
Securities Inc., we will not, for a period of 180 days following the date of
this prospectus, directly or indirectly, sell, offer, contract to sell, make any
short sale, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any shares of common stock or any securities convertible
into or exercisable for or any rights to purchase or acquire common stock, or
enter into any swap or other agreement that transfers, either in whole or in
part, the economic consequences of ownership of common stock. The preceding
sentence shall not apply to (1) the shares of our common stock to be sold in
this offering, (2) shares of our common stock issued upon the exercise of
options or warrants outstanding as of the date of this prospectus and (3) the
issuance of options under our stock option plans, provided that, in each case,
the recipients of the options agree to be bound by the terms of our agreement
with Chase Securities Inc.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our employees, directors and parties related to them, and
to service providers and other third parties with whom we have business
relationships. These reserved shares will be sold at the public offering price
that appears on the cover page of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent that any
reserved shares are purchased by these persons. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus.
67
<PAGE>
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock in this offering
will be determined by negotiation between us and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price include prevailing market and economic conditions, the history of
and the prospects for the industry in which we compete, an assessment of our
management, our prospectus, our capital structure, our results of operations in
recent periods and other factors deemed relevant.
Some of the persons participating in this offering may over-allot or
effect transactions that stabilize, maintain or otherwise affect the market
price of the common stock at levels above those that might otherwise prevail in
the open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the common stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting syndicate
or the effecting of any purchase to reduce a short position created in
connection with the offering. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member in connection with the offering when
shares of common stock sold by the syndicate member are purchased in a syndicate
covering transaction. Stabilizing transactions may be effected on the Nasdaq
National Market, in the over-the-counter market, or otherwise. Stabilizing
transactions, if commenced, may be discontinued at any time.
In April 2000, entities affiliated with Chase Securities Inc. purchased
an aggregate of 24,391 shares of our Series C redeemable convertible preferred
stock, for an aggregate purchase price of approximately $300,009 million or
$12.30 per share. All of these shares will automatically convert into shares of
common stock on a one-for-one basis upon completion of this offering. The
holders of these shares have agreed for a period of 180 days from the date of
this prospectus not to sell, transfer, assign, pledge or hypothecate these
shares.
Thomas Weisel Partners LLC was organized and registered as a
broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners LLC
has been named as a lead or co-manager on 165 filed public offerings of equity
securities, of which 112 have been completed, and has acted as a syndicate
member in an additional 91 public offerings of equity securities. In
April 2000, an individual affiliated with Thomas Weisel Partners LLC purchased
an aggregate of 813 shares of our Series C redeemable convertible preferred
stock, for an aggregate purchase price of approximately $10,000 or $12.30 per
share. All of these shares will automatically convert into shares of common
stock on a one-for-one basis upon completion of this offering. The holder of
these shares has agreed for a period of 180 days from the date of this
prospectus not to sell, transfer, assign, pledge or hypothecate these shares.
Thomas Weisel Partners LLC does not have any other material relationship with us
or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us under the underwriting agreement
entered into in connection with this offering.
68
<PAGE>
LEGAL MATTERS
Weil, Gotshal & Manges LLP, Menlo Park, California will pass upon the
validity of the shares of common stock offered by Kinzan in this prospectus. As
of the date of this prospectus, a partner of Weil, Gotshal & Manges LLP and an
investment partnership composed of partners of Weil, Gotshal & Manges LLP
beneficially own an aggregate of 77,269 shares of our common stock. Simpson
Thacher & Bartlett, New York, New York and Palo Alto, California will pass upon
certain legal matters in connection with this offering for the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial
statements of our predecessor at December 31, 1998 and for the year ended
December 31, 1998 and for the period from January 1, 1999 to January 28, 1999,
and our financial statements at December 31, 1999 and for the period from
January 29, 1999 to December 31, 1999. We have included the financial statements
of our predecessor and our financial statements in this prospectus and elsewhere
in this registration statement in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under
the Securities Act for the common stock offered by this prospectus. This
prospectus, which constitutes a part of that registration statement, 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 Kinzan
and the common stock offered by this prospectus, we refer you to the
registration statement and to the exhibits and schedules thereto. Statements
made in this prospectus concerning the contents of any document referred to in
this prospectus are not necessarily complete. With respect to each such document
filed as an exhibit to the registration statement, please refer to the exhibit
for a more complete description of the matter involved.
These documents and other information we file with the SEC can be
inspected and copied at the public reference facilities that the SEC maintains
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048, and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of these materials can be obtained at prescribed rates
from the Public Reference Section of the SEC at the principal offices of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information
regarding the operation of the public reference room by calling
1(800) SEC-0330. The SEC also maintains a Web site at HTTP://WWW.SEC.GOV that
makes available the documents and other information we have filed with the SEC.
69
<PAGE>
KINZAN, INC. AND PREDECESSOR
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheet of the Predecessor as of December 31, 1998 and
the Company as of December 31, 1999 and March 31, 2000
(unaudited)............................................... F-3
Statements of Operations of the Predecessor for the year
ended December 31, 1998 and the period from January 1,
1999 to January 28, 1999, and the Company for the period
from January 29, 1999 (inception) to December 31, 1999,
the period from January 29, 1999 to March 31, 1999
(unaudited) and the three months ended March 31, 2000
(unaudited)............................................... F-4
Statements of Stockholders' Equity (Deficit) of the
Predecessor for the year ended December 31, 1998 and for
the period from January 1, 1999 to January 28, 1999, and
the Company for the period from January 29, 1999
(inception) to December 31, 1999 and the three months
ended March 31, 2000 (unaudited).......................... F-5
Statements of Cash Flows of the Predecessor for the year
ended December 31, 1998 and for the period from
January 1, 1999 to January 28, 1999, and the Company for
the period from January 29, 1999 (inception) to
December 31, 1999, the period from January 29, 1999 to
March 31, 1999 (unaudited) and the three months ended
March 31, 2000 (unaudited)................................ F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Kinzan, Inc.
We have audited the balance sheet of Kinzan, Inc. as of December 31,
1999, and the related statements of operations, stockholders' equity and cash
flows for the period from January 29, 1999 (inception) to December 31, 1999; and
the balance sheet as of December 31, 1998, and the statements of operations,
equity, and cash flows of the Company's predecessor for the year ended
December 31, 1998 and for the period from January 1, 1999 to January 28, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kinzan, Inc., at
December 31, 1999, and the results of its operations and its cash flows for the
period from January 29, 1999 (inception) to December 31, 1999; and the financial
position of the Company's predecessor at December 31, 1998, and the results of
its operations and its cash flows for the year ended December 31, 1998 and for
the period from January 1, 1999 to January 28, 1999 in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
April 6, 2000, except
Note 9, as to which the date
is April 26, 2000.
F-2
<PAGE>
KINZAN, INC. AND PREDECESSOR
BALANCE SHEETS
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR -------------------------- PRO FORMA
DECEMBER 31, DECEMBER 31, MARCH 31, STOCKHOLDERS'
1998 1999 2000 EQUITY
------------ ------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ -- $13,802,332 $12,707,272
Accounts receivable, net of allowance of
$28,109 and $31,162 at December 31, 1999 and
March 31, 2000 (unaudited), respectively..... 223,539 990,345 1,297,929
Prepaid and other assets....................... -- -- 91,310
-------- ----------- -----------
Total current assets............................. 223,539 14,792,677 14,096,511
-------- ----------- -----------
Property and equipment, net...................... 177,428 1,012,355 1,271,189
Software licenses and other intangibles, net..... -- 1,902,826 1,786,325
Deposits and other assets........................ -- 17,760 18,760
-------- ----------- -----------
Total assets..................................... $400,967 $17,725,618 $17,172,785
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................... $ -- $ 713,632 $ 1,237,514
Accrued payroll and related expenses........... 26,550 136,124 258,978
Other accrued expenses......................... -- 120,551 36,203
Deferred revenue............................... -- -- 900,000
-------- ----------- -----------
Total current liabilities........................ 26,550 970,307 2,432,695
Commitments
Series A redeemable convertible preferred stock,
5,847,895 shares authorized, 5,847,895 issued
and outstanding at December 31, 1999 and March
31, 2000 (unaudited), liquidation preference of
$5,263,105..................................... -- 5,259,840 5,259,840 --
Series B redeemable convertible preferred stock,
5,000,000 shares authorized, 3,900,862 and
3,903,112 issued and outstanding at December
31, 1999 and March 31, 2000 (unaudited),
liquidation preference of $15,603,448 and
$15,612,448, respectively...................... -- 15,569,136 15,578,136 --
Stockholders' equity (deficit):
Common stock, no par value, 30,000,000 shares
authorized at December 31, 1999, 70,000,000 at
March 31, 2000 (unaudited), 4,650,004 and
6,489,754 shares issued and outstanding and
December 31, 1999 and March 31, 2000
(unaudited).................................... -- 1,170,950 2,370,826 23,208,802
Equity (Predecessor)............................. 374,417 -- -- --
Note receivable from related parties............. -- -- (511,545) (511,545)
Deferred compensation............................ -- (912,717) (1,348,672) (1,348,672)
Accumulated deficit.............................. -- (4,331,898) (6,608,495) (6,608,495)
-------- ----------- ----------- -----------
Stockholders' equity (deficit)................... 374,417 (4,073,665) (6,097,886) $14,740,090
-------- ----------- ----------- ===========
Total liabilities and stockholders' equity
(deficit)...................................... $400,967 $17,725,618 $17,172,785
======== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
KINZAN, INC. AND PREDECESSOR
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
----------------------- --------------------------------------
JANUARY 29 THREE
(INCEPTION) MONTHS
YEAR ENDED JANUARY 1 TO JANUARY 29 ENDED
DECEMBER TO DECEMBER TO MARCH 31,
JANUARY MARCH 31,
31, 28, 31, 1999 2000
1998 1999 1999
----------- --------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
Revenues........................... $1,566,149 $123,207 $1,972,564 $ 254,094 $ 828,528
Cost of revenues................... 1,106,331 152,562 1,745,417 189,200 797,591
----------- --------- ----------- ---------- -----------
Gross profit....................... 459,818 (29,355) 227,147 64,894 30,937
Operating Expenses:
Selling and marketing............ 613,365 36,068 2,261,951 112,793 1,544,270
Research and development......... 764,036 10,845 1,353,749 90,672 349,802
General and administrative....... 439,811 41,700 461,988 45,716 401,224
Amortization of intangibles...... -- -- 427,174 77,668 116,501
Amortization of deferred
compensation................... -- -- 37,233 849 74,570
----------- --------- ----------- ---------- -----------
Total operating expenses........... 1,817,212 88,613 4,542,095 327,698 2,486,367
----------- --------- ----------- ---------- -----------
Operating loss..................... (1,357,394) (117,968) (4,314,948) (262,804) (2,455,430)
----------- --------- ----------- ---------- -----------
Interest income (expense), net..... -- -- (16,950) (23,364) 178,833
----------- --------- ----------- ---------- -----------
Net loss........................... $(1,357,394) $(117,968) $(4,331,898) $(286,168) $(2,276,597)
=========== ========= =========== ========== ===========
Basic and diluted net loss per
share............................ $ -- $ -- $ (1.50) $ (0.13) $ (0.67)
=========== ========= =========== ========== ===========
Shares used in computing basic and
diluted net loss per share....... -- -- 2,896,145 2,213,714 3,418,664
=========== ========= =========== ========== ===========
Pro forma basic and diluted net
loss per share (unaudited)....... $ (0.59) $ (0.13) $ (0.17)
=========== ========== ===========
Pro forma shares used in computing
basic and diluted net loss per
share (unaudited)................ 7,382,055 2,213,714 13,168,599
=========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
KINZAN, INC. AND PREDECESSOR
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTE TOTAL
COMMON STOCK RECEIVABLE STOCKHOLDERS'
---------------------- FROM RELATED DEFERRED ACCUMULATED EQUITY
EQUITY SHARES AMOUNT PARTIES COMPENSATION DEFICIT (DEFICIT)
---------- --------- ---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance at January 1, 1998.... $ -- $ -- $ -- $ $ -- $ --
Net increase in amounts due
to parent................. 1,731,811 -- -- -- -- -- 1,731,811
Net loss.................... (1,357,394) -- -- -- -- -- (1,357,394)
---------- --------- ---------- --------- ----------- ----------- -----------
Balance at December 31,
1998........................ $ 374,417 -- -- $ -- -- -- $ 374,417
========== ========= ========== ========= =========== =========== ===========
Net decrease in amounts due
to parent................. (256,449) -- -- -- -- -- (256,449)
Net loss.................... (117,968) -- -- -- -- -- (117,968)
---------- --------- ---------- --------- ----------- ----------- -----------
Balance at January 28, 1999... $ -- -- $ -- $ -- $ -- $ -- $ --
========== ========= ========== ========= =========== =========== ===========
COMPANY:
Initial capitalization
January 29, 1999.......... $ -- 4 $ -- $ -- $ -- $ -- --
Issuance of common stock.... -- 3,050,000 61,000 -- -- -- 61,000
Net loss.................... -- -- -- -- -- (4,331,898) (4,331,898)
Deferred compensation
related to stock
options................... -- -- 949,950 -- (949,950) -- --
Amortization of stock-based
compensation................ -- -- -- -- 37,233 -- 37,233
Exercise of common stock
options..................... -- 1,600,000 160,000 -- -- -- 160,000
---------- --------- ---------- --------- ----------- ----------- -----------
Balance at December 31,
1999........................ $ -- 4,650,004 $1,170,950 $ -- $ (912,717) $(4,331,898) $(4,073,665)
========== ========= ========== ========= =========== =========== ===========
Net loss (unaudited)........ -- -- -- -- -- (2,276,597) (2,276,597)
Issuance of common stock for
services.................. -- 1,750 3,500 -- -- -- 3,500
Deferred Compensation
related to stock options
(unaudited)............... -- -- 510,525 -- (510,525) -- --
Amortization of stock-based
compensation
(unaudited)............... -- -- 74,570 -- 74,570
Exercise of common stock
options (unaudited)....... -- 1,838,000 685,851 -- -- -- 685,851
Notes receivable from
related parties for
exercise of options....... -- -- -- (511,545) -- -- (511,545)
---------- --------- ---------- --------- ----------- ----------- -----------
Balance at March 31, 2000
(unaudited)................. $ -- 6,489,754 $2,370,826 $(511,545) $(1,348,672) $(6,608,495) $(6,097,886)
========== ========= ========== ========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
KINZAN, INC. AND PREDECESSOR
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
--------------------------- --------------------------------------------
JANUARY 29 THREE MONTHS
(INCEPTION)
YEAR ENDED JANUARY 1 TO JANUARY 29 ENDED
DECEMBER 31, TO DECEMBER 31, TO MARCH 31,
JANUARY 28, MARCH 31,
1998 1999 1999 1999 2000
------------- ----------- ------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Reconciliation of net loss to net cash (used
in) provided by operating activities:
Net loss.................................. $(1,357,394) $ (117,968) $(4,331,898) $ (286,168) $(2,276,597)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization........... -- -- 609,672 87,415 218,068
Amortization of deferred compensation... -- -- 37,233 849 74,570
Non-cash interest expense............... -- -- 41,571 -- --
Changes in operating assets and
liabilities:
Accounts receivable..................... (223,539) 150,064 (990,345) (99,844) (307,584)
Deposits and other assets............... -- -- (17,760) (8,855) (92,310)
Accounts payable........................ -- -- 713,632 136,761 523,882
Accrued payroll and related expenses.... 26,550 -- 136,124 -- 122,854
Other accrued expenses.................. -- 224,353 120,551 30,978 (84,348)
Deferred Revenue........................ -- -- -- -- 900,000
----------- ----------- ----------- ---------- -----------
Net cash used in operating activities....... $(1,554,383) $ 256,449 $(3,681,220) $ (138,864) $ (921,465)
INVESTING ACTIVITIES:
Purchases of property and equipment......... (177,428) -- (1,024,851) (38,258) (360,400)
Cash paid for business acquired............. -- -- (2,000,000) (2,000,000) --
----------- ----------- ----------- ---------- -----------
Net cash used in investing activities....... (177,428) -- (3,024,851) (2,038,258) (360,400)
FINANCING ACTIVITIES:
Common stock options exercised.............. -- -- 160,000 -- 685,850
Issuance of common stock.................... -- -- 61,000 -- 3,500
Issuance of Series A Preferred, net......... -- -- 4,731,731 2,200,000 --
Issuance of Series B Preferred, net......... -- -- 15,555,672 23,488 9,000
Change in predecessor equity................ 1,731,811 (256,449)
Note receivable from related parties........ -- -- -- -- (511,545)
----------- ----------- ----------- ---------- -----------
Net cash provided by financing activities... 1,731,811 (256,449) 20,508,403 2,223,488 186,805
----------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents............................... -- -- 13,802,332 46,366 (1,095,060)
Cash and cash equivalents at beginning of
period.................................... -- -- -- -- 13,802,332
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of
period.................................... $ -- $ -- $13,802,332 $ 46,366 $12,707,272
=========== =========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest.... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== ========== ===========
Preferred stock issued in lieu of interest
payment................................... $ -- $ -- $ 41,571 $ -- $ --
=========== =========== =========== ========== ===========
Convertible note issued for business
acquired.................................. $ $ $ 500,000 $ 500,000 $ --
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Kinzan.com incorporated as a California corporation on November 30, 1998
and commenced operations in January 1999. In early 2000, Kinzan.com
reincorporated as a Delaware corporation and changed its name to Kinzan, Inc.
(the "Company"). The Company provides a platform for extending and managing
business relationship networks on the Internet. The Company's outsourced
platform offers a brandable suite of Web applications, configurable hardware,
scalable hosting services, sophisticated development and deployment capabilities
and customer care programs.
BASIS OF PRESENTATION
The Company commenced operations when it acquired the Siteman business
unit from iXL Enterprises, Inc. ("iXL") (See Note 2). Therefore, the basis of
presentation for the Company is effective as of that date. Additionally, the
Company is required to present financial statements for the Siteman business as
it existed under the ownership of iXL. Therefore, predecessor company financial
statements are presented for the year ended December 31, 1998 and the period
from January 1 to January 28, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 2000 and for the period
from January 29, 1999 (inception) to March 31, 1999, and for the three months
ended March 31, 2000 are unaudited, but include all adjustments (consisting only
of normal recurring adjustments) which the Company considers necessary for fair
presentation of the financial position as of such date and the operating results
and cash flows for such periods. Results for interim periods are not necessarily
indicative of results to be expected for the entire year or any future period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid
investments with maturities of less than three months from the date of purchase.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents.
The Company limits its exposure by placing its cash and investments with high
credit quality financial institutions.
During the period ending December 31, 1999, the Company had an agreement
with a related party and agreements with two major customers, which accounted
for 38% and 42% of total revenue, respectively.
F-7
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (generally three to five years), using the
straight-line method. Amortization of leasehold improvements is amortized over
the shorter of the lease term or the estimated useful life of the related
assets.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standard ("SFAS")
No. 121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, the Company regularly evaluates its long-lived assets
for indicators of possible impairment by comparison of the carrying amounts to
undiscounted estimated cash flows to be generated by such assets. Should an
impairment exist, the impairment loss would be measured based on the excess of
the carrying value of the asset over the asset's fair value or discounted
estimates of future cash flows. The Company has not identified any such
impairment to date.
REVENUE RECOGNITION
The Company earns revenues from (i) hosting and access fees charged to
customers who use its Web applications; (ii) services rendered to implement a
customer's branded version of the Company's hosted applications onto their
systems (iii) engineering and related services for applications development and
(iv) customer support and maintenance.
The Company recognizes revenues for hosting services on a straight-line
basis over the term of the hosting agreement for customers who sign one to two
year agreements and pay upfront fees. The Company recognizes revenues from
customers who do not pay an upfront fee based on the number of affiliate Web
sites as and when such Web sites are deployed, pursuant to the hosting
agreement. Services rendered for integration of hosted applications to a
customer's computer system are recorded as revenue when services are rendered.
In general, such services are one-time fees, are separately priced and are
incremental to hosting fees and ongoing customer support and maintenance
charges. Engineering and related services for application development are
recorded as revenue when the services are rendered. Customer support and
maintenance fees are recorded as revenue based on a per Web site charge as Web
sites are deployed. Certain agreements contain minimum fees for customer support
unrelated to the number of Web sites deployed. The Company records amounts
billed to customers in excess of recognized revenue as deferred revenue.
SOFTWARE LICENSES AND OTHER INTANGIBLES
Software licenses and other intangibles were acquired as part of the
acquisition of the Siteman business unit. These costs are being amortized over a
five-year period. As of December 31, 1999 and March 31, 2000, accumulated
amortization of software licenses and other intangibles was $427,174 and
$116,501, respectively.
F-8
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
PRODUCT DEVELOPMENT COSTS
Product development costs related to research, design and development of
Web applications are charged to research and development expenses as incurred
until technological feasibility has been established. To date, completing a
working model of the Company's applications and the general release of the
product have substantially coincided. As a result, the Company has not
capitalized any application development costs since such costs have been
insignificant.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION,
the Company has elected to follow Accounting Principles Board Opinion, or APB,
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related Interpretations in
accounting for stock-based compensation. Under APB No. 25, if the exercise price
of the Company's employee and director stock options equals or exceeds the fair
value of the underlying stock on the date of grant, no compensation expense is
recognized. When the exercise price of the employee or director stock option is
less than the fair value of the underlying stock on the grant date, the Company
records deferred stock compensation for the difference and amortizes this amount
to expense over the vesting period of the options. Options or stock awards
issued to non-employees are recorded at their fair value as determined in
accordance with SFAS No. 123 and EITF 96-18, and recognized over the related
service period.
COMPREHENSIVE LOSS
In accordance with SFAS No. 130, REPORTING COMPREHENSIVE INCOME, all
components of comprehensive loss including net loss, are reported in the
financial statements in the period in which they are recognized. Comprehensive
loss, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. Net loss and other comprehensive loss, including foreign
currency translation adjustments, and unrealized gains and losses on investments
shall be reported, net of their current tax effect, to arrive at comprehensive
loss. To date, there have been no differences between the Company's net loss and
its total comprehensive loss.
NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
The Company computes net loss per share in accordance with SFAS
No. 128, EARNINGS PER SHARE, and SEC Staff Accounting Bulletin (or SAB) No. 98.
Under the provisions of SFAS No. 128, basic net income (loss) per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share is computed by dividing the net income (loss) for the
period by the weighted average number of common and common equivalent shares
outstanding during the period. Potentially dilutive securities composed of
incremental common shares issuable upon the exercise of stock options and
warrants, and common shares issuable on conversion of preferred stock, were
excluded from historical diluted loss per share because of their anti-dilutive
effect.
F-9
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
Under provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------------
(UNAUDITED)
<S> <C> <C>
Numerator:
Net loss.................................... $(4,331,898) $(2,276,597)
----------- -----------
Denominator for historical basic and diluted
calculations:
Weighted average common shares
outstanding............................... 2,896,145 3,418,664
----------- -----------
Historical net loss per share:
Basic and diluted........................... $ (1.50) $ (0.67)
----------- -----------
</TABLE>
Pro forma net loss per share has been computed as described above and
also gives effect to common equivalent shares arising from preferred stock that
will automatically convert upon the closing of an initial public offering (using
the as-if converted method from the original date of issuance).
Unaudited pro forma stockholders' equity at March 31, 2000, as adjusted
for the conversion of the convertible preferred stock into 9,751,007 shares of
common stock, is disclosed on the balance sheet.
SEGMENT REPORTING
The Company has determined that it operates in only one segment as
defined by SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which
will be effective for fiscal year beginning after June 15, 2000. This statement
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company believes the adoption of SFAS No. 133
will not have a material effect on the financial statements because it does not
currently hold any derivative instruments and does not engage in any hedging
activities.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, deferred income tax assets and
liabilities reflect the future tax
F-10
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --(CONTINUED)
consequences of the temporary differences between the financial reporting and
tax basis of assets and liabilities and are measured using current enacted tax
rates and laws. A valuation allowance is provided against deferred income tax
assets when realization is uncertain.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, other current assets and accounts payable and
other current liabilities are carried at cost which management believes
approximates fair value because of the short-term maturity of these instruments.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were $68,702 for the
period from January 29, 1999 (inception) to December 31, 1999, and $97,341 for
the three months ended March 31, 2000 (unaudited), respectively.
2. ACQUISITION OF SITEMAN BUSINESS UNIT
On January 29, 1999, the Company entered into an Asset Purchase
Agreement with iXL to purchase their Siteman business unit (the "Acquired
Business"). The Company acquired a patent, licenses, equipment, certain
customers and other items relating to the Acquired Business. In exchange, the
Company paid $2.0 million in cash and issued a $500,000 convertible promissory
note with interest at five percent per annum. The promissory note was
subsequently converted to 561,339 shares of Series A redeemable convertible
preferred stock in April 1999. The Company recorded the purchase price as
follows:
<TABLE>
<S> <C>
Purchase price of Acquired Business......................... $2,500,000
Less: estimated fair market value of tangible assets
acquired.................................................. (170,000)
----------
Software licenses and other intangibles..................... $2,330,000
==========
</TABLE>
Intangibles consist of intellectual property as follows: customer
accounts, a patent and licenses. Intangibles are being amortized on a
straight-line basis over a period of five years.
In connection with the purchase, the Company and iXL entered into a
Service Agreement in which Kinzan, directly or through its customers or
contractors, will purchase $1.5 million of services within 30 months from the
purchase date. If iXL has not been engaged to perform services totaling this
amount by July 29, 2001, the Company will pay iXL a lump sum payment for the
difference between the $1.5 million and the aggregate fees received by iXL
during the term of the agreement. Such amount, if any, would be recorded as
additional intangibles. At December 31, 1999 and March 31, 2000 (unaudited),
$1,161,143 and $984,990, respectively, remains committed under this agreement.
F-11
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consisted of the following:
<TABLE>
<S> <C>
Computer equipment.......................................... $1,080,591
Office furniture and equipment.............................. 114,260
----------
1,194,851
Less accumulated depreciation............................... (182,496)
----------
$1,012,355
==========
</TABLE>
4. COMMITMENTS
LEASES
The Company leases various office space under non-cancelable operating
leases. Future minimum lease payments for all leases with initial terms of one
year or more are as follows for each year ending December 31:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
2000 $262,752
2001 136,462
2002 132,944
2003 91,669
--------
Total minimum lease payments................................ $623,827
========
</TABLE>
Rent expense for the period from January 29 (inception) to December 31,
1999, and for the three month period ended March 31, 2000 totaled $144,104 and
$69,122, respectively.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company issued 5,847,895 shares of Series A Redeemable Preferred
Stock ("Series A") at $0.90 per share for net proceeds of $4.7 million and
3,900,862 shares of Series B Redeemable Preferred Stock ("Series B") at $4.00
per share for net proceeds of $15.6 million during 1999. Both the Series A and
Series B holders ("the holders") shall be entitled to receive non-cumulative
dividends at the rate of 8% in preference to any dividend on the common stock.
The holders shall also be entitled to participate pro rata in any dividends paid
on the common stock on an as-if-converted basis. The holders have a liquidation
preference to receive, pro rata in preference to the holders of the common
stock, a per share amount equal to their original issue price plus any declared
but unpaid dividends. The holders have the same voting rights as holders of
common stock.
All series of redeemable preferred stock are convertible on a
one-for-one basis into shares of common stock, subject to adjustment. The
Series A and B shall automatically convert into common stock in the event that
the holders of at least two-thirds of the outstanding Series A and B consent to
such
F-12
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
- --(CONTINUED)
conversion, or upon the closing of the initial public offering contemplated by
this prospectus as long as the initial public offering price and aggregate
proceeds meet minimum requirements, as defined by the agreements.
At any time after December 31, 2004, the Series A and B is redeemable at
the election of the holders of at least two-thirds, at a purchase price equal to
the original purchase price plus declared and unpaid dividends.
STOCK PURCHASE WARRANTS
In connection with the issuance of convertible promissory notes, the
Company issued warrants to purchase 10,500 shares of Series B Redeemable
Convertible Preferred Stock at $4.00 per share. As of December 31, 1999, no
warrants have been exercised and all remain outstanding. These warrants expire
on the earlier of September 30, 2001 or the closing of an initial public
offering.
STOCK OPTION PLAN
The Company has granted options to its employees and consultants
pursuant to its 1999 Stock Option/Stock Issuance Plan (the "Plan"). The Company
adopted the Plan in March 1999. Under the plan, the Board of Directors may grant
incentive stock options and nonstatutory options to employees, directors and
consultants of the Company. Options issued under the Plan generally vest over
four years. No options granted under the Plan have a term in excess of ten years
from the date of grant. The exercise price of an incentive stock option may not
be less than 100% of the fair market value of the common stock on the date of
grant. The exercise price of a nonstatutory option may not be less than 85% of
the fair market value of the common stock on the date of grant.
Under the Plan, the Company has the right to grant options which are
exercisable for unvested shares of common stock. Should the optionee cease
service while holding such unvested shares, the Company has the right to
repurchase, at the exercise price paid per share, all or part of any of those
unvested shares.
At December 31, 1999, 6,300,000 common shares have been reserved for
issuance and 918,000 options were available for future grant.
F-13
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
- --(CONTINUED)
The following table summarizes stock option plan activity for the year
ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding--beginning of year...................... -- --
Granted........................................... 5,422,000 $0.19
Exercised......................................... (1,600,000) 0.10
Forfeited......................................... (25,000) 0.20
----------
Outstanding--end of year............................ 3,797,000 0.23
==========
Exercisable at end of year.......................... 3,797,000
==========
Weighted average fair value of options granted
during the year................................... $ (0.13)
==========
</TABLE>
The following table summarizes information about stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED AVERAGE
EXERCISE PRICE NUMBER CONTRACTUAL LIFE EXERCISE PRICE
- -------------- --------- ---------------- ----------------
<S> <C> <C> <C>
0.10$..... 2,710,000 9.3 $0.10
0.20$..... 610,000 9.8 $0.20
1.00$..... 477,000 10 $1.00
--------- ----- -----
3,797,000 9.4 $0.23
</TABLE>
Pro forma information regarding net loss is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value of these
options was estimated at the date of grant using the minimum value option
pricing model with the following weighted average assumptions for the period
from January 29 (inception) to December 31, 1999; risk-free interest rate of
6.0%; dividend yield of 0%; volatility of 70%; and a weighted-average expected
life of the options of four to five years.
The minimum value option pricing method is similar to the Black-Scholes
option valuation model which was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor of volatility. In addition, option valuation
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
F-14
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
- --(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of such options. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Pro forma net loss.......................................... $(4,290,914)
===========
Pro forma historical net loss per share, basic and
diluted................................................... $ (1.47)
===========
</TABLE>
STOCK BASED COMPENSATION
The Company has recorded deferred compensation of $949,950 and $510,525
for the period from January 29 (inception) to December 31, 1999 and for the
three months ended March 31, 2000 (unaudited), respectively, in connection with
the grants of certain stock options to employees and consultants. Amortization
of deferred stock compensation was $37,233 and $74,570 during the period ended
December 31, 1999 and the three months ended March 31, 2000 (unaudited),
respectively.
COMMON SHARES RESERVED FOR FUTURE ISSUANCE
The following table summarizes common shares reserved for future
issuance:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Convertible preferred stock................................. 9,748,757
Convertible preferred stock warrants........................ 10,500
Common stock options........................................ 3,797,000
----------
Total common shares reserved for issuance................... 13,556,257
==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
During 1999, the Company earned revenues for services rendered in
connection with software application and hosting services for electronic
commerce and a license provided to Encanto Networks, Inc. ("Encanto") in
exchange for $750,000 and 300,000 shares of Encanto common stock. The Company
did not record a value for the Encanto common stock as it was not significant.
Encanto is a shareholder of the Company and its President and Chief Executive
Officer is a founder and Chairman of the Board of Kinzan, Inc.
In January 1999, the Company purchased the Acquired Business from iXL.
In connection with this purchase, the Company issued a convertible promissory
note to iXL that was converted into 561,339 shares of Series A redeemable
convertible preferred stock. In addition, the Company subleased certain office
and hosting space from iXL, incurring expenses of $188,857.
In April 1999, the Company entered into a three-year consulting services
agreement with Dextra Technologies, Inc. ("Dextra"), a shareholder of the
Company, under which Dextra is to provide engineering
F-15
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
6. RELATED PARTY TRANSACTIONS --(CONTINUED)
consulting services to the Company on various negotiated projects. In addition,
the former president and current board member of Dextra also serves as a board
member of the Company. The Company paid Dextra $229,920 and $49,014 for services
performed at December 31, 1999 and March 31, 2000, respectively.
During January 2000, the Company entered into an agreement with Ares
International Corporation ("Ares"), a shareholder of the Company, to provide
training and certain technology to Ares for evaluation over a six-month term. In
connection with this agreement, the Company received cash of $600,000 of which
$300,000 was recorded as revenue for the quarter ended March 31, 2000.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. Significant components
of deferred tax assets are shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $1,652,000
Other..................................................... 24,000
----------
Total deferred tax assets................................... 1,676,000
Valuation allowance for deferred tax assets............... (1,676,000)
----------
Net deferred tax assets..................................... $ --
==========
</TABLE>
A valuation allowance of $1,676,000 has been recognized to offset the
deferred tax assets because management cannot conclude that it is more likely
than not that the deferred tax assets will be realized. At December 31, 1999,
the Company had federal and California net operating loss carryforwards of
approximately $4,053,000 and $4,052,000, respectively. The tax loss
carryforwards will begin expiring in 2019 and 2007, respectively, unless
previously utilized.
Pursuant to Internal Revenue Code Section 382 and 383, the use of the
Company's net operating loss and credit carryforwards could be limited in the
event of a cumulative change in ownership of more than 50%.
8. RETIREMENT PLAN
The Company maintains a voluntary deferred compensation savings and
investment plan (the "Plan") in accordance with the provisions of the Internal
Revenue Code Section 401(k) for all employees of the Company. The Plan allows
participants to contribute up to 15% of their annual salary, subject to certain
limitations, as provided by federal law. Each year, the Company's Board of
Directors determines the amount of the Company's matching contributions, if any.
There were no Company matching contributions for the period ended December 31,
1999.
F-16
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
9. SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING OF COMMON STOCK
In April 2000, the Board of Directors authorized the Company to proceed
with an initial public offering ("IPO") of its common stock. If the offering is
consummated as presently anticipated, and subject to the occurrence of certain
events, all of the outstanding preferred stock will automatically convert into
common stock. The unaudited pro forma stockholders' equity at March 31, 2000
(unaudited) gives effect to the conversion of all outstanding shares of
convertible preferred stock into 9,751,007 shares of common stock upon the
completion of the offering.
ISSUANCE OF SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
On April 19 and April 26, 2000, the Company issued an aggregate of
1,392,438 shares of Series C Redeemable Convertible Preferred Stock ("Series C")
at $12.30 per share for proceeds of $17.1 million. The Series C holders shall be
entitled to receive non-cumulative dividends at the rate of 8% in preference to
any dividend on the common stock. The holders of the Series C shall also be
entitled to participate pro rata in any dividends paid on the common stock on an
as-if-converted basis. The holders have a liquidation preference, to receive pro
rata in preference to the holders of the common stock, a per share amount equal
to their original issue price plus any declared but unpaid dividends. The
Series C holders have the same voting rights as holders of common stock. In
connection with the issuance, the number of common shares authorized was
increased to 70,000,000.
All series of redeemable preferred stock are convertible on a
one-for-one basis into shares of common stock, subject to adjustment. The
Series C shall automatically convert into common stock in the event that the
holders of at least two-thirds of the outstanding Series A, B and C consent to
such conversion, or upon the closing of the initial public offering contemplated
by this prospectus as long as the initial public offering price and aggregate
proceeds meet minimum requirements, as defined by the agreements.
Beginning on the fifth anniversary of the closing, the Series C is
redeemable at the election of the holders of at least two-thirds of the
Series C at a purchase price equal to the original purchase price plus declared
and unpaid dividends.
LEASE FINANCING ARRANGEMENT
On March 31, 2000, the Company entered into a financing arrangement with
a leasing company providing up to $3 million to finance computer and office
equipment and leasehold improvements. The lease is secured by the equipment
financed and will be repaid over 42 months. Borrowings under the lease bear an
annual interest rate of 7.75 percent. The Company has drawn down $290,000 of
this lease line as of April 2000.
The lessor also received warrants to purchase 26,250 shares of Series B
Preferred Stock at $4.00 per share. The warrants are exercisable for five years
after the Company's initial public offering. Additionally, the lessor has the
right to invest up to $250,000 in the Company's Series C Redeemable Convertible
Preferred Stock offering. During April 2000, the leasing company exercised this
right and purchased 20,325 shares of Series C redeemable convertible preferred
stock.
F-17
<PAGE>
KINZAN, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1999
9. SUBSEQUENT EVENTS --(CONTINUED)
STOCK PURCHASE PLAN
In April 2000, the Company adopted an Employee Stock Purchase Plan (the
"ESPP") whereby employees, at their option, can purchase shares of the Company's
common stock through payroll deductions at the lower of 85% of fair market value
on the ESPP offering date or on certain other predetermined exercise dates. The
Company has reserved 500,000 shares of common stock for issuance under the ESPP.
In April 2000, the Company adopted the 2000 Stock Option/Stock Issuance
Plan. The Company has reserved 1,500,000 shares of common stock for issuance
under the plan.
NOTES RECEIVABLE FROM RELATED PARTIES
In February and March 2000, three executive officers of the Company
signed promissory notes totaling $510,000 in order to pay for the exercise of
their stock options. The outstanding principal balance accrued interest at 6.8%
per year. The notes are due and payable on the fifth anniversary of the
respective issuance dates of the notes. Each note is full recourse to the
executive officer and entitled to the benefits of a pledge agreement entered
into with the Company. As such, various amount of common shares have been
pledged by each of the officers in order to secure their notes. The Company has
the right to accelerate payment of performance of all obligations under the note
and the pledge agreement in the event of a default.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
-----------
PROSPECTUS
--------------
CHASE H&Q
THOMAS WEISEL PARTNERS LLC
WILLIAM BLAIR & COMPANY
---------
, 2000
--------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States
to permit a public offering of the common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
Until , 2000, all dealers that buy, sell or trade in our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................................ $ 15,180
NASD filing fee............................................. 6,250
Nasdaq National Market fees.................................
Blue Sky qualification fees and expenses....................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Premiums for director and officer insurance.................
Transfer agent fees.........................................
Miscellaneous...............................................
--------
Total..................................................... $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the General Corporation Law of the State of Delaware, as
amended ("DGCL"), allows a corporation to eliminate the personal liability of
its directors to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
impersonal benefit.
Section 145 of the DGCL provides, among other things, that the corporation
may 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 (other
than an action by or in the right of the corporation) by reason of the fact that
the person is or was a director, officer, agent or employee of the corporation
or is or was serving at the corporation's request as a director, officer, agent
or employee of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding. The power to indemnify applies
if (a) such person is successful on the merits or otherwise in defense of any
action, suit or proceeding, or (b) if such person acted in good faith in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense expenses (including
attorneys' fees but excluding amounts paid in settlement) actually and
reasonably incurred and not to any satisfaction of judgment or satisfaction of
the claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of negligence or
misconduct in the performance of his duties to the corporation, unless the court
believes that in light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved
II-1
<PAGE>
or dissented at the time, may avoid liability by causing his or her dissent to
such actions to be entered in the books containing the minutes of the meetings
of the board of directors at the time such action occurred or immediately after
such absent director receives notice of the unlawful acts.
The Amended and Restated Certificate of Incorporation of the Registrant will
contain a provision that eliminates the personal liability of its directors for
monetary damages for breach of fiduciary duty as a director to the fullest
extent permitted by the DGCL. The Amended and Restated Certificate of
Incorporation will also contain a provision that requires the Registrant to
indemnify its officers and directors to the fullest extent permitted by the
DGCL.
The Bylaws of the Registrant will provide that:
- the Registrant shall indemnify its officers and directors to the fullest
extent permitted by the DGCL;
- the Registrant has the power to indemnify its other employees and agents
to the fullest extent permitted by the DGCL; and
- the Registrant must advance expenses as incurred in connection with a
legal proceeding upon an undertaking on behalf of the indemnified party to
repay such amount if it is ultimately determined that the party is not
entitled to indemnification.
The indemnification provisions contained in the Registrant's Amended and
Restated Certificate of Incorporation and Bylaws will not be exclusive of any
other rights to which a person may be entitled by law, agreement, vote of
stockholders or disinterested directors or otherwise. In addition, the
Registrant maintains insurance on behalf of its directors and executive officers
insuring them against any liability asserted against them in their capacities as
directors or officers or arising out of such status.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has issued and sold the following unregistered securities
since its inception:
1. On December 4, 1998, the Registrant issued four shares of its common
stock to three investors for an aggregate purchase price of $0.04.
2. On February 15, 1999, the Registrant issued 3,050,000 shares of its
common stock to four investors for an aggregate purchase price of $61,000.
3. Between April and July 1999, the Registrant issued an aggregate of
5,847,895 shares of its Series A Redeemable Convertible Preferred Stock to a
group of investors for an aggregate purchase price of $5,263,105.
4. Between December 1999 and January 2000, the Registrant issued an
aggregate of 3,903,112 shares of its Series B Redeemable Convertible Preferred
Stock to a group of investors for an aggregate purchase price of $15,612,448.
5. On April 19 and 26, 2000, the Registrant issued an aggregate of
1,392,438 shares of its Series C Redeemable Convertible Preferred Stock to a
group of investors for an aggregate purchase price of $17,126,987.
6. Between October 1999 and March 2000, the Registrant granted and issued
options to purchase an aggregate of 6,141,000 shares of its common stock to
employees and directors pursuant to the Registrant's 1999 Stock Option/Stock
Issuance Plan with a weighted average exercise price per share of $0.68.
7. In October and November 1999, the Registrant issued warrants to purchase
an aggregate of 34,500 shares of its common stock with an exercise price of
$4.00 per share.
II-2
<PAGE>
8. In March 2000, the Registrant issued warrants to purchase an aggregate
of 26,250 shares of its common stock with an exercise price of $4.00 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.+
2.1 Asset Purchase Agreement between Siteman, Inc. and iXL.,
Inc. and iXL-San Diego, Inc.+
3.1 Amended and Restated Certificate of Incorporation of
Registrant.+
3.2 Amended and Restated Bylaws of Registrant.+
4.1 Specimen Common Stock Certificate.+
4.2 Second Amended and Restated Investors' Rights Agreement
between Kinzan.com and the Investors set forth in the
Agreement, dated April 19, 2000.*
4.3 Form of Warrant.+
5.1 Opinion of Weil, Gotshal & Manges LLP.+
10.1 1999 Stock Option/Stock Issuance Plan.*
10.2 2000 Stock Option Plan.*
10.3 2000 Employee Stock Purchase Plan.*
10.4 Employment Agreement between the Registrant and Gari L.
Cheever, dated June 1, 1999.*
10.5 Form of Indemnification Agreement between the Registrant and
certain of its Directors and Officers.+
10.6 Form of Promissory Note executed by certain officers in
favor of the Registrant.*
10.7 Development and License Agreement, dated as of August 22,
1997, by and between CommerceWave and Encanto Networks,
Inc., as amended as of January 29, 1999.*
10.8 Services Agreement between Siteman, Inc. and iXL, Inc.,
dated January 29, 1999.*
10.9 License Agreement between Siteman, Inc. and iXL, Inc., dated
January 30, 1999.*
10.10 Hosting/Co-Location Services Agreement, dated October 25,
1999, by and between iXL Memphis Inc. and the Registrant.*
10.11 Lease between CB Graham International, Inc. and iXL-San
Diego, Inc., dated August 27, 1998.*
10.12 Sublease between iXL-San Diego, Inc. and Kinzan.com, dated
April 5, 1999.*
10.13 First Amendment to Lease between iXL-San Diego, Inc. and the
Registrant, dated March 19, 1999.*
10.14 Second Amendment to Lease between iXL-San Diego, Inc. and
the Registrant, dated September 1, 1999.*
10.15 Temporary Use License Agreement, dated March 20, 2000, by
and between CB Graham International, Inc. and the
Registrant.*
10.16 Temporary Use License Agreement, dated March 30, 2000, by
and between CB Graham International, Inc. and the
Registrant.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------------------- ------------------------------------------------------------
<C> <S>
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1).+
24.1 Powers of Attorney (included on the signature pages
hereto).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed herewith.
+ To be filed by amendment.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the date specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining liability under the securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto, duly authorized, in Carlsbad, California on the
28th day of April, 2000.
<TABLE>
<S> <C> <C>
KINZAN.COM
By: /s/ GARI L. CHEEVER
-----------------------------------------
Gari L. Cheever
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gari L. Cheever and Dana S. McGowan, and each of
them his attorney-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendment or post-effective amendment to this
Registration on Form S-1 or abbreviated registration statement (including,
without limitation, any additional registration filed pursuant to Rule 462 under
the Securities Act of 1933) with respect thereto and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARI L. CHEEVER
------------------------------------------- President, Chief Executive April 28, 2000
Gari L. Cheever Officer and Director
/s/ DANA S. MCGOWAN
------------------------------------------- Chief Financial Officer April 28, 2000
Dana S. McGowan
/s/ ROBERT J. FRANKENBERG
------------------------------------------- Chairman and Director April 28, 2000
Robert J. Frankenberg
/s/ H. DUBOSE MONTGOMERY
------------------------------------------- Director April 28, 2000
H. Dubose Montgomery
/s/ ALEJANDRO PEREZ ELIZONDO
------------------------------------------- Director April 28, 2000
Alejandro Perez Elizondo
/s/ PETER S. SEALEY
------------------------------------------- Director April 28, 2000
Peter S. Sealey
------------------------------------------- Director April 28, 2000
Kenneth Tai
</TABLE>
II-5
<PAGE>
EXHIBIT 4.2
KINZAN.COM
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
APRIL 19, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Registration Rights...........................................................................................1
1.1 Definitions.........................................................................................1
1.2 Request for Registration............................................................................2
1.3 Company Registration................................................................................3
1.4 Form S-3 Registration...............................................................................5
1.5 Obligations of the Company..........................................................................6
1.6 Information from Holder.............................................................................7
1.7 Expenses of Registration............................................................................7
1.8 Delay of Registration...............................................................................7
1.9 Indemnification.....................................................................................7
1.10 Reports Under Securities Exchange Act of 1934......................................................9
1.11 Assignment of Registration Rights.................................................................10
1.12 Limitations on Subsequent Registration Rights.....................................................10
1.13 "Market Stand-Off"Agreement.......................................................................10
1.14 Termination of Registration Rights................................................................11
2. Covenants of the Company.....................................................................................11
2.1 Delivery of Financial Statements...................................................................11
2.2 Inspection.........................................................................................12
2.3 Right of First Offer...............................................................................12
2.4 Directors and Officers Insurance...................................................................13
2.5 Termination of Covenants...........................................................................13
2.6 Option Vesting.....................................................................................13
3. Miscellaneous................................................................................................14
3.1 Successors and Assigns.............................................................................14
3.2 Governing Law......................................................................................14
3.3 Counterparts.......................................................................................14
3.4 Titles and Subtitles...............................................................................14
3.5 Notices............................................................................................14
3.6 Expenses...........................................................................................14
3.7 Entire Agreement; Amendments and Waivers...........................................................14
3.8 Severability.......................................................................................15
3.9 Aggregation of Stock...............................................................................15
3.10 Additional Parties................................................................................15
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT is made as of the 19th day of April 2000, by and among Kinzan.com,
a California corporation (the "Company"), and the investors listed on
SCHEDULE A hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, certain of the Investors (the "Existing
Investors") hold shares of the Company's Series A Preferred Stock, Series B
Preferred Stock and/or Common Stock issued upon conversion of Series A
Preferred Stock or Series B Preferred Stock (the "Existing Preferred Stock")
and possess registration rights, information rights, rights of first offer,
and other rights pursuant to an Amended and Restated Investors' Rights
Agreement dated as of December 9, 1999 among the Company and such Existing
Investors (the "Prior Agreement"); and
WHEREAS, the Existing Investors are holders of at least a
majority of the "Registrable Securities" of the Company (as defined in the
Prior Agreement), and desire to terminate the Prior Agreement and to accept
the rights created pursuant hereto in lieu of the rights granted to them
under the Prior Agreement; and
WHEREAS, the Company and certain of the Investors are
parties to the Series C Preferred Stock Purchase Agreement of even date
herewith (the "Series C Agreement"); and
WHEREAS, in order to induce the Company to approve the
issuance of the Series C Preferred Stock and to induce such certain Investors
to invest funds in the Company pursuant to the Series C Agreement, the
Investors and the Company hereby agree that this Agreement shall govern the
rights of the Investors to cause the Company to register shares of Common
Stock issued or issuable to them and certain other matters as set forth
herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and
agrees as follows:
1.1 DEFINITIONS. For purposes of this
Section 1:
(a) The term "Act" means the Securities
Act of 1933, as amended.
(b) 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 SEC that permits inclusion or
incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
1
<PAGE>
(c) The term "Holder" means any person
owning or having the right to acquire Registrable Securities or any assignee
thereof in accordance with Section 1.10 hereof.
(d) The term "Initial Offering" means the
Company's first firm commitment underwritten public offering of its Common
Stock under the Act.
(e) The term "1934 Act" means the
Securities Exchange Act of 1934, as amended.
(f) The terms "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.
(g) The term "Registrable Securities"
means (i) the Common Stock issuable or issued upon conversion of the Series
A, Series B and Series C Preferred Stock and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(h) The number of shares of "Registrable
Securities" outstanding shall be determined by the number of shares of Common
Stock outstanding that are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities that are, Registrable
Securities.
(i) The term "SEC" shall mean the Securities
and Exchange Commission.
1.2 REQUEST FOR REGISTRATION.
(a) Subject to the conditions of this
Section 1.2, if the Company shall receive at any time after six (6) months
after the effective date of the Initial Offering, a written request from the
Holders of at least fifty percent (50%) of the Registrable Securities then
outstanding (the "Initiating Holders") that the Company file a registration
statement under the Act covering the registration of Registrable Securities
with an anticipated aggregate offering price of at least $20,000,000, then
the Company shall, within twenty (20) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations
of this Section 1.2, use all reasonable efforts to effect, as soon as
practicable, the registration under the Act of all Registrable Securities
that the Holders request to be registered in a written request received by
the Company within twenty (20) days of the mailing of the Company's notice
pursuant to this Section 1.2(a).
(b) If 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
2
<PAGE>
include such information in the written notice referred to in Section 1.2(a).
In such event the right of any Holder to include its 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 two-thirds 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 enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Company (which underwriter or underwriters shall be reasonably acceptable to
a majority in interest of the Initiating Holders). Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities
underwritten (including Registrable Securities), then the Company shall so
advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares that may be included
in the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn
from the registration.
(c) The Company shall not be required to
effect a registration pursuant to this Section 1.2:
(i) in any particular
jurisdiction in which the Company would be required to execute a general
consent to service of process in effecting such registration, unless the
Company is already subject to service in such jurisdiction and except as may
be required under the Act; or
(ii) after the Company has
effected two (2) registrations pursuant to this Section 1.2, and such
registrations have been declared or ordered effective; or
(iii) during the period starting
with the date sixty (60) days prior to the Company's good faith estimate of
the date of the filing of, and ending on a date one hundred eighty (180) days
following the effective date of, a Company-initiated registration subject to
Section 1.3 below, provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or
(iv) if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2,
a certificate signed by the Company's Chief Executive Officer or Chairman of
the Board 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 registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a
period of not more than ninety (90) days after receipt of the request of the
Initiating Holders, provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12)-month period.
1.3 COMPANY REGISTRATION.
(a) If (but without any obligation to do
so) the Company proposes to register (including for this purpose a
registration effected by the Company for
3
<PAGE>
shareholders other than the Holders) any of its stock or other securities
under the Act in connection with the public offering of such securities
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration
on any form that 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, or a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of debt securities
that are also being registered), 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 mailing of such
notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.3(c), use all reasonable efforts to
cause to be registered under the Act all of the Registrable Securities that
each such Holder has requested to be registered.
(b) RIGHT TO TERMINATE REGISTRATION. The
Company shall have the right to terminate or withdraw any registration
initiated by it under this Section 1.3 prior to the effectiveness of such
registration whether or not any Holder has elected to include securities in
such registration. The expenses of such withdrawn registration shall be borne
by the Company in accordance with Section 1.7 hereof.
(c) UNDERWRITING REQUIREMENTS. In
connection with any offering involving an underwriting of shares of the
Company's capital stock, the Company shall not be required under this 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 (or by other persons entitled to select
the underwriters) and enter into an underwriting agreement in customary form
with an underwriter or underwriters selected by the Company, and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. 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 determine in their sole discretion is
compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, that the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
according to the total amount of securities entitled to be included therein
owned by each selling Holder or in such other proportions as shall mutually
be agreed to by such selling Holders), but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced
below twenty-five percent (25%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities, in which case the selling Holders may be excluded if
the underwriters make the determination described above and no other
shareholder's securities are included, or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder that is a Holder of Registrable Securities and that 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
4
<PAGE>
be deemed to be a single "selling Holder," and any pro rata reduction with
respect to such "selling Holder" shall be based upon the aggregate amount of
Registrable Securities owned by all such related entities and individuals.
1.4 FORM S-3 REGISTRATION. In case the
Company shall receive from the Holders of at least fifty percent (50%) of
the Registrable Securities 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 shall:
(a) promptly give written notice of the
proposed registration, and any related qualification or compliance, to all
other Holders; and
(b) use all reasonable best efforts to
effect, as soon as practicable, 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 Holders' Registrable
Securities as are specified in such request, together with all or such
portion of the Registrable Securities of any other Holders joining in such
request as are specified in a written request given within fifteen (15) 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 1.4:
(i) if Form S-3 is not available
for such offering by the Holders;
(ii) 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 aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000;
(iii) if the Company shall
furnish to the Holders a certificate signed by the Chief Executive Officer or
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 1.4; provided, however, that the Company
shall not utilize this right more than once in any twelve month period;
(iv) if the Company has, within
the twelve (12) month period preceding the date of such request, already
effected two registrations on Form S-3 for the Holders pursuant to this
Section 1.4; or
(v) 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.
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(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. Registrations effected
pursuant to this Section 1.4 shall not be counted as requests for
registration effected pursuant to Sections 1.2.
1.5 OBLIGATIONS OF THE COMPANY. Whenever
required under this Agreement 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
all reasonable 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 a period of up to one hundred twenty (120) days or,
if earlier, until the distribution contemplated in the Registration Statement
has been completed;
(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 all reasonable 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;
(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 or 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;
(g) cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on
which similar securities issued by the Company are then listed; and
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(h) provide a transfer agent and
registrar for all Registrable Securities registered hereunder and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration.
1.6 INFORMATION FROM HOLDER. 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.
1.7 EXPENSES OF REGISTRATION. All expenses
other than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and
1.4, 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 (not to exceed $15,000) shall be borne by the
Company. Notwithstanding the foregoing, 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 pro rata based
upon the number of Registrable Securities that were to be requested in the
withdrawn registration), unless, in the case of a registration requested
under Section 1.2, the Holders of a majority of the Registrable Securities
agree to forfeit their right to one demand registration pursuant to Section
1.2.
1.8 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.
1.9 INDEMNIFICATION. In the event any
Registrable Securities are included in a registration statement under this
Section 1:
(a) To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners or
officers, directors and shareholders of each Holder, legal counsel and
accountants for 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 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 any state securities laws, 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 laws or any rule or regulation promulgated under the Act, the 1934
Act
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or any state securities laws; and the Company will reimburse each such
Holder, underwriter or controlling person for 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 subsection l.9(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 that 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; provided further, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Holder or underwriter, or any person
controlling such Holder or underwriter, from whom the person asserting any
such losses, claims, damages or liabilities purchased shares in the offering,
if a copy of the prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Holder or underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the shares to such person, and if the prospectus
(as so amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage or liability.
(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,
legal counsel and accountants for the Company, any underwriter, any other
Holder selling securities in such registration statement 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 any state
securities laws, 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 reimburse any person intended to be indemnified pursuant to this
subsection l.9(b), for any legal or other expenses reasonably incurred by
such person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection l.9(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), provided that in no event shall any indemnity
under this subsection l.9(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an
indemnified party under this Section 1.9 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 1.9, 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 parties;
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provided, however, that an indemnified party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate 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 1.9, but the omission so to 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 1.9.
(d) If the indemnification provided for
in this Section 1.9 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to herein, then the indemnifying party, in
lieu of indemnifying such indemnified party hereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage or expense 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
statements or omissions that resulted in such loss, liability, claim, damage
or expense, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall
be determined 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.
(e) The obligations of the Company and
Holders under this Section 1.9 shall survive the completion of any offering
of Registrable Securities in a registration statement under this Section 1,
and otherwise.
1.10 REPORTS UNDER 1934 ACT. 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, 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 registration
statement filed in connection with the Initial Offering;
(b) 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
(c) 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
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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 that permits the selling of any such securities
without registration or pursuant to such form.
1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The
rights to cause the Company to register Registrable Securities pursuant to
this Section 1 may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such securities that after such
assignment or transfer, holds at least fifty thousand (50,000) shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations), provided: (a) 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;
(b) such transferee or assignee agrees in writing to be bound by and subject
to the terms and conditions of this Agreement, including without limitation
the provisions of Section 1.13 below; and (c) such assignment shall be
effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the Act.
1.12 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 two-thirds of
the Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such
holder or prospective holder (a) to include such securities in any
registration filed under Section 1.3 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in
any such registration only to the extent that the inclusion of such
securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "MARKET STAND-OFF" AGREEMENT. Each
Holder hereby agrees that it will not, without the prior written consent of
the managing underwriter, during the period commencing on the date of the
final prospectus relating to the Company's public offering and ending on the
date specified by the Company and the managing underwriter (such period not
to exceed one hundred eighty (l80) days for the Company's initial public
offering) (i) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether
such shares or any such securities are then owned by the Holder or are
thereafter acquired), or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing provisions of this
Section 1.13 shall only be applicable to the Holders if all officers and
directors and greater than one percent (1%) shareholders of the Company enter
into similar agreements. The underwriters in connection with the Company's
initial public
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offering are intended third party beneficiaries of this Section 1.13 and
shall have the right, power and authority to enforce the provisions hereof as
though they were a party hereto.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities
of each Holder (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period.
1.14 TERMINATION OF REGISTRATION RIGHTS. No
Holder shall be entitled to exercise any right provided for in this Section 1
after five (5) years following the consummation of the Initial Offering or,
as to any Holder, such earlier time at which the Company's shares are
publicly traded on a recognized national exchange, such Holder owns less than
5% of the Company's outstanding shares, and all Registrable Securities held
by such Holder (and any affiliate of the Holder with whom such Holder must
aggregate its sales under Rule 144) can be sold in any three (3)-month period
without registration in compliance with Rule 144 of the Act.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The
Company shall deliver to each Investor that holds at least one hundred
thousand (100,000) shares (as adjusted for subsequent stock splits, stock
dividends, combinations and other recapitalizations) of Preferred Stock (or
Common Stock issued upon conversion thereof) of the Company:
(a) as soon as practicable, but in any
event within ninety (90) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance sheet of the
Company and statement of shareholder's equity as of the end of such year, and
a statement of cash flows 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 of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any
event within forty-five (45) days after the end of each of the first three
(3) quarters of each fiscal year of the Company, an unaudited income
statement, statement of cash flows for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of
each month, an unaudited income statement and statement of cash flows and
balance sheet for and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any
event at least thirty (30) days prior to the end of each fiscal year, a
budget and business plan for the next fiscal year, prepared on a monthly
basis, including balance sheets, income statements and statements of cash
flows for such months and, as soon as prepared, any other budgets or revised
budgets prepared by the Company; and
(e) with respect to the financial
statements called for in subsections (b) and (c) of this Section 2.1, an
instrument executed by the Chief Financial Officer
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or President of the Company certifying that such financials were prepared in
accordance with GAAP consistently applied with prior practice for earlier
periods (with the exception of footnotes that may be required by GAAP) and
fairly present the financial condition of the Company and its results of
operation for the period specified, subject to year-end audit adjustment.
2.2 INSPECTION. The Company shall permit
each Investor that holds at least one hundred thousand (100,000) shares (as
adjusted for subsequent stock splits, stock dividends, combinations and other
recapitalizations) of Preferred Stock (and/or Common Stock issued upon
conversion thereof), at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to
discuss the Company's affairs, finances and accounts with its officers, all
at such reasonable times as may be requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2
to provide access to any information that it reasonably considers to be a
trade secret or similar confidential information.
2.3 RIGHT OF FIRST OFFER. Subject to the
terms and conditions specified in this Section 2.3, the Company hereby grants
to each "Major Investor" (as hereinafter defined) a right of first offer with
respect to future sales by the Company of its Shares (as hereinafter
defined). For purposes of this Section 2.3, a "Major Investor" shall mean any
Investor or transferee that holds at least one hundred thousand (100,000)
shares of Series A, Series B or Series C Preferred Stock (or the Common Stock
issued upon conversion thereof) (as adjusted for stock splits, stock
dividends, combinations and other recapitalizations). For purposes of this
Section 2.3, Investor includes any general partners and affiliates of an
Investor. A Major Investor shall be entitled to apportion the right of first
offer hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exchangeable or exercisable for any shares of,
any class of its capital stock ("Shares"), the Company shall first make an
offering of such Shares to each Major Investor in accordance with the
following provisions.
(a) The Company shall deliver a notice in
accordance with Section 3.5 ("Notice") to the Major Investors stating (i) its
bona fide intention to offer such Shares, (ii) the number of such Shares to
be offered, and (iii) the price and terms upon which it proposes to offer
such Shares.
(b) By written notification received by
the Company, within twenty (20) calendar days after receipt of the Notice,
the Major Investor may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares that equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Preferred Stock then held, by such Major
Investor bears to the total number of shares of Common Stock of the Company
then outstanding (assuming full conversion and exercise of all convertible
and exercisable securities).
(c) If all Shares that Major Investors
are entitled to obtain pursuant to subsection 2.3(b) are not elected to be
obtained as provided in subsection 2.3(b)
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hereof, those non-subscribed shares shall be reoffered to the Major Investors
who purchased their entire allocation of Shares pursuant to subsection
2.3(b), and by written notification received by the Company within twenty
(20) calendar days after receipt of the Notice pertaining to the
non-subscribed Shares, those Major Investors may elect to obtain, at the
price and on the terms specified in the original Notice, their pro rata
portion of such non-subscribed shares. If any Shares that Major Investors are
entitled to obtain pursuant to the immediately preceding sentence are not
purchased by such Major Investors, the Company may, during the ninety (90)
day period following the expiration of the periods provided in subsection
2.3(b) and the first sentence of this subsection 2.3(c), offer the remaining
non-subscribed portion of such Shares to any person or persons at a price 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 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 Shares shall not be
offered unless first reoffered to the Major Investors in accordance with this
Section 2.3.
(d) The right of first offer in this
Section 2.3 shall not be applicable to (i) the issuance or sale of up to
6,300,000 shares of Common Stock (or options therefor) to employees,
directors, officers and consultants for the primary purpose of soliciting or
retaining their services; (ii) the issuance of securities pursuant to a bona
fide, firmly underwritten public offering of shares of Common Stock
registered under the Act; (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities; (iv) the
issuance of securities in connection with a bona fide business acquisition of
or by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise; (v) the issuance of securities to banks or
equipment lessors; or (vi) the issuance of stock, warrants or other
securities or rights to persons or entities with which the Company has
business relationships provided such issuances are for other than primarily
equity financing purposes.
2.4 DIRECTORS AND OFFICERS INSURANCE. The
Company has obtained from financially sound and reputable insurers directors
and officers liability insurance in the amount of $1,000,000. The Company
shall maintain in full force and effect such coverage for so long as the
Series B Investors are entitled to elect at least one (1) member of the
Company's Board of Directors.
2.5 TERMINATION OF COVENANTS. The covenants
set forth in Sections 2.1, 2.2 and 2.3 shall terminate as to Investors and be
of no further force or effect when the 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, the public offering price of which was not less than
$15.00 per share (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) and $20,000,000 in the aggregate (a "Qualified
IPO"), 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.
2.6 OPTION VESTING. The Company agrees,
unless otherwise agreed to by a unanimousvote of the Company's Board of
Directors, that all stock and stock equivalents issued to employees,
directors, consultants and other service providers will be subject to
vesting,
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such that 25% of such shares shall vest 12 months following the date of such
issuance, with the remaining 75% to vest monthly over the next four years. In
addition, the Company agrees that it will not accelerate vesting of any
currently issued, but unvested shares, prior to the closing of the Series C
financing.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of any shares of Registrable
Securities). Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
3.2 GOVERNING LAW. This Agreement shall be
governed by and construed under the laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California.
3.3 COUNTERPARTS. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
3.4 TITLES AND SUBTITLES. The titles and
subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any
notice required or permitted under this Agreement shall be given in writing
and shall be deemed effectively given upon personal delivery to the party to
be notified or upon delivery by confirmed facsimile transmission, nationally
recognized overnight courier service, or upon deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed
to the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties. In addition, a
copy of any notice sent to the Company pursuant to this Agreement shall be
sent to Weil, Gotshal & Manges LLP, 2882 Sand Hill Road, Suite 280, Menlo
Park, California 94025, Attn: Craig W. Adas.
3.6 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 attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
3.7 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
This Agreement (including the Exhibits hereto, if any) constitutes the full
and entire understanding and agreement among the parties with regard to the
subjects hereof and thereof. 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
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written consent of the Company and the holders of two-thirds of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 3.7 shall be binding upon each holder of any Registrable
Securities, each future holder of all such Registrable Securities and the
Company.
3.8 SEVERABILITY. If one or more provisions
of this Agreement are held to be unenforceable under applicable law, such
provision shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
3.9 AGGREGATION OF STOCK. All shares of
Registrable Securities held or acquired by affiliated entities or persons
shall be aggregated together for the purpose of determining the availability
of any rights under this Agreement.
3.10 ADDITIONAL PARTIES. In the event of a
subsequent closing with a purchaser as provided for in Section 1.3 of the
Series C Agreement, such purchaser shall become a party to this Agreement as
an "Investor" upon receipt from such purchaser of a fully executed signature
page hereto.
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EXHIBIT 10.1
KINZAN.COM
1999 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Option/Stock Issuance Plan is intended to
promote the interests of Kinzan.com, a California corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate
equity programs:
(i) the Option Grant Program under
which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,
and
(ii) the Stock Issuance Program under which
eligible persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the immediate
purchase of such shares or as a bonus for services rendered the
Corporation (or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply
to both the equity programs under the Plan and shall accordingly govern the
interests of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However,
any or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such
period of time as the Board may determine and shall be subject to removal by
the Board at any time. The Board may also at any time terminate the functions
of the Committee and reassume all powers and authority previously delegated
to the Committee.
B. The Plan Administrator shall have full power and
authority (subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper
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administration of the Plan and to make such determinations under, and issue
such interpretations of, the Plan and any outstanding options or stock
issuances thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any option or stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are
as follows:
(i) Employees,
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent or
Subsidiary, and
(iii) consultants who provide services to the
Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to
determine, (i) with respect to the option grants under the Option Grant
Program, which eligible persons are to receive option grants, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
option is to become exercisable, the vesting schedule (if any) applicable to
the option shares and the maximum term for which the option is to remain
outstanding, and (ii) with respect to stock issuances under the Stock
Issuance Program, which eligible persons are to receive stock issuances, the
time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such
shares.
C. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall
not exceed 5,000,000 shares.
B. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i)
the options expire or terminate for any reason prior to exercise in full or
(ii) the options are cancelled in accordance with the cancellation - regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently repurchased by the Corporation, at the option exercise price or
direct issue price paid per share,
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pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan.
C. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class
of securities issuable under the Plan and (ii) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive. In no event shall any such adjustments be made
in connection with the conversion of one or more outstanding shares of the
Corporation's preferred stock into shares of Common Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be
fixed by the Plan Administrator in accordance with the following
provisions:
(i) The exercise price per share shall not be
less than eighty-five percent (85%) of the Fair Market Value per
share of Common Stock on the option grant date.
(ii) If the person to whom the option is
granted is a 10% Shareholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of
Section I of Article Four and the documents evidencing the option, be payable
in cash or check made payable to the Corporation. Should the
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Common Stock be registered under Section 12(g) of the 1934 Act at the time
the option is exercised, then the exercise price may also be paid as follows:
(i) in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide
irrevocable written instructions (a) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, at least twenty percent (20%) of
the total number of option shares subject to each grant shall become
exercisable each year, beginning on a date no later than the option grant
date, unless the option is granted to an individual who is an officer or a
member of the Board of, or a consultant to, the Corporation (or any Parent or
Subsidiary), in which case no such minimum requirement shall apply. No option
shall have a term in excess of ten (10) years measured from the option grant
date.
C. EFFECT OF TERMINATION OF SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at
the time of cessation of Service or death:
(i) Should the Optionee cease to
remain in Service for any reason other than Disability, death
or Misconduct, then the Optionee shall have a period of three (3)
months following the date of such cessation of Service during which
to exercise each outstanding option held by such Optionee.
(ii) Should such Service terminate by
reason of Disability, then the Optionee shall have a period of six
(6) months following the date of such cessation of Service during
which to exercise each outstanding option held by such Optionee.
However, should such Disability be deemed to constitute Permanent
Disability, then the period during which each outstanding option
held by the Optionee is to remain exercisable shall be
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extended by an additional six (6) months so that the exercise period
shall be the twelve (12)-month period following the date of the
Optionee's cessation of Service by reason of such Permanent
Disability.
(iii) Should the Optionee die while holding one
or more outstanding options, then the personal representative of the
Optionee's estate or the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with
the laws of descent and distribution shall have a period of twelve
(12) months following the date of the Optionee's death during which
to exercise each such option.
(iv) Under no circumstances, however, shall
any such option be exercisable after the specified expiration of the
option term.
(v) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate
for more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent it is not exercisable for
vested shares on the date of such cessation of Service.
(vi) Should Optionee's Service be terminated
for Misconduct, then all outstanding options held by the Optionee
shall terminate immediately and cease to remain outstanding.
D. SHAREHOLDER RIGHTS. The holder of an option shall
have no shareholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price
and become a holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, all or (at the discretion of the Corporation and with
the consent of the Optionee) any of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. The Plan Administrator may not
impose a vesting schedule upon any option grant or any shares of Common Stock
subject to the option which is more restrictive than twenty percent (20%) per
year vesting, with the initial vesting to occur no later than one (1) year
after the option grant date. However, this minimum vesting requirement shall
not be applicable with respect to any option granted to an individual who is
an officer or a member of the
5.
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Board of, or a consultant to, the Corporation (or any Parent or Subsidiary).
F. FIRST REFUSAL RIGHTS. Until such time as the Common
Stock is first registered under Section 12(g) of the 1934 Act, the
Corporation shall have the right of first refusal with respect to any
proposed disposition by the Optionee (or any successor in interest) of any
shares of Common Stock issued under the Option Grant Program. Such right of
first refusal shall be exercisable in accordance with the terms established
by the Plan Administrator and set forth in the document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, the option shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
B. EXERCISE PRICE. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of
the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Shareholder, then the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the
6.
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Corporate Transaction, become fully exercisable for all of the shares of
Common Stock at the time subject to that option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. However, an
outstanding option shall not so accelerate and the shares subject to an
outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance
with the same vesting schedule applicable to those unvested option shares or
(iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any
Corporate Transaction, except to the extent: (i) those repurchase rights are
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction, had the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to (i) the
number and class of securities available for issuance under the Plan
following the consummation of such Corporate Transaction and (ii) the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
E. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration (in
whole or in part) of one or more outstanding options (and the immediate
termination of the Corporation's repurchase rights with respect to the shares
subject to those options) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed in the Corporate Transaction.
F. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program which
will automatically accelerate in the event the Optionee's Service terminates
by reason of an Involuntary Termination within a designated period
7.
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(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do
not otherwise accelerate. Any options so accelerated shall remain exercisable
for fully-vested shares until the EARLIER of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand
Dollar limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The grant of options under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all of any part of its business or
assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Option Grant
Program and to grant in substitution therefor new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new option grant
date.
V. ADDITIONAL AUTHORITY
The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to
(i) extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of
Service or death from the limited period otherwise in effect for that
option to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the option
term; and/or
(ii) permit the option to be exercised, during
the applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
8.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed
by the Plan Administrator in accordance with the following provisions:
(i) The purchase price per share shall not
be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the stock issuance date.
(ii) If the person to whom the stock
issuance is made is a 10% Shareholder, then the purchase price per
share shall not be less than one hundred ten percent (110%) of the
Fair Market Value per share of Common Stock on the stock issuance
date.
2. Subject to the provisions of Section I of
Article Four, shares of Common Stock may be issued under the Stock Issuance
Program for one or both of the following items of consideration which the
Plan Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully
and immediately vested upon issuance or may vest in one or more installments
over the Participant's period of Service or upon attainment of specified
performance objectives. The elements of the vesting schedule applicable to
any unvested shares of Common Stock issued under the Stock Issuance Program,
namely:
(i) the Service period to be completed by the
Participant or the
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performance objectives to be attained,
(ii) the number of installments in which the
shares are to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement. The Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, beginning no later than
one (1) year after the stock issuance date. However, this minimum vesting
requirement shall not be applicable with respect to any stock issued to an
individual who is an officer or member of the Board of, or a consultant to, the
Corporation (or any Parent or Subsidiary).
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
the Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
3. The Participant shall have full shareholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest
in those shares is vested. Accordingly, the Participant shall have the right
to vote such shares and to receive any regular cash dividends paid on such
shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued
under the Stock Issuance Program or should the performance objectives not be
attained with respect to one or more such unvested shares of Common Stock,
then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further shareholder rights
with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money indebtedness), the
Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.
C. FIRST REFUSAL RIGHTS. Until such time as the Common
Stock is first
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registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock
issued under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all
outstanding repurchase rights under the Stock Issuance Program shall
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, except to the extent: (i)
those repurchase rights are assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase rights with respect to those
shares remain outstanding, to provide that those rights shall automatically
terminate on an accelerated basis, and the shares of Common Stock subject to
those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in
which those repurchase rights are assigned to the successor corporation (or
parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant
with restrictive legends on the certificates evidencing those unvested shares.
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price or the purchase price for shares
issued to such person under the Plan by delivering a promissory note payable
in one or more installments. The terms of any such promissory note (including
the interest rate and the terms of repayment) shall be established by the
Plan Administrator in its sole discretion. Promissory notes may be authorized
with or without security or
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collateral. However, any promissory notes delivered by a consultant must be
secured by property other than the purchased shares of Common Stock. In all
events, the maximum credit available to the Optionee or Participant may not
exceed the SUM of (i) the aggregate option exercise price or purchase price
payable for the purchased shares plus (ii) any Federal, state and local
income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective when adopted by the Board
on March 22, 1999 and was subsequently approved by the Corporation's
shareholders.
B. The Plan shall terminate upon the EARLIEST of (i)
March 21, 2009, (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise of options or
the issuance of shares (whether vested or unvested) under the Plan or (iii)
the termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options and unvested stock
issuances outstanding under the Plan shall continue to have full force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations with respect to options or unvested stock issuances at the time
outstanding under the Plan, unless the Optionee or the Participant consents
to such amendment or modification. In addition, certain amendments may
require approval of the Corporation's shareholders pursuant to applicable
laws and regulations.
B. Options to purchase shares of Common Stock may be
granted under the Plan and shares of Common Stock may be issued under the
Plan that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Plan are held in escrow until there is obtained shareholder
approval of an amendment sufficiently increasing the number of shares of
Common Stock available for issuance under the Plan. If such shareholder
approval is not obtained within twelve (12) months after the date the first
such excess issuances are made, then (i) any unexercised options granted on
the basis of such excess shares shall terminate and cease to be outstanding
and (ii) the Corporation shall promptly refund to the Optionees and the
Participants the exercise or purchase price paid for any excess shares issued
under the Plan and held in escrow, together with interest (at the applicable
Short-Term Federal Rate) for the period the shares were held in escrow, and
such shares shall thereupon be automatically cancelled and cease to be
outstanding.
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IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options or upon the issuance or vesting of any shares
issued under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options granted
under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under and each Participant in the Plan, unless such individual is a key Employee
whose duties in connection with the Corporation (or any Parent or Subsidiary)
assure such individual access to equivalent information.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative
functions under the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Kinzan.com, a California corporation.
G. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances. Disability shall be
deemed to constitute PERMANENT DISABILITY in the event that such Disability is
expected to result in death or has lasted or can be expected to last for a
continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be
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determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(a) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which
materially reduces his or her duties and responsibilities or the level
of management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
without the individual's consent.
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M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds
for the dismissal or discharge of any Optionee, Participant or other person
in the Service of the Corporation (or any Parent or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
O. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
P. OPTION GRANT PROGRAM shall mean the option grant program in
effect under the Plan.
Q. OPTIONEE shall mean any person to whom an option is granted
under the Option Grant Program.
R. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the
Corporation, provided each corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
S. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 1999 Stock Option/Stock
Issuance Plan, as set forth in this document.
U. PLAN ADMINISTRATOR shall mean either the Board or the
Committee, to the extent the Committee is at the time responsible for the
administration of the Plan.
V. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant,
except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
W. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
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X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance of shares
of Common Stock under the Stock Issuance Program.
Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under the Plan.
Z. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
AA. 10% SHAREHOLDER shall mean the owner of stock (as
determined under Code Section 424(d)) possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Corporation (or any Parent or Subsidiary).
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EXHIBIT 10.2
KINZAN, INC.
2000 STOCK PLAN
EFFECTIVE AS OF APRIL 28, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
Section 1. ESTABLISHMENT AND PURPOSE....................................1
Section 2. ADMINISTRATION...............................................1
(a) Committees of the Board of Directors.........................1
(b) Authority of the Board of Directors..........................1
Section 3. ELIGIBILITY..................................................1
(a) General Rule.................................................1
(b) Ten-Percent Stockholders.....................................1
Section 4. STOCK SUBJECT TO PLAN........................................2
(a) Basic Limitation.............................................2
(b) Additional Shares............................................2
(c) Acquisitions.................................................2
Section 5. MAXIMUM INDIVIDUAL GRANTS....................................2
Section 6. TERMS AND CONDITIONS OF AWARDS OR SALES......................2
(a) Stock Purchase Agreement.....................................2
(b) Duration of Offers and Nontransferability of Rights..........3
(c) Purchase Price...............................................3
(d) Withholding Taxes............................................3
(e) Restrictions on Transfer of Shares...........................3
(f) Accelerated Vesting..........................................3
Section 7. TERMS AND CONDITIONS OF OPTIONS..............................3
(a) Stock Option Agreement.......................................3
(b) Number of Shares.............................................3
(c) Exercise Price...............................................4
(d) Vesting......................................................4
(e) Withholding Taxes............................................4
(f) Exercisability...............................................4
(g) Accelerated Exercisability...................................4
(h) Basic Term...................................................4
(i) Nontransferability...........................................4
(j) Termination of Service (Except by Death or for Cause)........4
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
(k) Leaves of Absence............................................5
(l) Death of Optionee............................................5
(m) Termination for Cause........................................5
(n) No Rights as a Stockholder...................................5
(o) Modification, Extension and Assumption of Options............6
(p) Restrictions on Transfer of Shares...........................6
(q) Accelerated Vesting..........................................6
Section 8. PERFORMANCE MEASURES.........................................6
(a) In General...................................................6
(b) Certification of Achievement of Performance Measures.........6
(c) Committee....................................................7
Section 9. PAYMENT FOR SHARES...........................................7
(a) General Rule.................................................7
(b) Services Rendered............................................7
(c) Surrender of Stock...........................................7
(d) Promissory Note..............................................7
(e) Exercise/Sale................................................7
(f) Exercise/Pledge..............................................7
(g) Net Exercise.................................................8
Section 10. ADJUSTMENT OF SHARES.........................................8
(a) General......................................................8
(b) Mergers and Consolidations...................................8
(c) Reservation of Rights........................................8
Section 11. SECURITIES LAW REQUIREMENTS..................................9
Section 12. NO RETENTION RIGHTS..........................................9
Section 13. DURATION AND AMENDMENTS......................................9
(a) Term of the Plan.............................................9
(b) Right to Amend or Terminate the Plan.........................9
(c) Effect of Amendment or Termination...........................9
Section 14. DEFINITIONS..................................................9
</TABLE>
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(CONTINUED)
<TABLE>
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Section 15. EXECUTION...................................................12
</TABLE>
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KINZAN, INC. 2000 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan provides both for the direct award or sale of Shares and for
the grant of Options to purchase Shares as incentives to persons who provide
services to the Company or its affiliates. Options granted under the Plan may
include Nonstatutory Options as well as ISOs intended to qualify under Section
422 of the Code. Capitalized terms are defined in Section 14.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by
one or more Committees. Each Committee shall consist of one or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Subject to the foregoing,
the Board of Directors shall establish a Committee comprised solely of not less
than two members of the Board of Directors who each shall qualify as (i) a
"non-employee director" within the meaning of Rule 16b-3(b)(3) or any successor
rule under the Securities Exchange Act of 1934, as amended from time to time,
and (ii) an "outside director" within the meaning of Section 162(m) of the Code,
and unless the Board of Directors determines otherwise, such Committee shall
have authority to make awards or sales of Shares or grants of Options to Covered
Employees. Any reference to the Board of Directors in the Plan shall be
construed as a reference to the Committee (if any) to whom the Board of
Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Directors and Consultants shall be
eligible for the grant of Options or the direct award or sale of Shares, as
determined by the Board of Directors. Only Employees shall be eligible for the
grant of ISOs.
(b) TEN-PERCENT STOCKHOLDERS. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for designation as
an Optionee under an ISO unless the Exercise Price is at least 110% of the Fair
Market Value of a Share on the date of grant and the ISO is not exercisable
after the expiration of five (5) years from the date of grant. For purposes of
this subsection (b), in determining stock ownership, the attribution rules of
Section 424(d) of the Code shall be applied.
<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be authorized
but unissued Shares or treasury Shares. The aggregate number of Shares that
may be issued under the Plan (upon exercise of Options or other rights to
acquire Shares) shall not exceed 1,500,000 Shares, plus (i) an
additional number of Shares as of the first day of each calendar year equal
to 500,000 Shares, (ii) all Shares available for issuance under the Prior
Plan (including any Shares which become available by reason of any forfeiture
or cancellation) and (iii) any Shares issued or issuable under the Plan by
reason of any options or other rights assumed or substituted for in
accordance with Section 4(c) below, in all cases subject to adjustment
pursuant to 0. The number of Shares that are subject to Options or other
rights outstanding at any time under the Plan shall not exceed the number of
Shares that then remain available for issuance under the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right to acquire Shares for any reason expires or is cancelled or otherwise
terminated under the Plan, the Shares allocable to the unexercised portion of
such Option or other right shall again be available for the purposes of the
Plan. In the event that Shares issued under the Plan are reacquired by the
Company pursuant to any forfeiture provision, right of repurchase or right of
first refusal, such Shares shall again be available for the purposes of the
Plan. To the extent any Shares subject to outstanding options or other rights
under the Prior Plan for any reason expire or are cancelled or otherwise
terminated under such plan or any unvested Shares are issued under the Prior
Plan and subsequently repurchased by the Company, at the option exercise price
or direct issue price paid per Share, pursuant to the Company's repurchase
rights under such plan, such Shares shall be available for purposes of the Plan.
(c) ACQUISITIONS. In connection with the acquisition of any business by the
Company or any of its affiliates, any outstanding grants, awards or sales of
options, stock or other similar rights pertaining to such business may be
assumed or replaced by Options or Shares under the Plan upon such terms and
conditions as the Board of Directors determines. The date of any such grant,
award or sale shall relate back to the date of the initial grant, award or sale
being assumed or replaced, and service with the acquired business shall
constitute service with the Company and its affiliates for purposes of such
grant, award or sale.
SECTION 5. MAXIMUM INDIVIDUAL GRANTS.
The maximum aggregate number of Shares underlying all Options or
other rights under the Plan that may be granted to any single Employee,
including any Options or other rights that may have been granted to such
Employee as a Director or Consultant, over any three-year period during the
term of the Plan shall be 500,000 Shares, subject to adjustment
pursuant to Section 10. For purposes of the preceding sentence, any Options
or other rights that are cancelled or repriced shall continue to be counted
in determining such maximum limit.
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the
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Purchaser and the Company. Such award or sale shall be subject to all
applicable terms and conditions of the Plan, and may be subject to any other
terms and conditions which are not inconsistent with the Plan and which the
Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered
into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within thirty (30) days after the grant of
such right was communicated to the Purchaser by the Company. Such right shall
not be transferable and shall be exercisable only by the Purchaser to whom such
right was granted, except in the case of a transfer by the Purchaser to its
affiliate with the prior written consent of the Board of Directors at its sole
discretion.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan shall be determined by the Board of Directors at its sole discretion. The
Purchase Price shall be payable in a form described in Section 9.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold under
the Plan shall be subject to such vesting and special forfeiture conditions,
rights of repurchase, rights of first refusal and other transfer restrictions as
the Board of Directors may determine. Such restrictions shall be set forth in
the applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, any right to repurchase a Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
and all of such Shares shall become vested upon the consummation of a Change in
Control before the Purchaser's Service terminates, at the sole discretion of the
Board of Directors.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the Plan, and
may be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Board of Directors deems appropriate for inclusion in a
Stock Option Agreement. The provisions of the various Stock Option Agreements
entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 10. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
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(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100% of the Fair
Market Value of a Share on the date of grant, and a higher percentage may be
required by 0. Subject to the preceding sentence, the Exercise Price under any
Option shall be determined by the Board of Directors at its sole discretion. The
Exercise Price shall be payable in a form described in Section 10.
(d) VESTING. Each Stock Option Agreement shall specify the date and events
on which all or any installment of the Option shall be vested and nonforfeitable
(except as provided in the Plan or the Stock Option Agreement). The vesting and
nonforfeitability provisions applicable to any Option shall be determined by the
Board of Directors at its sole discretion.
(e) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(f) EXERCISABILITY. Each Stock Option Agreement shall specify the date when
all or any installment of the Option is to become exercisable. The
exercisability provisions of any Stock Option Agreement shall be determined by
the Board of Directors at its sole discretion.
(g) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control before
the Optionee's Service terminates, (ii) the Company or its parent does not
continue such Options, and (iii) any surviving corporation or its parent does
not assume such Options, or does not substitute options with substantially the
same terms for such Options.
(h) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed ten (10) years from the date of grant, and
a shorter term may be required by Section 3(b) for Ten-Percent Stockholders.
Subject to the preceding sentence, the Board of Directors at its sole
discretion shall determine when an Option is to expire.
(i) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(j) TERMINATION OF SERVICE (EXCEPT BY DEATH OR FOR CAUSE). If an Optionee's
Service terminates for any reason other than the Optionee's death or for Cause,
then the Optionee's Options shall expire on the earliest of the following
occasions:
(i) The expiration date determined pursuant to subsection (h)
above;
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(ii) The date three (3) months after the termination of the
Optionee's Service for any reason other than Disability, or such later date as
the Board of Directors may determine; or
(iii) The date six (6) months after the termination of the
Optionee's Service by reason of Disability, or such later date as the Board of
Directors may determine.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(k) LEAVES OF ABSENCE. For purposes of subsection (j) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if
continued crediting of Service for this purpose is expressly required by the
terms of such leave or by applicable law (as determined by the Company).
(l) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to subsection (h)
above; or
(ii) The date twelve (12) months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death (or became exercisable as a result of the death) and
the underlying Shares had vested before the Optionee's death (or vested as a
result of the death). The balance of such Options shall lapse when the Optionee
dies.
(m) TERMINATION FOR CAUSE. Unless otherwise determined by the Board of
Directors, all of an Optionee's Options (both vested and unvested) shall be
cancelled and forfeited upon the Optionee's termination of Service for Cause.
(n) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such
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person becomes entitled to receive such Shares by filing a notice of exercise
and paying the Exercise Price pursuant to the terms of such Option.
(o) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may provide for the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, materially impair the
Optionee's rights or increase the Optionee's obligations under such Option.
(p) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise of
an Option shall be subject to same vesting conditions as were applicable to the
Option and such special forfeiture conditions, rights of repurchase, rights of
first refusal and other transfer restrictions as the Board of Directors may
determine. Such restrictions shall be set forth in the applicable Stock Option
Agreement and shall apply in addition to any restrictions that may apply to
holders of Shares generally. Any right to repurchase the Optionee's Shares at
the original Exercise Price upon termination of the Optionee's Service may be
exercised only (i) for cash or for cancellation of indebtedness incurred in
purchasing the Shares and (ii) within ninety (90) days after the later of (A)
the termination of the Optionee's Service or (B) the date of the Option
exercise.
(q) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse and all of
such Shares shall become vested upon the consummation of a Change in Control
before the Optionee's Service terminates, at the sole discretion of the Board of
Directors.
SECTION 8. PERFORMANCE MEASURES.
(a) IN GENERAL. In the event of an award or sale of Shares or grant of
Options under the Plan with a Purchase Price or Exercise Price of less than
Fair Market Value at the time of such award, sale or grant, the Committee may
at its sole discretion determine and administer of the terms and conditions
of such award, sale or grant so as to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code. To that end,
the grant, payment, vesting and/or exercisability of such award, sale or
grant shall be subject to the achievement during a performance period or
periods of a level or levels of one or more Performance Measures, in each
case as established at the sole discretion of the Committee. The
establishment of Performance Measures applicable to any award, sale or grant
to which this Section 8 applies shall be made before either ninety (90) days
or 25% of the applicable performance period have elapsed. The amount of
compensation payable under the terms of any such award, sale or grant upon
the achievement of any applicable Performance Measure shall not be subject to
any increase as a result of discretion exercised, directly or indirectly, by
the Committee.
(b) CERTIFICATION OF ACHIEVEMENT OF PERFORMANCE MEASURES. No
compensation attributable to an award, sale or grant subject to this Section
8 shall be paid to or otherwise received by a Purchaser or an Optionee who is
a Covered Employee with respect to any
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performance period until the Committee certifies in writing that the
Performance Measures applicable to such award, sale or grant and such
performance period have been satisfied.
(c) COMMITTEE. All actions required or permitted to be taken by the
Committee under this Section 8 shall be undertaken by the Committee comprised
solely of non-employee directors and outside directors, as established pursuant
to Section 2.
SECTION 9. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 9.
(b) SERVICES RENDERED. At the sole discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(c) SURRENDER OF STOCK. At the sole discretion of the Board of Directors,
all or any part of the Exercise Price may be paid by surrendering, or attesting
to the ownership of, Shares that are already owned by the Optionee. Such Shares
shall be surrendered to the Company in good form for transfer and shall be
valued at their Fair Market Value on the date when the Option is exercised. The
Optionee shall not surrender, or attest to the ownership of, Shares in payment
of the Exercise Price if such action would cause the Company, a Parent or a
Subsidiary to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes that
otherwise would not have occurred.
(d) PROMISSORY NOTE. At the sole discretion of the Board of Directors, all
or a portion of the Purchase Price or Exercise Price (as the case may be) of
Shares issued under the Plan may be paid with a full-recourse promissory note.
However, the par value of the Shares, if newly issued, shall be paid in cash or
cash equivalents. The Shares shall be pledged as security for payment of the
principal amount of the promissory note and interest thereon. The interest rate
payable under the terms of the promissory note shall not be less than the
minimum rate (if any) required to avoid the imputation of additional interest
under the Code. Subject to the foregoing, the Board of Directors (at its sole
discretion) shall specify the term, interest rate, amortization requirements (if
any) and other provisions of such note.
(e) EXERCISE/SALE. At the sole discretion of the Board of Directors, and if
Stock is publicly traded, payment may be made all or in part by the delivery (on
a form prescribed by the Company) of an irrevocable direction to a securities
broker approved by the Company to sell Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
(f) EXERCISE/PLEDGE. At the sole discretion of the Board of Directors, and
if Stock is publicly traded, payment may be made all or in part by the delivery
(on a form prescribed by the Company) of an irrevocable direction to pledge
Shares to a securities broker or lender approved by the Company, as security for
a loan, and to deliver all or part of the loan proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
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(g) NET EXERCISE. At the sole discretion of the Board of Directors, and if
Stock is publicly traded, payment of all or any portion of the Exercise Price of
Shares issued under the Plan may be made by reducing the number of Shares
otherwise deliverable upon the exercise of such Option by the number of Shares
having a fair market value equal to the Exercise Price.
SECTION 10. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an
extraordinary dividend payable in a form other than Shares in an amount that
has a material effect on the Fair Market Value of the Stock, a combination or
consolidation of the outstanding Stock into a lesser number of Shares, a
recapitalization, a spin-off, a reclassification or a similar occurrence, the
Board of Directors shall make appropriate adjustments in one or more of (i)
the number of Shares available for future grants under Section 4, (ii) the
number of Shares covered by each outstanding Option, or (iii) the Exercise
Price under each outstanding Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party to
a merger or consolidation, outstanding Options shall be subject to the agreement
of merger or consolidation. Such agreement, without the Optionees' consent, may
provide for:
(i) The continuation of such outstanding Options by the Company
(if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of the vested portion (and not the unvested
portion) of such outstanding Options or other rights by a cash payment of the
excess, if any, of the fair market value of the Shares subject to the vested
portion of any such Option or other rights over the aggregate Exercise Price
with respect to such portion.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 10, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision
or consolidation of shares of stock of any class, (ii) the payment of any
dividend, or (iii) any other increase or decrease in the number of shares of
stock of any class. Any issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or
assets.
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SECTION 11. SECURITIES LAW REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended from time to time, the rules and regulations promulgated thereunder,
state securities laws and regulations, and the regulations of any stock exchange
or other securities market on which the Company's securities may then be traded.
SECTION 12. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any Parent or Subsidiary employing or
retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service at
any time and for any reason, with or without cause.
SECTION 13. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become effective
on the date of its adoption by the Board of Directors, subject to the approval
of the Company's stockholders. In the event that the Company's stockholders fail
to approve the Plan within twelve (12) months after its adoption by the Board of
Directors, any sales or awards of Shares or grants of Options that have already
occurred shall be rescinded, and no additional sales, awards or grants shall be
made thereafter under the Plan. The Plan shall terminate automatically ten (10)
years after its adoption by the Board of Directors and may be terminated on any
earlier date pursuant to subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason;
provided, however, that any amendment of the Plan which increases the number
of Shares available for issuance under the Plan (except as provided in
Section 10), or which materially changes the class of persons who are
eligible for the grant of ISOs, shall be subject to the approval of the
Company's stockholders. Stockholder approval shall not be required for any
other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.
SECTION 14. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the board of directors of the Company,
as constituted from time to time.
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(b) "CAUSE" shall mean with respect to an Optionee or Purchaser, unless
another meaning is otherwise specifically provided by the Board of Directors,
the earliest to occur of:
(i) any conviction of, or plea of guilty or nolo contendre to, a
felony in connection with the performance of services for the Company or any of
its affiliates; or
(ii) any willful breach of any written policy or any confidential
or proprietary information, non-compete or non-solicitation covenant with the
Company or any of its affiliates, in any case which is materially and
demonstrably injurious to the Company.
(c) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if persons
who were not stockholders of the Company immediately prior to such merger,
consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of the
outstanding securities of each of (A) the continuing or surviving entity and (B)
any direct or indirect parent corporation of such continuing or surviving
entity; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended, from
time to time, and the regulations promulgated thereunder.
(e) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(f) "COMPANY" shall mean Kinzan, Inc., a Delaware corporation.
(g) "CONSULTANT" shall mean a person who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Directors.
(h) "COVERED EMPLOYEE" shall mean each Employee who, as of date of any
award or sale of Shares or grant of Options to such Employee, (i) is a "covered
employee" (as defined in Section 162(m) of the Code) and the recipient of
compensation in excess of $1,000,000 or (ii) is expected by the Board of
Directors to satisfy the requirements of clause (i) as of the end of the taxable
year of the Company, a Parent or a Subsidiary in which compensation attributable
to such Shares or Options (as the case may be) would be deductible without
regard to such Section.
(i) "DIRECTOR" shall mean a member of the board of directors of the
Company, a Parent or a Subsidiary who is not an Employee.
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(j) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment as determined by the Board of Directors at its sole
discretion.
(k) "EMPLOYEE" shall mean an individual who is a common-law employee of the
Company, a Parent or a Subsidiary.
(l) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(m) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by such methods or procedures as shall be established from time to
time by the Board of Directors at its sole discretion. Such determination shall
be conclusive and binding on all persons.
(n) "ISO" shall mean an incentive stock option described in Section 422(b)
of the Code.
(o) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(p) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(q) "OPTIONEE" shall mean an individual who holds an Option.
(r) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(s) "PERFORMANCE MEASURES" shall mean any of the following: net sales;
pre-tax income before allocation of corporate overhead and bonus; budget; cash
flow; earnings per share; net income; division, group or corporate financial
goals; return on stockholders' equity; return on assets; attainment of strategic
and operational initiatives; appreciation in and/or maintenance of the price of
Shares or any other public-traded securities of the Company; earnings before
interest and taxes; earnings before interest, taxes, depreciation and
amortization; economic value-added models; comparisons with various stock market
indices; increase in number of customers; and/or reductions in costs.
(t) "PLAN" shall mean this Kinzan, Inc. 2000 Stock Plan.
(u) "PRIOR PLAN" shall mean the Kinzan.com 1999 Stock Option/Stock Issuance
Plan.
(v) "PURCHASE PRICE" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors in the applicable Stock Purchase Agreement.
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(w) "PURCHASER" shall mean an individual to whom the Board of Directors has
offered the right to acquire Shares under the Plan (other than upon exercise of
an Option).
(x) "SELECTED AWARD" shall have the meaning ascribed in Section(a).
(y) "SERVICE" shall mean service as an Employee, Director or Consultant.
(z) "SHARE" shall mean one share of common stock of the Company, with a par
value of $0.001, as adjusted in accordance with Section 10 (if applicable).
(aa) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(bb) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the Company
and a Purchaser who acquires Shares under the Plan which contains the terms,
conditions and restrictions pertaining to the acquisition of such Shares.
(cc) "SUBSIDIARY" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
(dd) "TEN-PERCENT STOCKHOLDER" shall mean an individual who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Company, its Parent or any of its Subsidiaries.
SECTION 15. EXECUTION.
To record the adoption of the Plan by the Board of Directors,
the Company has caused its authorized officer to execute the same.
KINZAN, INC.
By: /s/ Jeffrey P. Higgins
-------------------------------------------
Title: Vice President and General Counsel
----------------------------------------
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EXHIBIT 10.3
KINZAN, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I PURPOSE AND DEFINITIONS..................................................2
ARTICLE II PARTICIPATION............................................................2
ARTICLE III CONTRIBUTIONS............................................................2
ARTICLE IV OPTIONS TO ACQUIRE SHARES................................................2
ARTICLE V ACCOUNTS.................................................................4
ARTICLE VI DISBURSEMENTS FROM ACCOUNT...............................................4
ARTICLE VII ADMINISTRATION AND EXPENSES..............................................5
ARTICLE VIII MERGERS AND OTHER SHARE ADJUSTMENTS......................................5
ARTICLE IX AMENDMENT AND TERMINATION................................................6
ARTICLE X MISCELLANEOUS............................................................6
</TABLE>
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KINZAN, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I PURPOSE AND DEFINITIONS
1.01 PURPOSE. The kinzan, inc. 2000 Employee Stock Purchase Plan, as
amended from time to time ("PLAN"), provides a convenient method of acquiring
shares of stock of kinzan, inc. ("COMPANY"), if you are eligible to
participate. The Plan is intended to qualify as an employee stock purchase
plan under section 423 of the Internal Revenue Code of 1986, as amended
("CODE") , but is not intended to be subject to section 401(a) of the Code or
the Employee Retirement Income Security Act of 1974, as amended.
1.02 DEFINITIONS. A term defined in the Plan shall have the meaning
ascribed to it wherever it is used herein unless the context indicates
otherwise.
ARTICLE II PARTICIPATION
2.01 ADOPTION BY SUBSIDIARIES. The Company's Board of Directors may
authorize the adoption of the Plan by one or more subsidiary corporations of
the Company ("PARTICIPATING SUBSIDIARIES").
2.02 ELIGIBILITY TO PARTICIPATE. You are eligible to participate in an
Offering under the Plan if, as of the first day of such Offering, you are
regularly scheduled to work more than twenty hours a week (as determined by
reference to the Company's employment records) and more than five months a
year for the Company and its Participating Subsidiaries, and you have
completed at least six months of employment with the Company and its
Participating Subsidiaries.
2.03 PARTICIPATION AGREEMENT. Participation in the Plan is voluntary with
respect to each Offering. To participate in an Offering, you must be eligible
and must complete a written enrollment form provided by the Company
("PARTICIPATION AGREEMENT") authorizing payroll deductions from your
paycheck. Your Participation Agreement will remain in effect through each
consecutive Offering unless you choose to revise or revoke it, or you become
ineligible to participate in the Plan.
2.04 TERMINATION OF YOUR PARTICIPATION. You may withdraw at any time from
any Offering by written notice to the Committee in such form as it may
require. Your participation will also end upon your termination of employment
with the Company and its parent and subsidiary corporations or when you
become ineligible to participate (including by reason of the Company or any
Participating Subsidiary terminating its participation in the Plan).
<PAGE>
2.05 DESIGNATION OF BENEFICIARY. You shall, by written notice to the
Committee, designate a person or persons to receive the value of your Account
in the event of your death. You may, by written notice to the Committee
during employment, alter or revoke such designation, subject always to any
applicable law governing the designation of beneficiaries. Such written
notice shall be in such form and shall be executed in such manner as the
Committee may determine. If upon your death you have not designated a
beneficiary under the Plan or such beneficiary does not survive you, the
value of your Account shall be paid to your estate.
ARTICLE III CONTRIBUTIONS
3.01 PAYROLL DEDUCTIONS. You may accumulate savings to purchase Shares in
an Offering by authorizing payroll deductions pursuant to a Participation
Agreement, subject to such minimum and maximum limits (expressed in dollars
or as a percentage of wages) as the Committee may impose. Such savings shall
be credited to your Account with respect to the Offering to which they
relate. Payroll deductions for an Offering shall commence with the first
paycheck you receive during such Offering and shall end with the last
paycheck you receive during such Offering. Paychecks will be treated as
having been received when they are sent out or otherwise distributed.
3.02 CHANGE IN RATE OF CONTRIBUTIONS. You may reduce (but not increase) your
rate of payroll deduction during an Offering by written notice to the Committee
in such form and manner as it requires. Such reduction shall be effective as of
the first pay period thereafter by which the Company is able to process the
change.
3.03 POSSESSION OF CONTRIBUTIONS. All payroll deductions made pursuant to the
Plan shall be held for your benefit and on your behalf by the Company or any
custodian selected by the Committee. Such payroll deductions shall constitute
your property notwithstanding that they may be commingled with the general
assets of the Company or such custodian.
ARTICLE IV OPTIONS TO ACQUIRE SHARES
4.01 MAXIMUM NUMBER OF SHARES. The number of shares of common stock of the
Company ("SHARES") available for issuance under the Plan shall be 500,000
Shares with respect to the ten years following the adoption of the Plan. Any
Shares that are not actually purchased under the Plan for any reason shall
remain available for purchase hereunder.
4.02 OFFERINGS. The Company will offer Shares for purchase under the Plan
("OFFERING") for six-month periods beginning on January 1 and July 1 of each
calendar year, commencing at such time as determined at the Company's
discretion. The Company may make additional Offerings for different periods,
provided that no Offering shall extend for more than 27 months.
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4.03 OPTIONS. Each Offering shall constitute an option to purchase whole
Shares at a price per Share equal to 85% of the lesser of (i) the fair market
value of a Share on the first day of such Offering or (ii) the fair market
value of a Share on the last day of such Offering. The fair market value of a
Share on any date shall be its closing price reported by the principal stock
exchange on which Shares are traded for such date or for the next earliest
date on which Shares were traded.
4.04 INDIVIDUAL LIMIT ON OPTIONS. No participant shall be granted or
otherwise permitted to have one or more options to purchase during any
calendar year shares of stock of the Company or any of its parent or
subsidiary corporations under the Plan or other plans qualifying under
Section 423 of the Code having a fair market value (as of the applicable date
of grant) of more than $25,000 in the aggregate for all such options.
4.05 PURCHASE OF SHARES. Unless you have withdrawn or become ineligible
prior to the end of an Offering, your accumulated savings shall be
automatically applied on the last day of the Offering to purchase whole
Shares to the extent feasible in accordance with the Offering. Such purchase
shall be treated as the exercise of an option represented by the Offering.
Any amount remaining in your Account after such purchase shall be applied to
the next Offering. You are not entitled or permitted to make cash payments in
lieu of payroll deductions to acquire Shares in an Offering. In no event
shall any Shares be purchased pursuant to an Offering more than 27 months
after the commencement of the Offering.
4.06 SOURCE OF SHARES. Shares may be purchased directly from the Company or
by the Broker pursuant to directions from the Committee. If the Broker
acquires Shares pursuant to an open market transaction, such purchase shall
be made at the market price prevailing on the applicable exchange.
4.07 RESTRICTION ON 5% OWNERS. No employee shall be permitted to purchase
Shares under the Plan if, immediately after such purchase, such employee
would possess stock having 5% or more of the total combined voting power of
all classes of stock of the Company or any of its parent or subsidiary
corporations, determined by applying the stock ownership rules of section
424(d) of the Code.
4.08 PROHIBITION AGAINST ASSIGNMENT. Your right to purchase Shares under
the Plan are exercisable only by you and may not be sold, pledged, assigned,
surrendered or transferred in any manner other than by will or the laws of
descent and distribution. Any attempt to sell, pledge, assign, surrender or
transfer such rights shall be void and shall automatically cause any purchase
rights held by you to be terminated. In such event, the Committee may refund
in cash, without interest, all contributions credited to your Account.
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ARTICLE V ACCOUNTS
5.01 ESTABLISHMENT OF ACCOUNTS. The Committee shall cause to be maintained
a separate account for each participant ("ACCOUNT") to record the amount of
payroll deductions with respect to each Offering, and the purchase price for
and the number of Shares, credited to such participant. No interest or other
earnings shall be credited to any contributions under the Plan.
5.02 CUSTODY OF SHARES. The Committee shall select a broker ("BROKER")
which shall hold and act as custodian of Shares purchased pursuant to the
Plan. Absent instructions to the contrary from a participant, certificates
for Shares purchased will not be issued by the Broker to a participant.
5.03 VOTING OF SHARES. You shall direct the Broker as to how to vote the
full Shares credited to your Account.
ARTICLE VI DISBURSEMENTS FROM ACCOUNT
6.01 WITHDRAWAL OF CONTRIBUTIONS. Upon your withdrawal from any Offering,
all or any designated portion of the contributions credited to your Account
with respect to such Offering shall be disbursed, without interest, to you.
6.02 WITHDRAWAL OF SHARES. You may at any time withdraw all or any number
of whole Shares credited to your Account under the Plan by directing the
Broker to cause your Shares to be (i) issued as certificates in your name,
(ii) transferred to another brokerage account of yours or (iii) sold and the
net proceeds (less applicable commissions and other charges) distributed in
cash to you.
6.03 DISTRIBUTION UPON TERMINATION. Upon termination of your participation
in the Plan as a whole prior to the expiration of all Offerings thereunder,
all contributions and Shares credited to your Account shall be disbursed to
and as directed by you in accordance with the Plan. All contributions
credited to your Account that have not been applied to the purchase of Shares
shall be returned to you without interest, unless such termination coincides
with the expiration of an Offering and Shares are purchased accordingly.
Shares credited to your Account shall, in accordance with instructions to the
Broker from you and at your expense, be distributed in the same manner as
permitted upon any withdrawal.
6.04 FAILURE TO PROVIDE DIRECTIONS. If within ninety (90) days after you
have withdrawn from the Plan you have not notified the Broker of your
instructions as set forth herein, the Committee shall direct the Broker to
issue Shares in your name and deliver the same to you at your last known
address.
6.05 SALE OF SHARES. If you elect to receive the proceeds from the sale of
your Shares, the amount payable shall be determined by the Broker based upon
the proceeds of the sale of your Shares at the market price prevailing on the
New York Stock Exchange, less any applicable commissions, fees and charges.
The Broker, acting on your behalf, shall take such action as soon as
practicable, but in
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<PAGE>
no event later than five (5) business days after receipt of notification from
you. The Company assumes no responsibility in connection with such
transactions, and all commissions, fees or other charges arising in
connection therewith shall be borne directly by you. The amount thus
determined shall be paid in a lump sum to you.
ARTICLE VII ADMINISTRATION AND EXPENSES
7.01 COMMITTEE. The Plan shall be administered by a committee, which shall
consist of such members as determined by the Company ("COMMITTEE"). The
Committee shall interpret and apply the provisions of the Plan in its good
faith discretion, and the Committee's decision is final and binding. The
Committee may establish rules for the administration of the Plan.
7.02 EXPENSES FOR PURCHASE OF SHARES. The Company shall pay brokerage
commissions, fees and other charges, if any, incurred for purchases of Shares
with payroll deductions made under the Plan.
7.03 EXPENSES TO SELL OR TRANSFER SHARES. All brokerage commissions, fees or
other charges in connection with any sale or other transfer of your Shares shall
be paid by you. In addition, any charges by the Broker in connection with your
request to have certificates representing Shares registered in your name shall
be paid by you.
7.04 POST-TERMINATION EXPENSES. Upon your termination of employment or your
withdrawal from the Plan for any other reason, all commissions, fees and
other charges thereafter relating to your Account will be your responsibility.
ARTICLE VIII MERGERS AND OTHER SHARE ADJUSTMENTS
8.01 MERGERS OR OTHER CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding options under the Plan shall
be subject to the agreement of merger or consolidation. Such agreement,
without the consent of any participant, may provide for:
(a) the continuation of such outstanding options by the Company
(if the Company is the surviving corporation);
(b) the assumption of the Plan and such outstanding options
by the surviving corporation or its parent;
(c) the substitution by the surviving corporation or its parent
of options with substantially the same terms for such
outstanding options, including the substitution of shares of
common stock of the surviving corporation with such
appropriate adjustments so as not to enlarge or diminish the
rights of participants; or
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(d) the cancellation of such outstanding options without payment
of any consideration other than the return of contributions
credited to participants' Accounts, without interest.
8.02 ADJUSTMENTS TO SHARES OR OPTIONS. In the event of a subdivision of the
outstanding common stock, a declaration of a dividend payable in Shares, a
declaration of an extraordinary dividend payable in a form other than Shares
in an amount that has a material effect on the fair market value of the
Shares, a combination or consolidation of the outstanding Shares into a
lesser number of Shares, a recapitalization, a spin-off, a reclassification
or a similar occurrence, the Company's Board of Directors shall make
appropriate adjustments so as not to enlarge or diminish the rights of
participants, in one or more of (i) the number of Shares available for
purchase under the Plan, (ii) the number of Shares subject to purchase under
outstanding options or (iii) the purchase price per Share under each
outstanding option.
ARTICLE IX AMENDMENT AND TERMINATION
9.01 The Board of Directors of the Company may at any time terminate or
amend the Plan in any respect, including, but not limited to, terminating the
Plan prior to the end of an Offering Period or reducing the term of an
Offering Period; provided, however, that the number of Shares subject to
purchase under the Plan shall not be increased without approval of the
Company's shareholders.
9.02 The Plan and all rights of participants to purchase any Shares
hereunder shall terminate at the earlier of the conclusion of the last
Offering Period authorized herein, or as otherwise determined by and at the
discretion of the Company.
9.03 Upon termination of the Plan at the end of an Offering Period, Shares
shall be issued to participants, and cash, if any, remaining in the Accounts
of the participants, shall be refunded to them, as if the Plan were
terminated at the end of an Offering Period. Upon termination of the Plan
prior to the end of an Offering Period, all amounts not previously applied to
the purchase of Shares shall be distributed to you.
9.04 No amendments to the Plan which affects the responsibilities or duties
of the Broker shall be effective without the agreement and approval of the
Broker.
ARTICLE X MISCELLANEOUS
10.01 JOINT OWNERSHIP. Shares may be registered in the name of the
participant, or, if he or she so designates, in his or her name jointly with
his or her spouse, with a right of survivorship.
10.02 NO EMPLOYMENT RIGHTS. The Plan shall not be deemed to constitute a
contract of employment between the Company and you, nor shall it interfere
with
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the right of the Company to terminate you and treat you without regard to the
effect which such treatment might have upon you under the Plan.
10.03 TAX WITHHOLDING. The Company shall withhold from amounts to be paid to
you as wages, any applicable Federal, state or local withholding or other
taxes which it is from time to time required by law to withhold.
10.04 COMPLIANCE WITH LAWS. The Company may direct the Broker to delay the
issuance of any certificate in the name of any person or the delivery of
Shares to any person if it determines that listing, registration or
qualification of such Shares upon any national securities exchange or under
any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the sale or purchase of Shares under the Plan, until such
listing, registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Company.
10.05 GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware and without regard to the
conflict of laws principles of such state.
KINZAN, INC.
By: /s/ Jeffrey P. Higgins
-----------------------
Name: Jeffrey P. Higgins
Title: Vice President and
General Counsel
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of this 1st day of
June, 1999 (the "Effective Date") is entered into by and between Kinzan.com
(the "Company") and Gari L. Cheever ("Executive"). In consideration of the
mutual covenants and agreements hereinafter set forth, the parties agree as
follows:
1. EMPLOYMENT
1.1 POSITION. During the Employment Period (as hereinafter defined)
and subject to the terms and conditions set forth herein, the Company agrees
to employ Executive as its President and Chief Executive Officer, reporting
directly to the Board of Directors of the Company (the "Board"). Executive
shall be recommended for election to the Board as of the Effective Date.
1.2 DUTIES AND RESPONSIBILITIES. During the Employment Period,
Executive shall devote sufficient time and energy to fulfill his
responsibilities to the business of the Company and shall not be engaged in
any competitive business activity without the express written consent of the
Company. Executive hereby represents that he is not a party to any agreement
which would be an impediment to entering into this Agreement and that he is
permitted to enter into this Agreement and perform the obligations hereunder;
provided that Executive has obligations of confidentiality to his previous
employer, Encanto Networks, Inc.
1.3 PERIOD OF EMPLOYMENT. The "Employment Period" means the period
commencing on the Effective Date and terminating on the earlier of three (3)
years from the Effective Date or as set forth in paragraph 5 of this
Agreement.
1.4 COMPENSATION.
(a) BASE SALARY. In consideration of and as compensation of and as
compensation for the services agreed to be performed by Executive hereunder,
the Company agrees to pay Executive a gross annual base salary of ONE HUNDRED
SEVENTY-FIVE THOUSAND DOLLARS ($175,000.00) during the initial twelve (12)
months of the Employment Period and thereafter in an amount to be mutually
agreed upon by the Executive and the Compensation Committee of the Company's
Board of Directors, such amounts to be payable in accordance with the
Company's standard payment policy, less applicable withholdings and
deductions (the "Base Salary"). Such Base Salary will be subject to increase
at any time during the Employment Period at the sole discretion of the
Compensation Committee of the Board with the consent of the Executive.
(b) BONUS. Executive's bonus shall be governed by the Company's
management incentive plan as approved by the Company's Board of Directors for
executive officers of the Company.
<PAGE>
(c) PARTICIPATION IN BENEFIT PLAN. During the Employment Period,
Executive and his dependents, as applicable, shall be entitled to participate
in any employee benefit plans and programs that are generally available to
other executive officers of the Company (including, without limitation,
health, disability, life insurance, annual physical or retirement plan)
subject to the terms and conditions of such plan or program and to the extent
permitted by law.
(d) COBRA COVERAGE. The Company will use its best efforts to assure
coverage and provided in paragraph (d) above for Executive and his
dependents; however, to the extent the Company is unable to provide such
coverage or to provide coverage consistent with Executive's existing
coverage, the Company agrees to reimburse Executive for his premium payments
and the payments of his dependents for continuation of the present health
coverage or its equivalent. Provided, however, that the Company shall
discontinue such reimbursement (or a portion thereof) for each such
individual upon Executive and/or each eligible dependent becoming eligible
for participation under the Company's health plans without any limitation for
preexisting conditions.
(e) VACATION. During the Employment Period, Executive will be
entitled to four (4) weeks of paid vacation per annum.
(f) REIMBURSEMENT OF EXPENSES. Company shall pay all ordinary and
necessary expenses incurred by Executive in the conduct of Company's
business, including but not limited to all travel and accommodation expenses.
Company will pay all reasonable travel and accommodation expenses for
Executive's spouse whenever necessary to accompany Executive in the business
of the Company. Executive agrees to provide Company with itemized accounts,
receipts and other documentation for such reasonable expenses as are
reasonably required by the Company. In addition, the Company will reimburse
Executive for all reasonable costs associated with Executive's moving his
household and related items as part of this relocation to the San Diego area.
2. RESTRICTIVE COVENANT.
During the Employment Period, and except for involvement by Executive on
Boards of Directors of other companies as approved by the Board of the
Company, as hereinafter set forth:
2.1 Executive shall devote his time and energy to the performance of
Executive's duties described herein, except during periods of illness or
vacation periods.
2.2 Executive shall not directly or indirectly provide services to or
through any person, firm or other entity except the Company, unless otherwise
authorized by the Company in writing.
<PAGE>
2.3 Executive shall not render any services of any kind or character
for Executive's own account or for any other person, firm or entity without
first obtaining the Company's written consent.
2.4 Notwithstanding the foregoing, Executive shall have the right to
perform such incidental services as are necessary in connection with (i) his
private passive investments, but only if Executive is not obligated or
required to (and shall not in fact) devote any managerial efforts which
interfere with the services required to be performed by him hereunder, (ii)
his charitable or community activities or (iii) his participation in trade or
professional organizations, but only if such incidental services do not
significantly interfere with the performance of Executive's services
hereunder, and (iv) his service on boards of directors as mutually agreed to
by the Executive and the Company.
3. NON-COMPETITION.
3.1 During the Employment Period, and subject to paragraph 2.4 in
this Agreement, Executive shall not directly or indirectly own, manage,
operate, join, control or participate in the ownership, management, operation
or control of, or be employed by or connected in any manner with, any
enterprise which is engaged in any business competitive with that which the
Company is at the time conducting or proposing to conduct, provided, however,
that such restriction shall not apply to any passive investment representing
an interest of less than two percent (2%) of an outstanding class of publicly
traded securities of any corporation or other enterprise which is not, at the
time of such investment, engaged in a business competitive with the Company's
business.
3.2 Executive acknowledges that the services that he shall provide to
the Company under this Agreement are unique and that irreparable harm shall be
suffered by the Company in the event of the breach by Executive of any of his
obligations under this paragraph 3, paragraph 2 or paragraph 4 of this
Agreement, and that the Company shall be entitled, in addition to its other
rights and remedies, whether legal or equitable, to enforce such obligations
by an injunction or decree of specific performance. Any claims asserted by
Executive against the Company shall not constitute a defense in any
injunction action brought by the Company to obtain specific performance of
such obligations.
4. CONFIDENTIAL INFORMATION.
4.1 Executive understands that the Company and its affiliates possess
Proprietary Information (as defined below) which is important to its business
and that this Agreement creates a relationship of confidence and trust
between Executive and the Company and its affiliates with regard to
Proprietary Information. Nothing in this paragraph 4 shall be deemed modified
or terminated in the event of the termination or expiration of this Agreement.
4.2 For purposes of this Agreement, "Proprietary Information" is
information that was or will be developed, created, or discovered by or on
behalf of the
<PAGE>
Company and its affiliates and predecessors or is developed, created or
discovered by Executive while performing services under this Agreement, or
which became or will become known by, or was or is conveyed to the Company
and its affiliates which has commercial value in the Company's and its
affiliates' business. "Proprietary Information" includes, but is not limited
to, trade secrets, ideas, techniques, business, product, or franchise
development plans, customer information, franchisee information and any other
information concerning the Company's and its affiliates' actual or anticipated
business, development, personnel information, or which is received in
confidence by or for the Company and its affiliates from any other person.
4.3 For one (1) year after the termination of this Agreement,
Executive will keep in confidence and trust, and will not use or disclose,
any Proprietary Information without prior written consent of the Board.
4.4 Executive understands that the Company and its affiliates possess
or will possess "Company Documents" which are important to its business. For
purposes of this Agreement, "Company Documents" are documents or other media
that contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company and its
affiliates, whether such documents have been prepared by Executive or by
others. "Company Documents" include, but are not limited to, blueprints,
drawings, photographs, charts, graphs, notebooks, customer lists, computer
disks, personnel files, tapes or printouts and other printed, typewritten or
handwritten documents. All Company Documents are and shall remain the sole
property of the Company, Executive agrees not to remove any Company Documents
from the business premises of the Company or deliver any Company Documents to
any person or entity outside the Company, except as required to do in
connection with performance of the services under this Agreement. Executive
further agrees that, immediately upon the Company's request and in any event
upon completion of Executive's services, Executive shall deliver to the
Company all Company Documents, apparatus, equipment and other physical
property or any reproduction of such property.
4.5 During the term of this Agreement and for one (1) year
thereafter, Executive will not encourage or solicit any employee of the
Company or any affiliate to leave the Company or any affiliate for any reason.
4.6 Injunctive Relief: Executive acknowledges and agrees that the
covenants and obligations contained in paragraphs 2, 3 and 4 of this
Agreement relate to special unique and extraordinary matters and that a
violation of any of such covenants and obligations may cause the Company
irreparable injury for which adequate remedy at law will not be available.
Therefore, Executive agrees that the Company shall be entitled to an
injunction, restraining order, or other equitable relief from any court of
competent jurisdiction, restraining Executive from committing any violation
of the covenants and obligations set forth therein.
<PAGE>
5. STOCK OPTION.
In addition to the Common Stock of the Company that Executive owns by
virtue of being a founder of the Company, Executive shall be entitled to a
stock option to purchase 1,600,000 shares of Common Stock of the Company for
the option price of $.10 per share. The Company encourages Executive to
purchase stock in the Company as its Chief Executive Officer and a voting
member of the Board of Directors. These option shares will vest 25% on March
, 2000 and the remaining 75% in equal monthly installments over the 36 month
period commencing on March , 2000.
5.1 Notwithstanding the foregoing, in the event the Company enters
into any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) which will result in
the corporation's ultimate beneficial stockholders immediately prior to such
transaction not holding (by virtue of such shares or securities issued solely
with respect thereto) at least a majority of the voting power of the surviving
or continuing entity, or in the event of any sale of all or substantially all
of the assets of the corporation, unless the corporation's ultimate
beneficial stockholders immediately prior to such sale will, as a result of
such sale, hold (by virtue of securities issued as consideration for the
corporation's sale) at least a majority of the voting power of the purchasing
entity, all unvested options shall become fully vested upon the closing of
such transaction.
6. TERMINATION OF EMPLOYMENT.
6.1 METHOD OF TERMINATION. Executive's employment pursuant to this
Agreement and the Employment Period provided for herein shall terminate upon
the first of the following to occur:
(a) Executive's death;
(b) Date that written notice is deemed given or made by the Company
to Executive of his inability to perform his services. Such notice may be
issued when the Board has reasonably determined that Executive has become
unable to substantially perform his services and duties hereunder because of
physical or mental illness, injury or disability and that it is reasonably
likely that he will not be able to substantially resume performing his
services and duties on substantially the terms and conditions as set forth in
this Agreement;
(c) Date that final written notice is deemed given or made by the
Company to Executive of termination for "cause," provided Executive is given
an initial prior written notice of the general facts underlying the for
"cause" event(s) and an opportunity to cure such event(s), if such event is
capable of being cured. For purposes of this Agreement, "cause" shall mean
any one of the following:
(1) Gross negligence or the willful or repeated failure of
Executive to perform his duties and responsibilities to the satisfaction of
the Board or any breach by Executive of his fiduciary duties to the Company
or any material term of this Agreement; or
<PAGE>
(2) The conviction of Executive for a felony involving dishonesty
by Executive;
(d) Executive's resignation or voluntary departure as an officer or
employee of the Company; or
(e) Date that written notice is deemed given or made by the Company
to Executive of Executive's termination without "cause."
Pursuant to sections (d) and (e) of paragraph 5.1, each of Executive and
the Company agree that they shall have the separate right to terminate
Executive's employment with the Company at any time, for any reason, with or
without cause.
6.2 EFFECT OF TERMINATION FOR CAUSE, EXECUTIVE'S RESIGNATION OR OTHER
EVENTS. Upon the termination of Executive for cause or Executive's
resignation or voluntary departure or departure pursuant to section (a) or
(b) of paragraph 5.1 of this Agreement, Executive will not be entitled to any
additional compensation or other rights or benefits from the Company; and, as
a result, the Company shall be obligated to pay Executive only that portion
of his Base Salary that Executive has earned prior to the date of termination
of Executive's services or Executive's departure or resignation.
6.3 Upon the termination by the Company of Executive without cause,
Executive shall be entitled to payment of his then Base Salary as
compensation pursuant to Section 1.4(a) above for a period of one year
following the date of his termination by the Company.
7. MISCELLANEOUS.
7.1 NOTICES. All notices, demands and request required by this
Agreement shall be in writing and shall be deemed to have been given or made
for all purposes (i) upon personal delivery, (ii) one day after being sent,
when sent by professional overnight courier service, (iii) fifteen days
after posting when sent by registered or certified mail, or (iv) on the date
of transmission when sent by telegraph, telegram, telex, or other form of
"hard copy" transmission to either party hereto at the address set forth
below or at such other address as either party may designate by notice
pursuant to this paragraph.
If to the Company, to:
Kinzan.com
2111 Palomar Airport Road, Suite 250
Carlsbad, CA 92009
Attn: Board of Directors
And a Copy to:
<PAGE>
Joe A. Rudberg
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
If to Executive, to:
Gari L. Cheever
520 Lowell Avenue
Palo Alto, CA 94301
7.2 ASSIGNMENT. This Agreement shall be binding on, and shall inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns; provided, however, that Executive
may not assign, transfer or delegate his rights or obligations hereunder and
any attempt to do so shall be void; and provided, further, that after an
assignment or transfer of the Company's obligations under this Agreement to a
third party, the Company shall remain secondarily liable to fulfill the terms
of this Agreement if the third party assignee or transferee is unwilling or
unable to fulfill such terms.
7.3 DEDUCTIONS. All amounts paid to Executive hereunder are subject
to all deductions required by law, as authorized under this Agreement, and as
authorized by Executive from time to time.
7.4 ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof, and all prior
agreements, written or oral, are merged herein and are of no further force or
effect.
7.5 AMENDMENT. This Agreement may be modified or amended only by a
written agreement signed by amendment of the Board and Executive.
7.6 WAIVERS. No waiver of any term or provision of this Agreement
will be valid unless such waiver is in writing signed by the party against
whom enforcement of the waiver is sought. The waiver of any term or provision
of this Agreement shall not apply to any subsequent breach of this Agreement.
7.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but together they
shall constitute one and the same instrument.
7.8 SEVERABILITY. The provisions of this Agreement shall be deemed
severable, and if any part of any provision is held illegal, void or invalid
under applicable law, such provision may be changed to the extent reasonably
necessary to make the provision, as so changed, legal, valid and binding. If
any provision of this Agreement is held illegal, void or invalid in its
entirety, the remaining provisions of this Agreement
<PAGE>
shall not in any way be affected or impaired but shall remain binding in
accordance with their terms.
7.9 GOVERNING LAW. This Agreement shall, in all respects, be
governed by the laws of the state of California applicable to agreements
executed and to be wholly performed within the State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written above.
KINZAN.COM
By: /s/ Robert J. Frankenberg
---------------------------
Robert J. Frankenberg
Title: Chairman, Board of Directors
/s/ Gari L. Cheever
---------------------------
Gari L. Cheever
<PAGE>
Exhibit 10.6
FORM OF PROMISSORY NOTE
$______ _______ 16, 2000
Carlsbad, California
FOR VALUE RECEIVED, _________ (the "Payor") hereby promises to pay
on ________, 2005 to Kinzan.com (the "Payee"), at 2111 Palomar Airport Road,
Suite 250, Carlsbad, California 92009, or at such other place as may be
designated from time to time in writing by Payee, in lawful money of the United
States, the principal sum of ___________________________________________,
plus interest accrued hereunder. This note shall bear interest accrued from the
date hereof until the date of payment at a rate of 6.8% per year.
1. This Note is the full recourse promissory note referred to in and
is entitled to the benefits of the Pledge Agreement dated as of
the date hereof between the Payor and the Payee, with respect to
_______ shares of the Common Stock of kinzan.com
2. This Note may be prepaid at the option of Payor, in full or in
part, at any time and from time to time without premium or
penalty. All payments shall be allocated first to accrued but
unpaid interest and then to principal.
3. In the event Payor defaults in the payment when due of the
principal interest on this Note, Payee, at its option, without
notice, may declare all principal and accrued interest to be
immediately due and payable.
4. If this Note is not paid in accordance with its terms and is
placed in the hands of an attorney for collection, or if suit be
instituted hereon, Payor shall pay Payee, in addition to
principal and accrued interest, all costs of collection of the
principal and accrued interest, including, without limitation,
reasonable attorney's fees for the enforcement of this Note.
5. Payor hereby expressly waives presentment, protest and demand,
notice of protest, demand, dishonor and nonpayment of the Note
and all other notices of any kind. This Note shall be governed by
California law.
---------------------------
<PAGE>
PLEDGE AGREEMENT
This Pledge Agreement is made and entered into between Kinzan.com (the
"Secured Party") and ___________ (the "Debtor") effective as of ________, 2000.
1. Secured Party is a Corporation with its principal place of
business at 2111 Palomar Airport Road, Suite 250, Carlsbad,
California 92009.
2. Debtor's address for purposes of this Agreement is:
--------------------------------------------------
--------------------------------------------------
3. Secured Party has agreed to loan $______ to Debtor pursuant to
the provisions of the promissory note, dated the date hereof, in
the principal amount of $______ (the "Note").
4. As a condition of the loan, Debtor has agreed to grant to Secured
Party a security interest in ______ shares of Common Stock of
Kinzan.com (the "Company").
AGREEMENT
In consideration of the foregoing recitals and terms, conditions, and
covenants contained herein, Secured Party and Debtor agree as follows:
Section 1. GRANT OF SECURITY. The Debtor hereby pledges to the Secured
Party, and grants to the Secured Party, a security interest in the following
(the "Pledge Collateral").
(i) ______ shares of Common Stock of the Company (the
"Pledge Shares") and the certificates representing
the Pledged Shares, and all non-cash dividends,
instruments and other property from time to time
received, receivable or otherwise distributes in
respect of or upon sales, transfer, exchange or other
disposition of any or all of the Pledge Shares; and
(ii) all additional shares of stock of the issuer of the
Pledged Shares issues in respect of the Pledged
Shares and certificates representing such additional
shares, and all non-cash dividends, instruments and
other property from time to time received, receivable
or otherwise distributes in respect of or in exchange
for any or all such shares.
Section 2. DEBTOR'S OBLIGATIONS SECURITY HEREBY. The Obligations of
Debtor that are secured by this Agreement are as follows:
<PAGE>
(i) Payment or performance of all existing and future
obligations of Debtor to Secured Party arising under the Note or this Agreement;
and
(ii) All expenses, including attorney's fees and legal
expenses, incurred or paid by Secured Party in the preservation or enforcement
of his rights or obligations of Debtor under the Note or this Agreement.
Section 3. COLLATERAL--SALE, TRANSFER OR CREATION OF LIEN. Debtor
represents and warrants that Debtor is the sole owner of the Collateral, free
and clear of any lien, claim, charge, option, or other encumbrance, except as
provided in this Agreement and has authority to pledge, transfer, and deliver
any interest therein. Debtor shall not sell or offer to sell or otherwise
transfer the Collateral, or any part thereof or interest therein, encumber the
Collateral, or allow a lien to be placed on the Collateral, without the prior
written consent of Secured Party.
Section 4. POSSESSION OF COLLATERAL. Secured Party shall retain
possession of Collateral until all of Debtor's obligations under the Note and
this Agreement have been performed.
Section 5. DEFAULT DEFINED. Debtor shall be in default under this
Agreement (an "Event of Default") on the happening of any of the following
events or conditions.
(i) Debtor fails to perform any of his obligations under the
Note or this Agreement, including without limitation, fails to make any
payments, when due, under the Note;
(ii) Any warranty, representation, or statement made or
furnished to Secured Party by or on behalf of Debtor in connection with this
Agreement or to induce Secured Party to extend credit to Debtor proves to have
been false in any material respect when made or furnished.
(iii) Any sale or assignment of, or lien or encumbrance on,
any of the Collateral occurs, except as is permitted in this Agreement, or the
filing of suit for the purpose of, or the making of, any levy, seizure, or
attachment thereof occurs; or
(iv) Debtor makes any assignment for the benefit or creditors,
or commences a proceeding under any bankruptcy or insolvency laws, or any
proceeding under any bankruptcy laws is commenced against Debtor.
Section 6. ACCELERATION. On default hereunder or under the
Note, Secured Party may, without notice to Debtor, accelerate the payment or
performance of any or all of Debtors obligations hereunder or under the Note and
shall have, in addition to all rights and remedies under this Agreement, the
rights and remedies of a Secured Party under Article 9 of the California Uniform
Commercial Code, including, without limitation, the right to sell or otherwise
dispose of any or all of the Collateral.
<PAGE>
Section 7. REMEDIES UPON DEFAULT. If any Event of Default
shall have occurred and be continuing:
(i) The Secured Party may exercise in respect of the Pledged
Collateral, in addition to other rights remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code (the "Code") in effect in the State of
California at that time, and the Secured Party may also, without notice except
as specified below, sell the Pledged Collateral or any part thereof in one or
more parcels at public pr private sale, at any exchange , broker's board or at
any of the Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Secured Party may deem
commercially reasonable. The Debtor agrees that at least ten (10) days' notice
shall constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Pledged Collateral regardless of notice of any
sale having been given. The Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.
(ii) Any cash held by the Secured Party as Pledged Collateral
and all cash proceeds received by the Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Pledges
Collateral may, in the discretion of the Secured Party, be held by the Secured
Party as collateral for, and/or then or at any time thereafter applied in whole
or in part by the Secured Party against, all or any part of the obligations in
such order as the Secured Party shall elect. Any surplus of such cash or cash
proceeds held by the Secured Party and remaining after payment in full of all
obligations shall be paid over to the Debtor or to whomsoever may be lawfully
entitled to receive such surplus.
Section 8. NOTICE OF SALE. Secured Party shall give Debtor
written notice of the time and place of any public sale of the Collateral, or of
the date on which a private sale or other intended disposition thereof is to be
made, at least ten (10) days before the sale or disposition.
Section 9. POWER OF ATTORNEY. Debtor appoints Secured Party
its attorney-in-fact to transfer the Shares to Secured Party or to any other
person pursuant to Section 7 hereof in the event Debtor shall default hereunder.
Section 10. TERMINATION OF AGREEMENT. This Agreement shall
terminate upon Debtor paying Secured Party all principal and accrued interest on
the Note and al of its obligations to secured Party under this Agreement.
Section 11. WAIVER. No waiver of any obligation of Debtor
under the Note or this Agreement shall be effective unless it is in writing
signed by a Secured Party. A waiver by Secured Party of any right or remedy
under this Agreement on any occasion shall not be a bar to exercise of the same
right or remedy on any subsequent occasion or of any other right or remedy at
any time.
<PAGE>
Section 12. NOTICE. Any notice required or permitted under
this Agreement shall be in writing and shall be deemed to have been given on the
date of delivery, if personally delivered to the party to whom notice is to be
given, or on the fifth business day after mailing, if mailed to the party to
whom notice is to be given, by certified mail, return receipt requested, and
addressed to the addressee at the address of the addressee set forth in the
recitals to this Agreement, or to the most recent address, specified by written
notice, given to the sender by the addressee under this Section 12.
Section 13. OTHER ACTS OF DEBTOR. Debtor shall execute and
deliver such documents and perform all acts as are necessary or convenient for
Secured Party to perfect its security interest in the Collateral or to sell the
Collateral in the event of a default by Debtor under this Agreement or the Note.
Section 14. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
superseding all negotiations, prior discussions and preliminary agreements. All
modifications and amendments hereto must be in writing specifying the
modifications or amendment and executed by both parties hereto.
Section 15. SUCCESSORS. This Agreement shall be binding upon
and inure top the benefit of the heirs, executors, administrators, assigns and
successors of the respective parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective the date first shown above.
----------------------------------
Kinzan.com
SECURED PARTY
----------------------------------
DEBTOR
<PAGE>
DEVELOPMENT AND LICENSE AGREEMENT
(as Amended)
This Development and License Agreement ("Agreement"), as amended,
is entered as of August 22, 1997 (the "Effective Date") by and between
CommerceWave, Inc., a California corporation, with its principal place of
business at 2121 Palomar Road, Suite 201, Carlsbad, California 92009
("CommerceWave"), and Encanto Networks, Inc., a California corporation, with
its principal place of business at 2953 Bunker Hill Lane, Suite 400, Santa
Clara, California 95054 ("Encanto"), and is made with respect to the
following recitals:
A. Encanto is developing a web server product that will provide,
among other things, an online storefront system allowing a
merchant to market wares on the Internet.
B. CommerceWave has developed a computer program named "Merchant
Wave" that permits creation of a multi-vendor online "shopping
mall." CommerceWave proposes to use the pre-existing code and
algorithms embodied in Merchant Wave to create an online
storefront system and an associated website builder program for
Encanto.
C. The parties wish to define their respective duties and
obligations with respect to such development by CommerceWave.
D. This Agreement has been amended as of January 29, 1999. This
Agreement, as amended, shall supersede and replace the original
in all respects and all rights and obligations in the Agreement
shall be deemed effective as of the Effective Date.
NOW, THEREFORE, in consideration of the premises, of the mutual
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS.
a. "Authorized Derivative Works" shall mean modifications to
or derivative works of the Products (including, without limitation,
Enhancements (as defined below)) developed by or for Encanto. For
purposes of this definition, the term "derivative works" shall have
the meaning used in the United States Copyright Act of 1976, as
amended, and shall also include all modified versions or releases of
the Products that are not sufficiently different from the Products
to constitute a separate derivative work under such Act.
b. "Merchant Wave" shall mean CommerceWave's existing
Merchant Wave software product as further specified in Exhibit A
attached hereto.
c. "Product(s)" shall mean (i) the products identified in
Exhibit B attached hereto and all documentation relating thereto and
(ii) bug fixes to such products.
1
<PAGE>
d. "Enhancements" shall mean modifications to the Products
that change (i) the appearance or content of displayed text,
graphics, links or similar elements of the Products and/or (ii) the
features and functions of the Products.
2. DEVELOPMENT.
CommerceWave agrees to undertake and complete development of
the Products (as defined in Exhibit B attached hereto) in accordance
with the specifications therefor set forth in Exhibit C attached
hereto and pursuant to the schedule specified in Exhibit D attached
hereto.
3. CHANGES.
If either party proposes in writing a change to Exhibit A,
Exhibit B, Exhibit C or Exhibit D, the other party will reasonably
and in good faith consider and discuss with the proposing party the
proposed change. CommerceWave agrees to accept any change proposed
by Encanto where Encanto agrees to bear any extra expense and pay
(at CommerceWave's standard time and materials rates) for any
additional work required by such change.
4. ACCEPTANCE.
a. When CommerceWave believes it has appropriately completed
a Product in accordance with the specifications therefor,
CommerceWave will deliver such Product to Encanto in both object
code and source code forms. Encanto will accept or reject such
Product within ten (10) business days after delivery; failure to
give notice of acceptance or rejection within that period or
Encanto's first commercial distribution of such Product (regardless
of notice of rejection) will constitute acceptance. Encanto may
reject a Product only if it fails in some material respect to meet
the specifications and acceptance criteria therefor set forth in
Exhibit C. If Encanto properly rejects a Product, CommerceWave will
correct the failures properly specified in the rejection notice
within ten (10) business days after the rejection notice. When
CommerceWave believes that it has made the necessary corrections,
CommerceWave will again deliver such Product to Encanto in both
object code and source code forms, and the
acceptance/rejection/correction provisions above shall be reapplied
until such Product is accepted; provided, however, that upon the
third or any subsequent rejection or if the corrections are not
made within forty-five (45) business days of the initial rejection,
Encanto may terminate this Agreement in its entirety by ten (10)
days' notice unless the Product is accepted by Encanto during the
notice period. Upon initial delivery of a Product, CommerceWave
will identify in writing all compilers, commercial libraries, and
other programming tools reasonably necessary for Encanto to
successfully compile the Products as originally delivered.
5. LICENSE GRANT TO ENCANTO.
a. Subject to all of the terms and conditions of this
Agreement, CommerceWave hereby grants to Encanto a worldwide,
perpetual, irrevocable, fully paid-up, royalty-free,
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non-transferable, license, together with the right to enter into
sub-licenses with third parties at its sole discretion, to:
(i) directly or through authorized agents use, modify,
improve, upgrade, enhance and port the source code of the
Products to create Authorized Derivative Works; and
(ii) make, use, copy, perform, display, license,
sublicense, sell, distribute and take any other actions deemed
appropriate by Encanto with respect to the Products and
Authorized Derivative Works.
b. The license granted in Section 5.a. above shall be without
limitation as to fields of use and distribution.
c. The Products may be distributed by Encanto and its
licensees under Encanto's and/or its licensees' own brand names and
trademarks but Encanto shall maintain CommerceWave's name in a
copyright notice accompanying the Products; provided, however,
that no such copyright notice shall be required for Authorized
Derivative Works.
d. Each copy of a Product sublicensed to end users hereunder
will be distributed pursuant to an end user license agreement
containing terms and conditions that are at least as protective of
the Product, CommerceWave and its intellectual property rights as
the terms and conditions of this Agreement.
e. Encanto may distribute the Products through its normal
distribution channels (including, without limitation, through
subdistributors and authorized sublicensees).
f. Except as expressly provided herein, Encanto agrees:
(i) not to delete or fail to reproduce in and on any
Product any copyright, trademark or other proprietary rights
notices appearing in or on any copy, media or master of the
Products provided by CommerceWave; provided, however, that no
such notices shall be required for Authorized Derivative Works;
and
(ii) to keep CommerceWave informed as to any problems
encountered with the Products.
g. CommerceWave agrees to provide to Encanto, within five
(5) days of the Effective Date of this Agreement, a copy of
MerchantWave (in both source code and object code forms) in such
format as is reasonably requested by Encanto.
6. ENHANCEMENTS.
a. During the term of this Agreement for so long as Encanto
is receiving Enhancements pursuant to Section 6.b. below, Encanto
hereby grants to CommerceWave, under all rights of Encanto to any
Enhancements made by or for Encanto (other than by
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CommerceWave), a worldwide, non-exclusive, perpetual, fully
paid-up, royalty-free, non-transferable license to:
(i) directly or through authorized agents use, modify,
improve, upgrade, enhance and port the source code of such
Enhancements developed by or for Encanto; and
(ii) make, use, copy, perform, display, license,
sublicense, sell and distribute such Enhancements developed by
or for Encanto in object code form. Such Enhancements may be
distributed by CommerceWave under ComerceWave's own brand name
and trademark.
b. During the term of this Agreement for so long as
CommerceWave is receiving Enhancements pursuant to Section 6.a.
above, CommerceWave hereby grants to Encanto, under all rights of
CommerceWave to any Enhancements made by or for CommerceWave a
worldwide, non-exclusive, perpetual, fully paid-up, royalty-free,
non-transferable license to:
(i) directly or through authorized agents use, modify,
improve, upgrade, enhance and port the source code of such
Enhancements developed by or for CommerceWave; and
(ii) make, use, copy, perform, display, license,
sublicense, sell and distribute the Enhancements developed by
or for CommerceWave in object code form. Such Enhancements may
be distributed by Encanto and/or its licensees under Encanto's
and/or its licensee's own brand names and trademarks.
c. Upon a party's completion of an Enhancement subject to
the cross-licensing provisions of this Section, such party agrees to
provide the other party with a copy of such Enhancement (in both
source code and object code) in such format as reasonably requested
by the other party.
7. OWNERSHIP.
a. As between the parties and subject to the licenses and
other rights granted by CommerceWave to Encanto under this Agreement,
CommerceWave shall own all rights, title and interest in and to (i)
Merchant Wave and (ii) all Enhancements made by or for CommerceWave
(other than by Encanto and whether or not at Encanto's direction).
b. As between the parties and subject to the licenses and
other rights granted by Encanto to CommerceWave under this Agreement,
Encanto shall own all rights, title and interest in and to (i) all
Authorized Derivative Works and (ii) all Enhancements made by or for
Encanto (other than by CommerceWave and whether or not at
CommerceWave's direction).
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c. With respect to inventions and works of authorship for
which employees or consultants of both parties are joint inventors
or authors, each party will equally and jointly own such inventions
and works of authorship with the right to unilaterally use or
nonexclusively license such inventions and works of authorship
without accounting to the other party.
8. SPECIAL WORK PROJECTS.
During the term of this Agreement, Encanto may request
CommerceWave to undertake special work project(s), relating to the
Products. Upon such request, CommerceWave and Encanto agree to
discuss in good faith the scope of such special work project and
the costs related thereto. CommerceWave shall not be responsible or
liable for performing any special work project unless and until
the terms and conditions relating thereto (including, without
limitation, fees to be paid to CommerceWave, if any, and ownership)
are mutually agreed upon by both parties in writing.
9. FEES.
Provided that the online storefront creation application
Product is completed and delivered by CommerceWave on or before
September 15, 1997, and subject to the final rejection provisions of
Section 4 above, Encanto agrees to pay CommerceWave a non-recurring
engineering fee for the development of the Products hereunder in
the total amount of $205,200, payable as follows:
a. $68,400 upon the execution of this Agreement by both
parties;
b. $68,400 upon CommerceWave's completion and delivery of
all Products in alpha stage, including, without limitation, all alpha source
code for the Products; and
c. $68,400 upon CommerceWave's completion and delivery and
Encanto's final acceptance of all Products (including, without limitation,
all source code for such Products).
d. Fees Paid by Date of Amended Agreement. BOTH PARTIES TO
THIS AMENDED DEVELOPMENT AND LICENSE AGREEMENT ACKNOWLEDGE THAT ALL PAYMENTS
REQUIRED BY SECTION 9 HAVE BEEN FULLY PAID BY ENCANTO.
10. TRAINING.
CommerceWave, without additional charge to Encanto, will
provide a reasonable number of Encanto's software personnel with a
class of up to three (3) consecutive days relating to the theory,
use, operation, support and maintenance of the Products. The parties
shall mutually agree upon the dates and places for such training
classes. If the classes are taught at a location other than
CommerceWave's premises, Encanto shall be responsible for the
reasonable travel and living expenses for CommerceWave's personnel
conducting such classes that are pre-approved in writing by Encanto.
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11. MAINTENANCE AND SUPPORT.
a. Encanto shall be responsible for providing first level
technical maintenance and support for the Products to its customers
and end users who are using the Products.
b. During the term of this Agreement, and without additional
charge to Encanto, CommerceWave will provide Encanto with second
level technical maintenance and support services in connection with
the Products and Enhancements made by or for CommerceWave. Such
technical maintenance and support shall include, without limitation,
(i) up to ten (10) hours per month for the first three (3) months,
and thereafter up to five (5) hours per month, of telephone and/or
electronic support during CommerceWave's normal business hours (or
such other times as mutually agreed upon by both parties in
writing), (ii) on-site visits as necessary and mutually agreed upon
by both parties in writing and (iii) good-faith commercially
diligent efforts by CommerceWave to fix all bugs within five (5)
business days after Encanto's request therefor. CommerceWave shall
promptly deliver to Encanto any new source code developed pursuant
to this Section 11.b. (including, without limitation, source code
for any bug fixes or updates to the Products) in such format as
reasonably requested by Encanto.
12. REMOTE PAYMENT HOSTING.
a. During the term of this Agreement, CommerceWave agrees to
offer and provide to Encanto's customers a remote payment hosting
service in accordance with the specifications set forth in Exhibit E
attached hereto ("Remote Payment Hosting Service") at a price
mutually agreed upon by CommerceWave and Encanto in writing.
CommerceWave agrees to produce collateral and sign-up kit,
reasonably acceptable to Encanto, for the Remote Payment Hosting
Service and for the merchant banks affiliated with the Remote
Payment Hosting Service. Encanto agrees to reasonably assist
CommerceWave in marketing the Remote Payment Hosting Service to
Encanto's customers through Encanto's normal channel of distribution
for Encanto products.
b. Encanto and CommerceWave agree to discuss with each other
in good faith the providing of joint in-store training and
demonstrations for the Remote Payment Hosting Service in connection
with Online Products and other co-marketing and collaborative
opportunities relating to the Remote Payment Hosting Service and
Online Products; provided, however, that neither party shall be
required or obligated to work exclusively with the other party in
connection with any remote payment hosting services.
13. COMMERCEWAVE CONSULTING SERVICES.
Upon Encanto's request, CommerceWave agrees to provide
consulting services to Encanto in connection with Product packaging
and integration of the Remote Payment Hosting Service with any
products or services provided by Encanto pursuant to this Agreement.
Such consulting services shall be provided by CommerceWave to
Encanto at an hourly charge mutually agreed upon by both parties in
writing.
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14. CONFIDENTIALITY.
Each party agrees that all code, inventions, algorithms,
know-how and ideas and all other business, technical and financial
information they obtain from the other are the trade secrets and
confidential property of the disclosing party ("Proprietary
Information" of the disclosing party). Except as expressly and
unambiguously allowed herein, the receiving party will hold in
confidence and not use or disclose any Proprietary Information of the
disclosing party and shall similarly bind its employees in writing.
The receiving party shall not be obligated under this Section 14
with respect to information the receiving party can document:
a. is or has become readily publicly available without
restriction through no fault of the receiving party or its employees
or agents; or
b. is received without restriction from a third party
lawfully in possession of such information and lawfully empowered to
disclose such information; or
c. was rightfully in the possession of the receiving party
without restriction prior to its disclosure by the other party; or
d. was independently developed by employees or consultants
of the receiving party without access to such Proprietary
Information.
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15. INFRINGEMENT INDEMNIFICATION.
a. CommerceWave agrees to indemnify, hold harmless and
defend Encanto and its officers, directors, employees and agents
from and against any and all losses, claims, damages, liability,
demands, actions, judgments, settlements, costs (including
attorneys' fees) and expenses arising out of or in connection with
any claim that results from a breach of any of CommerceWave's
warranties expressly set forth in Section 18 below or any claim that
any of the Products or any of the Enhancements made by or for
CommerceWave (other than by Encanto) infringes any patent, copyright,
trademark, trade secret or other similar proprietary right of a
third party. Encanto will promptly notify CommerceWave in writing of
any claims related thereto and will, upon CommerceWave's written
request, provide CommerceWave with reasonable assistance in
connection with such defense. CommerceWave will have sole control
of the defense and/or settlement of any such claim. The foregoing
obligation of CommerceWave does not apply with respect to any part
of a Product or such Enhancement that is (i) modified by Encanto, if
the alleged infringement is based solely on such modification, or
(ii) combined with any non-CommerceWave product, if the alleged
infringement is based solely on such combination, or (iii) made
solely to comply with Encanto's detailed specification, if the
alleged infringement is based solely on complying with such
specification. Following written notice of an infringement claim,
CommerceWave shall, at its cost and expense, either (a) procure for
Encanto the right to continue to use, manufacture, market, license,
sell and distribute the Product or such Enhancement, (b) replace or
modify the Product or such Enhancement to make it non-infringing,
provided such non-infringing replacement or modified product is
substantially equivalent to the Product or such Enhancement in
functionality and quality or (c) if neither (a) nor (b) are
reasonably practical, accept the return of the Product or such
Enhancement and promptly pay to Encanto a refund of all fees paid
to CommerceWave hereunder, as depreciated on a five (5) year
straight-line basis. Following notice of any claim resulting from a
breach of any of CommerceWave's warranties expressly set forth in
Section 18 below, CommerceWave shall, at its cost and expense,
resolve such claim as soon as reasonably practicable. If, within,
ninety (90) days after such a claim has been made, CommerceWave has
not resolved or taken substantive action to attempt to resolve such
claim, Encanto may terminate this Agreement.
b. Encanto agrees to indemnify, hold harmless and defend
CommerceWave and its officers, directors, employees and agents from
and against any and all losses, claims, damages, liability, demands,
actions, judgments, settlements, costs including attorneys' fees)
and expenses arising out of or in connection with any claim that
results from any claim that any of the Enhancements made by or for
Encanto (other than by CommerceWave) infringes any patent,
copyright, trademark, trade secret or other similar proprietary
right of a third party. CommerceWave will promptly notify Encanto
in writing of any claims related thereto and will, upon Encanto's
written request, provide Encanto with reasonable assistance in
connection with such defense. Encanto will have sole control of the
defense and/or settlement of any such claim. The foregoing
obligation of Encanto does not apply with respect to any part of
such Enhancement that is (i) modified by or for CommerceWave, if
the alleged infringement is based solely on such modification or
(ii) combined with any non-Encanto product, if the alleged
infringement is based solely on such combination. Following written
notice of an infringement claim, Encanto shall, at its cost and
expense, either (a) procure for CommerceWave the right to continue
to use, manufacture, market, license, sell and distribute such
Enhancement, or (b) replace or modify such Enchancement to make
it non-
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infringing, provided such non-infringing replacement or modified
product is substantially equivalent to such Enhancement in
functionality and quality.
16. LIMITATION OF LIABILITY.
a. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
OTHERWISE, NEITHER PARTY SHALL BE LIABLE OR OBLIGATED UNDER ANY
SECTION OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY AMOUNTS IN
EXCESS OF THE AGGREGATE OF THE FEES PAID HEREUNDER.
b. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
OTHERWISE, NEITHER PARTY SHALL BE LIABLE WITH RESPECT TO ANY SUBJECT
MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
17. EXPORT CONTROL.
Each party agrees to comply with the U.S. Foreign Corrupt
Practices Act (regarding among other things, payments to government
officials) and all export laws, restrictions, national security
controls and regulations of the United States or other applicable
foreign agency or authority, and not to export or re-export, or
allow the export or re-export of any Product or Enhancement or any
technical data related thereto, or any copy or direct product
thereof, (i) in violation of any such restrictions, laws or
regulations or, (ii) without all required licenses and proper
authorizations, to Cuba, Libya, North Korea, Iran, Iraq, or Rwanda
or to any Group D:1 or E:2 country (or any national of such
country) specified in the then current Supplement No. 1 to part 740
of the U.S. Export Administration Regulations (or any successor
supplement or regulations).
18. REPRESENTATIONS, WARRANTIES AND WARRANTY DISCLAIMER.
a. CommerceWave hereby represents and warrants that:
(i) CommerceWave possesses full power and authority to
enter into this Agreement, to fulfill its obligations hereunder,
and to convey to Encanto all the rights and licenses in and to
the Products, Merchant Wave and the Enchancements granted to
Encanto hereunder;
(ii) the performance of the terms of this Agreement and
of CommerceWave's obligations hereunder shall not breach any
separate agreement by which CommerceWave is bound; and
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(iii) during the term of this Agreement, CommerceWave
shall not commit any act or make or enter into any agreement
with a third party that is in violation or breach of, or
inconsistent or in conflict with, any of the provisions of
this Agreement.
b. CommerceWave further warrants (i) that the work under
this Agreement will be performed in a professional and workman-like
manner, (ii) that it has and will obtain agreements with its
employees, contractors and/or any other third parties, including
without limitation an agreement covering any property of iXL,
sufficient to allow it to provide Encanto with the licenses and
other rights provided for herein and (iii) that the Products
shall conform to all applicable specifications therefor. EXCEPT FOR
THE WARRANTIES IN THIS SECTION 18, COMMERCEWAVE MAKES NO WARRANTIES
TO ANY PERSON OR ENTITY WITH RESPECT TO THE PRODUCT AND DISCLAIMS
ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT.
19. TERM AND TERMINATION.
a. This Agreement will commence on the Effective Date and
shall remain in effect until terminated in accordance with the
express terms of this Agreement.
b. If Encanto materially breaches Section 5, 9 or 14 of this
Agreement, CommerceWave may terminate this Agreement upon thirty
(30) days' prior written notice to Encanto unless the breach is
cured within such notice period. Upon such termination, all rights
and licenses granted to CommerceWave under this Agreement shall
survive termination, and all rights and licenses granted to Encanto
under this Agreement shall terminate. However, such termination will
not affect the rights of end users of the Products or Enhancements
and will not prevent Encanto from (i) supporting and maintaining end
users of the Products or Enhancements, and (ii) filling orders for
Products or Enhancements or depleting inventory of Products or
Enhancements for eighteen (18) months after termination.
c. If CommerceWave materially breaches this Agreement,
Encanto may terminate this Agreement upon thirty (30) day's prior
written notice to CommerceWave unless the breach is cured within
such notice period. Upon such termination, all rights and licenses
granted to Encanto under this Agreement shall terminate. However,
such termination will not affect the rights of end users of Products
containing Enhancements licensed from Encanto hereunder, and will
not prevent CommerceWave from (i) supporting and maintaining end
users of Products containing Enhancements licensed from Encanto
hereunder, and (ii) filling orders for or depleting inventory of
Products containing Enhancements licensed from Encanto hereunder
for eighteen (18) months after termination.
d. Encanto may terminate this Agreement at any time upon
thirty (30) days' prior written notice. At any time upon three
months' prior written notice to CommerceWave, Encanto may terminate
Encanto's obligations under Section 6.a. of this Agreement with
respect to Encanto's obligations to provide Enhancements to
CommerceWave after the date of such termination. At any time upon
three months' prior written notice to Encanto,
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CommerceWave may (i) terminate CommerceWave's obligations under
Section 6.b. of this Agreement with respect to CommerceWave's
obligations to provide Enchancements to Encanto after the date of
such termination, and (ii) terminate CommerceWave's obligations under
Section 11.b. of this Agreement with respect to CommerceWave's
obligations to provide maintenance and support service to Encanto
after the date of such termination. In any event, all rights and
licenses respectively granted to Encanto and to CommerceWave under
this Agreement shall survive such termination under this subsection.
e. The following provisions shall survive any termination of
this Agreement: Sections 7, 14, 15, 16, 18, 19.b., 19.c., 19.d.,
and 25.
20. MARKETING.
Each party agrees that, upon the other party's request, it
will reasonably cooperate with and work with the requesting party
in good faith to assist in the marketing activities of the Product.
21. PUBLICITY AND PRESS RELEASES.
The parties agree to issue a joint press release regarding the
transactions contemplated by this Agreement at a time mutually
agreed upon by the parties. After such joint press release is
issued, the parties will reasonably cooperate with each other in
connection with other press releases regarding the transactions
contemplated by this Agreement.
22. RELATIONSHIP OF THE PARTIES.
Notwithstanding any provision hereof, for all purposes of this
Agreement each party shall be and act as an independent contractor
and not as partner, joint venturer, or agent of the other and shall
not bind nor attempt to bind the other to any contract.
23. ASSIGNMENT.
Neither party shall have any right or ability to assign or
transfer any obligations or benefit under this Agreement without the
prior written consent of the other party, which consent shall not be
unreasonably withheld, except that either party may assign its
rights and obligations under this Agreement without the permission
of the other party to any majority owned subsidiary, or in the event
of a merge, consolidation, or sale of all or substantially all of
the assigning party's stock, assets or business to which this
Agreement relates. Nothing in this section shall prevent Encanto's
rights to sublicense and/or subdistribute any of the Products
and/or any Authorized Derivative Works under this Agreement as set
forth in Section 5 herein.
24. NOTICE.
All notices, consents or approvals required by this Agreement
shall be in writing sent by certified or registered air mail,
postage prepaid, or by commercial overnight courier
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service with tracking capabilities, costs prepaid, to the parties
at the following addresses or such other addresses as may be
designated in writing by the respective parties:
To CommerceWave: CommerceWave, Inc.
2121 Palomar Airport Road
Suite 201
Carlsbad, California 92009
Attention: Garland Wong
To Encanto: Encanto Networks, Inc.
2953 Bunker Hill Lane, Suite 400
Santa Clara, California 95054
Attention: Jim McHugh
25. MISCELLANEOUS.
a. Waiver. The waiver by either party of a breach of any
provisions contained herein shall be effective only if set forth
in a writing signed by both parties and shall in no way be
construed as a waiver of any succeeding breach of such provision or
the waiver of the provision itself.
b. Amendments and Modifications. This Agreement may not be
changed, modified, amended or supplemented except by a written
instrument signed by both parties. Furthermore, it is the intention
of the parties that this Agreement be controlling over additional or
different terms of any order, confirmation, invoice or similar
document, even if accepted in writing by both parties, and that
amendments and modifications shall be effective only if made by
non-pre-printed agreements clearly understood by both parties to be
an amendment or modification. No amendments or modifications to this
Agreement shall be effective unless evidenced in writing and signed
for and on behalf of both parties.
c. Severability. In the event that any provision of this
Agreement shall be determined to be illegal or unenforceable, that
provision will be limited or eliminated to the minimum extent
necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
d. Governing Law and Legal Actions. This Agreement shall be
governed by and construed in accordance with the laws of the State
of California without regard to the conflicts of laws provisions
thereof. The sole jurisdiction and venue for actions related to the
subject matter hereof shall be the California state and U.S. federal
courts having within their jurisdiction the location of Encanto's
principal place of business. Both parties consent to the
jurisdiction of such courts and agree that process may be served in
the manner provided herein for giving of notices or otherwise as
allowed by California or U.S. federal law. In any action or
proceeding to enforce rights under this Agreement, the prevailing
party will be entitled to recover reasonable costs and reasonable
attorneys' fees.
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e. Headings. Headings used in this Agreement are for
convenience only and in no way are to be construed to define, limit
or affect the construction or interpretation of this Agreement.
f. Remedies. The rights and remedies of a party set forth
herein with respect to failure of the other to comply with the terms
of this Agreement (including, without limitation, rights of full
termination of this Agreement) are not exclusive, the exercise
thereof shall not constitute an election of remedies and the
aggrieved party shall in all events be entitled to seek whatever
additional remedies may be available in law or in equity.
g. Basis of Bargain. Each party recognizes and agrees that
the warranty disclaimers and liability and remedy limitations in
this Agreement are material bargained for bases of this Agreement
and that they have been taken into account and reflected in
determining the consideration to be given by each party under this
Agreement and in the decision by each party to enter into this
Agreement.
h. Entire Agreement. This Agreement (including all Exhibits
hereto) contains the entire agreement of the parties regarding the
subject matter hereof and supersedes all prior agreements,
understandings and negotiations regarding the same.
SIGNATURE PAGE FOLLOWS
ENCANTO NETWORKS, INC.
By: /s/ Jon T. Berryhill
-----------------------------------
Printed Name: Jon T. Berryhill
-------------------------
Title: Vice President Sales
--------------------------------
COMMERCEWAVE, INC.
By: SITEMAN, INC., its successor in
interest
By: /s/ Gari Cheever
-----------------------------------
Printed Name: Gari Cheever
-------------------------
Title: President
--------------------------------
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EXHIBIT A
MERCHANT WAVE
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EXHIBIT B
PRODUCTS
"Products" shall mean the following:
1. Online storefront creation application
2. Website builder
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EXHIBIT C
SPECIFICATIONS FOR PRODUCTS
Both Products must (a) operate on and in connection with Encanto's products,
(b) have Merchant Wave as the underlying technology and (c) be able to be
packaged and distributed separately.
ONLINE STOREFRONT CREATION APPLICATION:
WEB SITE BUILDER:
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SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement"), is entered into as of January
29, 1999 ("Effective Date"), by and between Siteman, Inc., a California
corporation ("Siteman") formed by Encanto Networks, Inc., a California
corporation ("Encanto" or "Encanto Networks") to complete the Purchase (as
defined below), and iXL, Inc., a Delaware corporation ("iXL").
WHEREAS, iXL owns and operates businesses known as Siteman and MerchantWAVE
that are engaged in the business of the development and maintenance of a
template tool for multiple Web site management (collectively, the "Business");
WHEREAS, pursuant to that certain Asset Purchase Agreement of even date
herewith (the "Asset Purchase Agreement"), Siteman will acquire from iXL and
iXL will transfer to Siteman, certain properties, assets, and rights of iXL
related to the Business (the "Purchase");
WHEREAS, Siteman desires that iXL provide certain interactive services
including strategic consulting, Web development, multimedia development,
custom software development, Web site management applications, Web site
hosting, Web site marketing and other services as agreed to (the "iXL
Services");
WHEREAS, the Asset Purchase Agreement provides for payment of at least
$1,500,000 of fees to iXL from Siteman, Encanto Networks or certain designees
of Siteman or Encanto (defined below as "Siteman Customers") as partial
consideration for the Purchase; and
WHEREAS, iXL and Siteman have agreed to enter into this Agreement to
reflect the parties' respective rights and obligations with respect to the
provision of such services.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, provisions and covenants contained herein, the receipt and
sufficiency of which are hereby acknowledged, and subject to the terms and
conditions set forth herein, iXL and Siteman hereby agree as follows:
1. SERVICES.
(a) iXL hereby agrees to perform for Siteman, Encanto Networks and
Siteman Customers (as defined below) the iXL Services as described in (i) a
statement of work agreed to by iXL that will be attached hereto and
incorporated herein, if the statement of work is between iXL and Siteman, and
(ii) a statement of work agreed to by iXL that will be attached to a master
services agreement between iXL and either Encanto Networks or a Siteman
Customer. The statement of work shall at a minimum include a description of
the services to be provided and the corresponding fees. Each Statement of
Work shall be successively numbered (e.g., 1,2,3,etc.). Each statement of work
between iXL and Siteman that satisfies the description in this paragraph is
referred to in this Agreement as a "Statement of Work". As used in this
Agreement, "Siteman
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Customer" means any entity or person that has or has had an agreement with
Siteman or Encanto Networks within twelve months prior to any referral, or is
entering into an agreement with Siteman in connection with such referral, or
is any designee of Siteman or Encanto that (i) Siteman and/or Encanto
refer(s) to iXL, and that (ii) does not have or did not have an agreement
with iXL within twelve months prior to any introduction or referral by
Siteman or Encanto to iXL, or is not already entering into an agreement with
iXL at the time of such introduction or referral. "Purchaser" means either
Siteman or Encanto Networks with respect to the Statement of Work entered
into with iXL. iXL may engage subcontractor(s) (including any affiliates of
iXL) to perform services rendered hereunder and pursuant to any Statement of
Work, with the prior approval of Siteman, Encanto Networks, or the Purchaser,
provided such approval is not unreasonably withheld, and provided such
subcontractors agree to be bound by the terms and conditions hereunder and
in the applicable Statement of Work.
(b) If there is any difference between the terms and conditions of any
Statement of Work attached hereto and any other portion of this Agreement,
the terms of the Statement of Work shall control, with the exception of
Section 6 (which confirms that no joint venture, partnership or other
relationship has been created in connection with this Agreement). In the
event of a conflict between Section 6 of this Agreement and any language in a
Statement of Work, Section 6 of this Agreement shall control.
(c) In the event that Purchaser is reasonably dissatisfied with any iXL
Services provided hereunder, due to iXL's failure to perform the iXL Services
in material conformance with the Statement of Work, Purchaser shall provide
notice to iXL no later than ten (10) days following iXL's delivery of such
iXL Services, indicating any intent of nonpayment by Purchaser and the
reasons therefor ("Notice"). The parties shall use good faith efforts to
resolve the issue of nonpayment to the satisfaction of both parties and such
disputed Fees shall not be deemed overdue fees until (i) such time as the
parties resolve such dispute, or (ii) 90 days, whichever is later in time. If
Purchaser does not provide Notice to iXL within ten (10) days of the
provision of any iXL Services, Purchaser shall be deemed to have accepted the
performance of such iXL Services and shall be liable to iXL for payment for
such iXL Services.
2. CHANGE ORDERS; ADMINISTRATION. Any modifications to the specifications
in a Statement of Work shall require execution of a written change order by
both parties to this Agreement (a "Change Order") which shall substantially
conform to the format set forth in Exhibit A. Each Change Order complying
with this section shall be deemed to be an amendment to the applicable
Statement of Work and will become part of this Agreement.
3. FEES.
(a) CHARGES. For the services provided hereunder, Purchaser shall pay
to iXL the fees in the amount and manner set forth herein and in the
applicable Statement of Work, in accordance with iXL's existing rate card
charges or as otherwise mutually agreed upon by the parties. All fees and
expenses incurred by iXL in the performance of the services will be billed to
Purchaser on a monthly basis or as set forth in a Statement of Work.
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(b) Pursuant to the Asset Purchase Agreement and this Agreement, Siteman
agrees to purchase and/or refer to iXL, and iXL agrees to provide to the
Purchasers and Siteman Customers, an aggregate of at least one million five
hundred thousand dollars ($1,500,000), excluding taxes, in iXL Services over
the Term (as defined below) ("Service Fee Commitment"). All fees actually
received by iXL for iXL Services provided under this Agreement (as well as
all fees incurred and paid for iXL Services provided to Encanto prior to the
Effective Date during November 1998 through the closing of the acquisition)
and iXL's agreements with Siteman Customers shall be added in the aggregate,
on a dollar-for-dollar basis, until such time as the one million five hundred
thousand dollars ($1,500,000) has been paid in full, excluding payment of
taxes. If on the last day of the Term, iXL has not received an aggregate of
at least one million five hundred thousand dollars ($1,500,000), excluding
taxes, for iXL Services performed for or on behalf of Purchasers or Siteman
Customers pursuant to this Agreement, then Siteman hereby agrees, to pay the
difference between (i) one million five hundred thousand ($1,500,000), and
(ii) the total aggregate fees received by iXL for iXL Services provided
during the entire Term, such difference to be paid to iXL in a lump sum
payment immediately at the end of the thirty (30) month period.
(c) EXPENSES. Purchaser will pay, or reimburse iXL for, any
out-of-pocket expenses, including, without limitation, travel and
travel-related expenses, incurred by iXL at the request of and with the prior
approval of Purchaser in connection with the performance of this Agreement.
Reasonable and customary expenses incurred by iXL, including without
limitation expenses incurred for travel, including local transportation,
lodging, meals, telephone, shipping and duplicating, will be billed to
Purchaser at actual cost. Travel expenses incurred by iXL personnel on behalf
of Purchaser shall be consistent with the iXL travel policy. Such travel
policy is available upon Purchaser's request.
(d) TAXES. Purchaser will pay all sales, use, transfer, privilege,
excise or other taxes and all duties, whether international, national, state
or local, however designated, which are levied or imposed by reason of the
transactions contemplated hereby; excluding, however, income taxes on profits
which may be levied against iXL.
(e) TIME OF PAYMENT. Any sum due iXL hereunder will be due and payable
within thirty (30) days after the due date of an invoice therefor from iXL.
4. TERM AND TERMINATION.
(a) TERM. This Agreement shall be effective as of the Effective Date
and shall extend for a period of thirty (30) months or until earlier
terminated as provided below (the "Term"). This Agreement may be terminated
at any time, with or without cause, by Siteman; provided, however, that
Siteman satisfies the Service Fee Commitment prior to such termination. This
Agreement may be terminated by iXL only in the event of (i) non-payment by
Siteman, such non-payment subject to the terms and conditions hereunder
(including opportunity to cure) and any terms set forth in the applicable
Statement of Work; (ii) material breach of any confidentiality agreement or
provision or non-disclosure agreement or provision, where such material
breach is not cured as provided within the applicable agreement or provision;
or (iii)
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material breach of any agreement or provision regarding ownership of
intellectual property, where such material breach is not cured as provided
the applicable agreement or provision. If for any reason this Agreement is
terminated prior to the expiration of the Term in accordance with this Section
4, the Term shall be deemed to have automatically expired and Siteman's
payment under Section 3(b) shall immediately become due to iXL.
(b) TERMINATION OF STATEMENT OF WORK FOR CAUSE. In the event that
either party hereto materially defaults in the performance of any of its
duties or obligations under a Statement of Work and does not substantially
cure such default, or commence a cure, within thirty (30) days after being
given written notice specifying the default, then the non-defaulting party
may, by giving written notice thereof to the defaulting party, terminate the
Statement of Work, but not this Agreement, as of a date specified in such
notice of termination.
(c) EFFECT OF TERMINATION. Upon termination of this Agreement,
Purchaser shall be obligated to pay iXL for all iXL Services rendered
pursuant to any outstanding Statements of Work through the effective date of
such termination, and Siteman shall be obligated to pay iXL the Service Fee
Committment. Upon termination of a Statement of Work, Purchaser shall be
obligated to pay iXL for all iXL Services rendered pursuant to the Statement
of Work through the effective date of such termination.
(d) SURVIVAL. Termination of this Agreement by Siteman pursuant to the
provisions of this Section 4 shall terminate each party's obligations under
this Agreement except for the provisions of Section 3 (Fees), Section 4 (Term
and Termination), Section 5 (Intellectual Property Rights), Section 7
(Limitation of Liability), Section 8 (Exclusion of Warranties), and Section 9
(Miscellaneous), all of which shall survive termination of this Agreement.
5. INTELLECTUAL PROPERTY RIGHTS. The parties acknowledge and agree that all
rights to any developments, inventions, discoveries, including without
limitation, all copyrights, trademarks, tradenames, design and images, logos,
algorithms, code, trade secrets, patents or other intellectual property
developed by iXL for the Purchasers pursuant to its performance of the iXL
Services under a Statement of Work shall be the sole property of the
Purchasers, unless otherwise provided in the License Agreement between the
parties executed simultaneously herewith, and unless otherwise provided in
any Statement of Work and any Terms and Conditions attached thereto.
6. RELATIONSHIP OF THE PARTIES. The relationship of iXL to Siteman shall be
that of an independent contractor. Both iXL and Siteman acknowledge and agree
that (i) neither is the employee or employer of the other, and (ii) nothing
contained in this Agreement shall constitute or be construed to create a
partnership or joint venture between iXL and Siteman.
7. LIMITATION ON LIABILITY.
(a) iXL SHALL NOT BE LIABLE TO THE PURCHASERS FOR ANY ACTS OR OMISSIONS
IN THE PERFORMANCE OF THE SERVICES SET FORTH IN THIS AGREEMENT; PROVIDED THAT
THE FOREGOING SHALL NOT APPLY TO ANY
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INTENTIONALLY WRONGFUL OR GROSSLY NEGLIGENT ACTS OF iXL AND PROVIDED FURTHER
THAT THE PURCHASERS RETAIN ALL RIGHTS TO DISPUTE PAYMENT FOR SERVICES NOT
PERFORMED OR NOT PERFORMED SATISFACTORILY.
(b) EXCEPT FOR SITEMAN'S LIABILITY FOR PAYMENT TO iXL FOR THE iXL
SERVICES AND THE SERVICE FEE COMMITMENT, IN NO EVENT WHATSOEVER SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER PERSON, FIRM OR CORPORATION,
FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE
DAMAGES, OR OTHER SIMILAR TYPE OF DAMAGES, INCLUDING, YET NOT LIMITED TO,
DAMAGES BASED UPON LOSS OF PROFITS AND/OR LOSS OF BUSINESS ARISING OUT OF OR
IN ANY WAY RELATED TO THIS AGREEMENT, THE PERFORMANCE THEREOF, THE USE OF THE
PRODUCTS PROMISED OR SERVICES DELIVERED PURSUANT TO THIS AGREEMENT, AND/OR A
PARTY'S ALLEGED BREACH OF THIS AGREEMENT, WHETHER OR NOT THE PARTY LIABLE OR
ALLEGEDLY LIABLE IS INFORMED, KNEW OR SHOULD HAVE KNOWN, OF THE POSSIBILITY
OF SUCH DAMAGES IN ADVANCE.
(c) EXCEPT FOR SITEMAN'S LIABILITY FOR PAYMENT TO iXL FOR THE iXL
SERVICES AND THE SERVICE FEE COMMITMENT, NEITHER PARTY WILL BE LIABLE TO THE
OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY AMOUNT
OF MONEY WHICH SHALL EXCEED THE AMOUNT OF THE FEE(S) ACTUALLY PAID BY CLIENT
TO iXL WITH RESPECT TO THE STATEMENT(S) OF WORK UNDER WHICH THE CLAIM IS
MADE; TO THE EXTENT THAT THE CLAIM IS MADE UNDER THE AGREEMENT, EXCEPT FOR
SITEMAN'S LIABILITY FOR PAYMENT TO iXL FOR THE iXL SERVICES AND THE SERVICE FEE
COMMITMENT, NEITHER PARTY WILL BE LIABLE TO THE OTHER WITH RESPECT TO ANY
SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY AMOUNT OF MONEY WHICH
SHALL EXCEED THE AGGREGATE AMOUNT OF FEES ACTUALLY PAID BY SITEMAN TO iXL FOR
THE iXL SERVICES AND/OR SERVICE FEE COMMITMENT.
(d) THE LIMITATIONS ON LIABILITY SET FORTH IN THIS SECTION SHALL APPLY
TO ALL CAUSES OF ACTION, INCLUDING, YET NOT LIMITED TO, BREACH OF CONTRACT,
BREACH OF WARRANTY, STRICT LIABILITY, MISREPRESENTATION AND OTHER TORTS, AND
LIABILITY BASED UPON THE PROVISIONS OF ANY PART OF THIS AGREEMENT AND ANY
FEDERAL, STATE AND/OR LOCAL LAW AND/OR ORDINANCE. THE LIMITATIONS ON
LIABILITY REPRESENT A FUNDAMENTAL TERM OF THIS AGREEMENT AND EACH PARTY WOULD
NOT HAVE ENTERED INTO THIS AGREEMENT WITHOUT THEIR INCLUSION.
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(e) NO ACTION, REGARDLESS OF FORM, ARISING OUT OF THIS AGREEMENT, MAY BE
BROUGHT BY PURCHASER AGAINST iXL MORE THAN ONE YEAR AFTER THE CAUSE OF ACTION
HAS ARISEN.
8. Exclusion of Warranties. NEITHER iXL NOR ANY OF ITS AFFILIATES,
EMPLOYEES, OFFICERS, DIRECTORS, AGENTS OR LICENSORS WARRANTS THAT THE
SERVICES OR PRODUCTS PROVIDED PURSUANT TO THIS AGREEMENT WILL BE
UNINTERRUPTED OR ERROR FREE, NOR DO THEY WARRANT THAT CERTAIN RESULTS MAY BE
OBTAINED BY PURCHASER IN CONNECTION WITH iXL'S RENDERING OF SERVICES OR
PROVISION OF PRODUCTS HEREUNDER. iXL AND ITS AFFILIATES, EMPLOYEES, OFFICERS,
DIRECTORS, AGENTS AND LICENSORS MAKE NO WARRANTY, GUARANTEE OR REPRESENTATION
EITHER EXPRESS OR IMPLIED REGARDING THE MERCHANTABILITY, TITLE, OR FITNESS
FOR A PARTICULAR PURPOSE OF ANY SERVICES OR PRODUCTS PROVIDED UNDER THIS
AGREEMENT. iXL DOES NOT MAKE ANY WARRANTY OR GUARANTEE FOR ANY PRODUCTS OR
SERVICES PROVIDED BY VENDORS SUGGESTED BY iXL.
9. MISCELLANEOUS.
(a) This Agreement shall constitute the entire agreement between the
parties with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without regard to the principles of
conflicts of laws thereof.
(c) All notices and other communications hereunder shall be in writing
and shall be delivered by hand or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at
such other addresses for a party as shall be specified by like notice) and
shall be deemed given on the date on which such notice is received. Notice by
telex, telegram or facsimile transmission shall be deemed given when
dispatched, provided the sender receives written confirmation of a successful
dispatch, and the sender mails a confirming copy of such notice as provided
herein:
If to iXL: 1888 Emery Street
Atlanta, GA 30318-2573
Fax: (404) 267-4099
Phone: (404) 267-7650
Attn: T. William Alvey, III
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If to Siteman: c/o Encanto Networks, Inc.
2953 Bunker Hill Lane, Fourth Floor
Santa Clara, CA 95054
Fax:
Phone:
Attn: Gari L. Cheever
(d) This Agreement may not be modified or amended except by an agreement
in writing signed by the parties. No waiver of any of the provisions of this
Agreement shall constitute or imply a subsequent waiver of the same or any
other provision hereof, whether or not similar; nor shall any waiver
constitute a continuing waiver, unless otherwise agreed in writing.
(e) The parties may assign this Agreement and any rights, duties, or
obligations hereunder only to the extent provided in the Asset Purchase
Agreement signed between the parties on January 29, 1999.
(f) This Agreement is solely for the benefit of the parties hereto and
should not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement.
(g) Titles and headings to sections herein are inserted for convenience
of reference only and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement.
(h) Any provision of this Agreement which is prohibited or unenforceable
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
(i) During the course of performance of this Agreement, each party may
disclose to the other certain confidential information. Each party shall hold
the other party's confidential information in confidence and use its best
efforts to protect it according to the terms of the Mutual Non-disclosure
Agreement set forth on SCHEDULE 5.1 of the Asset Purchase Agreement.
(j) This Agreement may be executed in any number of counterparts, all of
which together shall constitute one instrument.
SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed as of the date and year first above written.
SITEMAN, INC.
By: /s/ Gari Cheever
----------------------------
Name: Gari Cheever
--------------------------
Title: President
-------------------------
IXL, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
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[Confidential treatment requested for portions of this document. Redacted
information is marked with an asterisk (*).]
LICENSE AGREEMENT
This License Agreement and all Attachment hereto (collectively,
"Agreement") is entered into and effective as of January 30, 1999 ("Effective
Date"), by and between Siteman, Inc. ("Siteman"), a California corporation,
with its principal place of business at 2953 Bunker Hill Lane, Suite 400,
Santa Clara, California 95054 and iXL, Inc. ("iXL"), a Delaware corporation,
with its principal place of business at 1888 Emery Street, NW, Atlanta,
Georgia 30318.
WHEREAS, iXL currently owns an e-commerce solution known as Siteman and
MerchantWAVE that involve the development and maintenance of a web authoring
and template tool for multiple web site management;
WHEREAS, pursuant to that certain Asset Purchase Agreement of even date
herewith (the "Asset Purchase Agreement"), Siteman will acquire from iXL and
iXL will sell and transfer to Siteman, certain properties, assets, and rights
of iXL;
WHEREAS, pursuant to that certain Services Agreement of even date
herewith (the "Services Agreement"), iXL agrees to perform certain services;
and
WHEREAS, iXL and Siteman have agreed to enter into this Agreement to
provide for iXL's continued right to use the Licensed Software and practice
certain patent rights.
NOW, THEREFORE, in consideration of the foregoing and mutual agreements,
provisions and covenants contained herein, the receipt and sufficiency of
which are hereby acknowledged, and subject to the terms and conditions set
forth herein, iXL and Siteman hereby agree as follows:
1. Definitions.
a. "Affiliates" means entities that are wholly owned subsidiaries of iXL
Enterprises, Inc. For purposes of this Agreement, "iXL" includes Affiliates
and Affiliates are granted and may exercise rights as set forth in this
Agreement if such Affiliates sign agreements binding such Affiliates to all
restrictions and obligations in this Agreement.
b. "Clients" means those clients of iXL to which iXL sublicenses the
right to use the Licensed Software, Derivative Works and Improvements in
accordance with this Agreement, excluding clients that are Competitors of
Siteman (as defined and set forth in Attachment F).
c. "Derivative Work" means work developed by or for iXL that is a
modification, enhancement, upgrade or improvement of the Licensed Software.
Derivative Work does not include iXL Independent Inventions (as defined in
Section 5.c. below).
d. "End-Users" means those customers of Clients to which Client
sublicenses the right to access and use the Licensed Software in accordance
with this Agreement.
<PAGE>
e. "Improvements" mean any modifications, alterations, changes,
upgrades, releases or versions of and to the Licensed Software made by or for
Siteman, that are generally made available by Siteman to its end users and
licensees (including, but not limited to availability under any Maintenance
Support program) for the correction of errors or as otherwise incorporated
into the Licensed Software, except for modifications, alterations, changes,
upgrades, releases or versions of and to the Licensed Software marketed as
new and separate products distinct from the Licensed Software.
f. "iXL Clients" means only those Clients that are Originated by iXL and
that acquire the Licensed Software or Services as a result of iXL closing the
transaction for such Licensed Software or Services with the Client. For the
purpose of this Agreement, "Originated" means that iXL has actively solicited
a person working for a Client who (i) has authority to evaluate, select, and
acquire software or related services on behalf of such Client; and (ii) has
executed or directly influenced the execution of an agreement between such
Client and iXL and/or Siteman for the Licensed Software.
g. "Licensed Intellectual Property Rights" means the Licensed Patents,
trademarks, inventions, copyrights, processes, technical information,
software and designs pertaining to the Licensed Software.
h. "Licensed Patents" means the patent application listed in Attachment
B hereto and any embodiments or inventions thereof, throughout the world,
including divisions, reissues, continuations, renewals, and extensions of the
foregoing, applications therefor, and patents that may issue on such
applications, or that contain the same disclosure as the patent application
listed in Attachment B, or that rely upon for priority the patent application
listed in Attachment B.
i. "Licensed Software" means the Siteman and MerchantWAVE software
products owned by Siteman and fully described in Attachment A hereto in
object code form, together with documentation provided therewith by Siteman
and all Improvements.
j. "Services" means the development, customization, set-up, support and
maintenance services that iXL provides to its Clients that are more
specifically set forth in an agreement between iXL and its Clients.
k. "Source Code" means only the human readable code of the Licensed
Software necessary for iXL to create Derivative Works.
2. License Grants.
a. Subject to all of the terms and conditions of this Agreement, Siteman
hereby grants to iXL, under all of Siteman's rights in the Licensed
Intellectual Property Rights, a non-exclusive, non-transferable, worldwide,
royalty-free license to:
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i. use and reproduce the Licensed Software for (A) iXL's internal
use and (B) providing Services to iXL's Clients;
ii. use, reproduce and display the Licensed Software for the
purposes of (A) demonstrating the features and functionality of the Licensed
Software to prospective Clients and End Users and (B) providing support for
the Licensed Software to Clients and End Users, including, without
limitation, training related to the Licensed Software; and
iii. use the Source Code solely to modify the Licensed Software to
create Derivative Works.
b. Subject to all of the terms and conditions of this Agreement
(including, without limitation, to the payment obligations of iXL in
Attachment C), Siteman hereby grants to iXL, under all of Siteman's rights in
the Licensed Intellectual Property Rights, a non-exclusive, non-transferable,
worldwide right to:
i. distribute, on behalf of iXL or on behalf of Siteman, the
Licensed Software only to Clients;
ii. sublicense to Clients the right to access (via the world wide
web) and use the Licensed Software pursuant to a written agreement, in a form
approved by Siteman, between iXL and its Clients; and
iii. sublicense to Clients the right to further sublicense to
End-Users the right to access (via the world wide web) and use the Licensed
Software pursuant to a written agreement, in a form approved by Siteman,
between Clients and End-Users.
c. Subject to all the terms and conditions of this Agreement, Siteman
hereby grants to iXL, under Siteman's rights in the Licensed Patent, a
worldwide, non-exclusive, non-transferable, non-sublicensable, license to
manufacture, use, import, sell and distribute the Licensed Software,
Derivative Works, and any other web authoring tool, template tool, or
e-commerce solution (collectively "Technology") licensed by iXL directly to
end users. iXL's exercise of the rights granted in this paragraph are
royalty-bearing according to the terms of Attachment C hereto, to the extent
the Licensed Software or a Derivative Work is licensed to a Client or an iXL
Client. iXL's exercise of the rights granted in this paragraph are not
royalty-bearing to the extent that Technology licensed by iXL is not the
Licensed Software or a Derivative Work, unless iXL purchases or develops
Technology that performs substantially the same functionality as the Licensed
Software and is competitive with the Licensed Software.
d. Notwithstanding the obligations of iXL provided in Attachment C,
Siteman shall deliver to iXL and the iXL Clients listed in Attachment D, all
Improvements to the Licensed Software, royalty-free, for a period of
twenty-four (24) months after the Effective Date.
e. The parties agree to resolve all disputes between iXL and Siteman
arising out of or relating to payments owed under this Agreement; a party's
alleged infringement of the other
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party's right; and/or the applicability of royalties to a transaction,
according to the provisions of Attachment E hereto.
3. License Restrictions.
a. None of the licenses granted in Section 2 are sublicensable except
as expressly provided therein.
b. iXL may not use third party distributors to distribute the Licensed
Software, unless iXL receives prior written consent of Siteman.
c. This license is non-exclusive. Accordingly, nothing in this
Agreement shall be construed as limiting in any manner Siteman's marketing or
distribution activities or its appointment of other licensees, dealers,
distributors, value-added resellers, original equipment manufacturers, or
agents anywhere in the world.
4. Branding and Attribution. iXL may distribute and sublicense the
Licensed Software under their own trademarks and shall have no obligation to
attribute ownership or origin to Siteman except that all copies of the
Licensed Software shall include Siteman's applicable proprietary rights
notices (such as, without limitation, copyright and patent notices and
markings). In its sole discretion, iXL may also distribute and sublicense the
Licensed Software under Siteman's trademarks for the Licensed Software,
subject to Section 7.f. below.
5. Ownership.
a. As between iXL and Siteman, Siteman retains all right, title and
interest in and to the Licensed Software (excluding the portion of Derivative
Works created by or for iXL, as set forth in Section 5(b) below), Licensed
Intellectual Property Rights (including, without limitation, all patent
rights, copyrights, trademarks, trade secret rights and other proprietary
rights), except as expressly and unambiguously licensed herein and except as
otherwise mutually agreed to in writing between Siteman, iXL and a Client.
b. The parties agree that any Derivative Works or any other
modifications or improvements made by iXL to the Licensed Software or
Licensed Intellectual Property Rights shall be jointly owned by Siteman and
iXL only to the extent of such derivations, modifications or improvements.
Except as provided herein, the parties agree that neither party shall have a
duty to (i) account to the other for any exploitation of a Derivative Work or
any other such modifications, improvements or (ii) deliver any of the
foregoing work product to the other party. iXL may not assign its interest in
a Derivative Work or any other modifications or improvements to the Licensed
Software to any third party without Siteman's prior written consent. If iXL
or Siteman individually own a Derivative Work or any other modification or
improvement created by iXL by operation of law, then the party individually
owning the Derivative Work will automatically assign to the other party,
without further consideration, free and clear of all security interests and
other restrictions and liens whatsoever, an irrevocable, undivided joint
ownership interest in such individually owned Derivative Work, modification
or improvement and any intellectual property rights therein.
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c. Any and all derivative works, modifications, improvements,
inventions, and discoveries that are developed, achieved, or created by iXL
that do not infringe any copyright rights in the Licensed Software are the
sole and exclusive property of iXL ("iXL Independent Invention"). Subject to
the terms of this Agreement and the Asset Purchase Agreement, each party
acknowledges that the other party may, on its own or in concert with third
parties, achieve discoveries, develop improvements and create new inventions.
6. Commissions. During the Term of this Agreement, and subject to all the
terms and conditions of this Agreement, the parties agree to pay the
commissions and royalties set forth in Attachment C hereto.
7. iXL Covenants and Representations. Except as expressly and unambiguously
provided herein and as conditions of iXL's licenses hereunder, iXL
represents, warrants and agrees:
a. iXL is a corporation duly organized and validly existing under the
laws of the State of Delaware, with full corporate power and authority to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby, and no further corporate action is or will be required
to execute this Agreement and perform hereunder. This Agreement is
enforceable against iXL in accordance with its terms;
b. to keep Siteman informed as to any material problems with the
Licensed Software and any resolutions proposed and arrived at for those
problems of which iXL becomes aware, and to communicate promptly to Siteman
any and all modifications, design changes or improvements of the Licensed
Software suggested by iXL or any of its customers, employees or agents that
iXL in its sole reasonable judgment deems feasible and useful as a potential
modification or improvement to the Licensed Software;
c. not to conduct its business in a manner which unfavorably reflects
upon Siteman and the Licensed Software;
d. to provide Siteman with monthly written reports setting forth the
number of units of Licensed Software licensed for the applicable monthly
period;
e. to keep complete and accurate books and records of its sales and
sublicensing revenues from Clients and documented End Users of Licensed
Software and all other transactions relating to Licensed Software for at
least a period of three (3) years after such revenues are received by iXL.
Siteman shall have the right (upon reasonable notice and during iXL's normal
business hours and no more than once a year) to have an independent certified
public accountant inspect and audit the books and records of iXL for the
purpose of verifying iXL's compliance with the terms and conditions of this
Agreement and any reports or information due hereunder. As a condition to
making such inspection, the auditors shall execute an agreement in reasonable
form, to maintain the confidentiality of such records and not to disclose any
information with respect thereto to any person, including Siteman, other than
to advise Siteman concerning the completeness and accuracy of the monthly
accounts and payments or to advise Siteman of any discrepancies therein;
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f. that any use of any Siteman trademarks by iXL or its Affiliates
shall be in compliance with the provisions of all applicable laws and
regulations. iXL agrees (and shall cause its Affiliates to agree) (i) to
comply with quality control standards and trademark usage guidelines that
Siteman may promulgate from time to time with respect to the Licensed
Software identified by such trademarks and service marks, (ii) to conduct any
and all advertising and promotion in which such trademarks or service marks
are used so as not to jeopardize the continued validity and enforceability of
those trademarks and service marks, (iii) that all use of Siteman's
trademarks by iXL or its Affiliates shall inure to the benefit of Siteman and
(iv) not to register or attempt to register any of Siteman's trademarks
anywhere in the world. If iXL fails to use Siteman's trademarks and service
marks in material compliance with this Section, such failure shall be deemed
to be a material breach of one of iXL's material obligations under this
Agreement, subject to written notice and a thirty (30) day right to cure;
g. to comply with the U.S. Foreign Corrupt Practices Act (regarding
among other things, payments to government officials) and all export laws,
restrictions, national security controls and regulations of the United States
or other applicable foreign agency or authority, and not to export or
reexport, or allow the export or reexport of any Licensed Software or any
copy or direct product thereof in violation of any such restrictions, laws or
regulations, or, without all required licenses and proper authorizations, to
Cuba, Libya, North Korea, Iran, Iraq or Rwanda, or to any Group D:1 or E:2
country (or any national of such country) specified in the then current
Supplement No. 1 to Part 740, or, in violation of the embargo provisions in
Part 746, of the U.S. Export Administration Regulations (or any successor
regulations or supplement);
h. that Derivative Works created by iXL will not, to iXL's knowledge,
infringe any patents, copyrights, trademarks, or other intellectual property
rights, including, without limitation, trade secrets, privacy or similar
rights of any person or entity;
i. Covenant Not to Sue. At no time will iXL, its successors, assigns,
or affiliates make any claim or commence or prosecute against Siteman,
Siteman's affiliates or Siteman's or Siteman's affiliates' directors,
officers, successors, or assigns, any suit, action, or proceeding asserting
or alleging any kind of infringement of any or all patents in (i) Derivative
Works, or (ii) iXL Independent Inventions made by or for iXL and relating to
the Licensed Patent.
8. Siteman Covenants and Representations. Except as expressly and
unambiguously provided herein, Siteman represents, warrants and agrees:
a. Siteman is a corporation duly organized and validly existing under
the laws of the State of California, with full corporate power and authority
to enter into this Agreement and to carry out the transactions and agreements
contemplated hereby, and no further corporate action is or will be required
to execute this Agreement and perform hereunder. This Agreement is
enforceable against Siteman in accordance with its terms.
b. To the best of Siteman's knowledge, that Siteman will not grant to
any other person any right, claim, or interest in and to the Improvements and
the Intellectual Property Rights
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thereto which would interfere with or adversely affect iXL's rights under
this Agreement or the consummation of the transactions contemplated hereby;
c. to provide iXL with monthly written reports setting forth the number
of units of Licensed Software licensed for the applicable monthly period;
d. to keep complete and accurate books and records of its sales and
sublicensing revenues from iXL Clients for a period of three (3) years after
such revenues are received by iXL. iXL shall have the right (upon reasonable
notice and during Siteman's normal business hours and not more than once a
year) to have an independent certified public accountant inspect and audit
the books and records of Siteman for the purpose of verifying Siteman's
compliance with the terms and conditions of this Agreement and any reports or
information due hereunder. As a condition to making such inspection, the
auditors shall execute an agreement in reasonable form, to maintain the
confidentiality of such records and not to disclose any information with
respect thereto to any person, including iXL, other than to advise iXL
concerning the completeness and accuracy of the monthly accounts and payments
or to advise iXL of any discrepancies therein;
e. to comply with the U.S. Foreign Corrupt Practices Act (regarding
among other things, payments to government officials) and all export laws,
restrictions, national security controls and regulations of the United States
or other applicable foreign agency or authority, and not to export or
re-export, or allow the export or re-export of any Licensed Software or any
copy or direct product thereof in violation of any such restrictions, laws or
regulations, or, without all required licenses and proper authorizations, to
Cuba, Libya, North Korea, Iran, Iraq or Rwanda, or to any Group D:1 or E:2
country (or any national of such country) specified in the then current
Supplement No. 1 to Part 740, or, in violation of the embargo provisions in
Part 746, of the U.S. Export Administration Regulations (or any successor
regulations or supplement);
f. not impose any liabilities, duties or obligations on iXL through any
oral or written agreements with Clients, without the prior written consent of
iXL;
g. that Improvements will not to Siteman's knowledge, infringe any
patents, copyrights, trademarks, or other intellectual property rights,
including trade secrets, privacy or similar rights of any person or entity;
h. Covenant Not to Sue. At no time will Siteman, its successors,
assigns, or affiliates make any claim or commence or prosecute against iXL
and iXL's Affiliates and iXL's and iXL's Affiliates' directors, officers,
successors, or assigns, any suit, action, or proceeding directly or
indirectly asserting or alleging any kind of infringement of any or all of
the Licensed Patent. Siteman's covenant not to sue is personal to iXL and
iXL's Affiliates and iXL's and iXL's Affiliates' directors, officers,
successors, or assigns. Siteman's covenant not to sue iXL under this Section
8.h is not a covenant not to sue third parties, except as follows: at no time
will Siteman, its successors, assigns, or affiliates make any claim or
commence or prosecute against iXL's and iXL's Affiliates' licensees ("iXL
Licensees"), any suit, action, or proceeding asserting or alleging any kind
of infringement of any or all of the Licensed Patent for use of Technology
7
<PAGE>
(as defined in Section 2.c above) pursuant to a valid license from iXL or
iXL's Affiliates for such Technology in accordance with the license granted
to iXL in Section 2.c.
9. Term. Unless terminated earlier as provided herein, this Agreement shall
commence on the Effective Date and shall terminate thirty (30) months
thereafter ("Term").
10. Termination.
a. This Agreement may be terminated by a party for cause immediately
upon the occurrence of any of the following events:
i. if the other party ceases to do business, or otherwise
terminates its business operations; or
ii. if the other party shall fail to promptly secure or renew any
license, registration, permit, authorization, or approval "Permit" necessary
for the conduct of its business in the manner set forth in this Agreement,
and if any such Permit is revoked, suspended, or not reinstated within one
hundred and eighty (180) days of written notice describing such failure; or
iii. if the other party materially breaches any material provision
of this Agreement and fails to cure such breach within sixty (60) days
(immediately in the case of a breach of Section 13) of written notice
describing the breach; or
iv. if the other party shall seek protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against the other party
(and not dismissed within ninety (90) days).
b. Siteman may terminate the licenses in Sections 2.a and 2.b
immediately upon any merger or consolidation of iXL or any of its Affiliates
with, or any sale, lease, exchange, mortgage, pledge, transfer,
relinquishment or other disposition of all or substantially all of iXL's or
any of its Affiliate's assets, stock or business or of controlling interest in
iXL or any of its Affiliates (whether by operation of law or otherwise) to
any Competitor (as such term is defined in Attachment F) or subsidiary or
affiliate thereof; provided, however, that (i) any and all sublicenses
granted under Section 2, prior to Siteman's exercise of the termination
rights hereunder, shall continue in full force and effect in accordance with
their terms after such termination, and (ii) iXL and its Affiliates may
continue to exercise the rights granted in Section 2 solely to perform for
Clients any remaining contract obligations, as of the date of such
termination, of iXL and its Affiliates.
c. Neither party shall incur any liability whatsoever for any damage,
loss or expenses of any kind suffered or incurred by the other (or for any
compensation to the other) arising from or incident to any termination of
this Agreement by such party that complies with the terms of the Agreement
whether or not such party is aware of any such damage, loss or expenses.
d. Upon termination of this Agreement naturally at the end of the Term,
the license rights granted to iXL in Section 2.a and 2.b will terminate. The
following provisions shall
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<PAGE>
survive any expiration or termination of this Agreement: Sections 1, 2(c), 3,
5, 7 (except for 7.(d)), 8, 10, 11, 13, 14, 15, 16, 17 and 19.
e. Upon (x) termination of this Agreement by Siteman for iXL's breach
according to the terms of Section 10(a) above, or (y) the earlier of (A) a
final determination by a court of competent jurisdiction or an arbitrator
that iXL has materially breached a material term of this Agreement or failed
to secure and renew any Permit as required herein, or (B) iXL's failure to
file an action seeking a declaratory judgment that iXL has not materially
breached a material term of this Agreement within sixty (60) days after iXL
receives written notice from Siteman as required in Section 10(a); all
license rights granted to iXL hereunder shall terminate and iXL will
immediately return to Siteman all, Proprietary Information of Siteman in its
possession, custody or control in whatever form held (including all copies or
embodiments thereof). Notwithstanding the foregoing termination, all
sublicenses granted by iXL to Clients in accordance with this Agreement prior
to such termination shall continue in full force and effect and iXL may
continue to use the Licensed Software after such termination solely for the
sole purpose of iXL's satisfying any maintenance, warranty, or support
obligations it may have to Clients as of the effective date of such
termination.
f. Termination is not the sole remedy under this Agreement and, whether
or not termination is effected, all other remedies will remain available.
g. Termination of this Agreement for any reason shall not affect either
party's rights and obligations under the Services Agreement.
11. Intellectual Property Prosecution and Maintenance.
a. Siteman shall be responsible for and control the preparation, filing
and prosecution of all patent, trademark and copyright applications and the
maintenance of all patents and registered trademarks and copyrights in and
for the Licensed Intellectual Property Rights and Licensed Software, using
counsel of its choice.
b. Until such time as Siteman had paid iXL all fees for Services as
provided in the Services Agreement, with respect to the trademark and patent
applications/registrations listed in Schedule 1.1(g) respectively of the
Asset Purchase Agreement, Siteman shall use reasonable commercial efforts to
(i) maintain and prosecute the trademark and the patent
applications/registrations, (ii) conduct any appropriate interference,
enforcement, cancellation, infringement or opposition proceedings or pursue
such other legal remedies reasonably necessary and appropriate to maintain
and protect such trademarks and patent, and (iii) pursue such other
applications and registrations as necessary and appropriate to protect the
Licensed Software and Licensed Patent in any and all jurisdictions in which
the Licensed Software and Licensed Patent are offered to End-Users. Siteman
is entitled to use its reasonable business judgment in making any decision
relating to the immediately foregoing obligations in this paragraph. If in
iXL's reasonable business judgment, Siteman has not taken adequate action to
comply with its obligations set forth in this Section 11.b, Siteman will
perform any additional action at iXL's written request and at iXL's sole
expense.
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c. Upon Siteman's full payment to iXL of all fees for Services as
provided in the Services Agreement, Siteman shall have no further obligation
to, and it shall be in Siteman's sole discretion whether to, (i) prepare,
file or prosecute any patent, trademark or copyright applications or maintain
any patents or trademark or copyright registrations or (ii) conduct or bring
any interference, opposition, cancellation, enforcement, infringement or any
other action or proceeding relating to the Licensed Intellectual Property
Rights or Licensed Software.
d. Notwithstanding anything in this Agreement to the contrary, Siteman
shall have no obligations whatsoever in connection with any patent
applications filed that are based on iXL Independent Inventions or
improvements or modifications of the Licensed Software or Licensed Patent
created by or for iXL.
12. Intellectual Property Infringement and Enforcement. iXL shall promptly
notify Siteman of any third party infringement of the Licensed Software
and/or the Licensed Intellectual Property Rights of which iXL becomes aware.
iXL has no obligation, right or authority to resolve, abate or commence any
legal proceedings or take any other action in connection with any alleged
infringement of the Licensed Intellectual Property Rights or the Licensed
Software without Siteman's prior written consent, which consent Siteman may
give or withhold in its sole discretion. If Siteman provides iXL with such
written consent, iXL may in its sole discretion undertake such efforts
provided that iXL cooperates with Siteman in connection with, and keeps
Siteman currently apprised of the status of such efforts.
13. Confidentiality.
a. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential
Information" means any information provided by either party or prepared by
either party (either oral, written, or digital) upon review of such
information, technical data, or know-how provided to either party by the
other (including any director, officer, employee, agent, or representative of
the other) or obtained by either party from the other (including any
director, officer, employee, agent, or representative of the other) including
but not limited to, that which relates to research, product plans, products,
services, customers, markets, software, developments, inventions, processes,
designs, drawings, engineering, hardware configuration information, marketing
or finances of the disclosing party. Confidential Information does not
include information, technical data or know-how which (i) is in the
possession of the receiving party at the time of disclosure (except for any
information acquired by Siteman from iXL under the Asset Purchase Agreement)
as shown by the receiving party's files and records immediately prior to the
time of disclosure, or (ii) prior to or after the time of disclosure becomes
part of the public knowledge or literature, not as a result of any improper
inaction or action of the receiving party, or (iii) is expressly approved by
the disclosing party, in writing, for release, or (iv) comes into the
possession of the receiving party from a third party that was not, to the
recipient's knowledge, subject to any confidentiality restriction.
b. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Each party hereby
agrees not to use or disclose any Confidential Information provided to it by
or obtained by it from the other party for any reason including its own use
of for any purpose except as provided hereunder. Neither party will, except
as required by law or court order, disclose any Confidential Information of
the other party to unrelated third parties or to employees, agents or
professional advisors of the party
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<PAGE>
receiving Confidential Information, except employees, agents or professional
advisors who are required to have the information in order to carry out the
obligations of this Agreement. Each party will have or has had employees to
whom Confidential Information of the other party is disclosed or who have
access to Confidential Information of the disclosing party sign a
nondisclosure or similar agreement in content substantially similar to this
Section. Each party agrees that it will take all reasonable measures to
protect the secrecy of and avoid disclosure or use of Confidential Information
of the other party in order to prevent it from falling into the public domain
or the possession of persons other than those persons authorized under this
Agreement to have any such information. Such measures shall include the
highest degree of care that the receiving party utilizes to protect its own
Confidential Information of a similar nature. Each party agrees to notify
the other in writing of any misuse or misappropriation of Confidential
Information of the disclosing party immediately after such misuse or
misappropriation.
c. PATENT OR COPYRIGHT INFRINGEMENT. Except as otherwise expressly
provided herein, nothing in this Agreement is intended to grant any rights
under any patent or copyright of either party, nor shall this Agreement grant
either party any rights in or to the other party's Confidential Information.
Further, both parties agree not to reverse engineer, attempt to reverse
engineer, decompile or disassemble any computer software programs or devices
supplied by the other party without the prior written consent of the other
party.
d. REMEDIES. Each party agrees that its obligations provided in
this Agreement are necessary and reasonable in order to protect the
disclosing party and its business, and each party expressly agrees that
monetary damages would be inadequate to compensate the disclosing party for
any breach by the receiving party of its covenants and agreements set forth
in this Agreement. Accordingly, each party agrees and acknowledges that any
such violation or threatened violation will cause irreparable injury to the
disclosing party and that, in addition to any other remedies that may be
available, in law, in equity or otherwise, the disclosing party shall be
entitled to obtain injunctive relief against the threatened breach of this
Agreement or the continuation of any such breach by the receiving party,
without the necessity of proving actual damages.
e. RETURN OF MATERIALS. Any materials or documents which have been
furnished by one party to the other in connection with this Agreement will be
promptly returned by the receiving party, accompanied by ALL copies of such
documentation, within ten (10) days after this Agreement has been terminated.
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14. Disclaimer of Warranties.
a. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THE LICENSED SOFTWARE
AND LICENSED INTELLECTUAL PROPERTY RIGHTS ARE PROVIDED TO iXL AND ITS
AFFILIATES "AS IS." EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SITEMAN
MAKES NO WARRANTIES TO ANY PERSON OR ENTITY WITH RESPECT TO THE LICENSED
SOFTWARE OR LICENSED INTELLECTUAL PROPERTY RIGHTS OR ANY LICENSES AND
DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
b. Except as otherwise expressly provided herein, nothing in this
Agreement is or shall be construed as:
i. a warranty or representation by Siteman as to the validity
or scope of any patent claim or patent within the Licensed Patents;
ii. a warranty or representation that anything made, used,
imported, sold or otherwise disposed of under any license granted hereunder
is or will be free from infringement of any patent rights, foreign or
domestic, or other intellectual property right of any third party;
iii. an obligation to bring or prosecute actions or suits
against third parties for infringement of the Licensed Software or the
Licensed Intellectual Property Rights;
iv. granting by implication, estoppel or otherwise any licenses
or rights under patents or other rights of Siteman or third parties other
than as expressly provided herein, regardless of whether such patents or
other rights are dominant or subordinate to the Licensed Software or any
Licensed Intellectual Property Rights; or
v. obligating iXL to make, use, sell, import, offer for sale or
promote the Licensed Intellectual Property Rights or Licensed Software or
achieve any particular amount of sales or revenues in licensing fees from the
Licensed Intellectual Property Rights or the Licensed Software.
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15. Limitation of Liability.
a. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE,
NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER PERSON OR
ENTITY WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY
(I) FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST
PROFITS, LOST BUSINESS OR LOST DATA OR (II) FOR COST OF PROCUREMENT OF
SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES, EVEN IF THE REMEDIES PROVIDED FOR
IN THIS AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE AND EVEN IF EITHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OR PROBABILITY OF SUCH DAMAGES.
b. EXCEPT FOR EACH PARTY'S PAYMENT OBLIGATIONS HEREUNDER AND IN THE
ASSET PURCHASE AGREEMENT AND IN THE SERVICES AGREEMENT AND EXCEPT FOR EACH
PARTY'S LIABILITY UNDER SECTION 16 OF THIS AGREEMENT, NEITHER PARTY WILL BE
LIABLE TO THE OTHER PARTY OR TO ANY OTHER PERSON OR ENTITY WITH RESPECT TO
ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY AMOUNTS IN EXCESS OF ONE
MILLION DOLLARS ($1,000,000).
c. THE LIMITATIONS OF LIABILITY PROVIDED IN THIS SECTION 15 REPRESENT A
FUNDAMENTAL TERM OF THIS AGREEMENT AND EACH PARTY WOULD NOT HAVE ENTERED INTO
THIS AGREEMENT WITHOUT THE INCLUSION OF SUCH TERMS.
16. Indemnification
a. iXL shall defend, indemnify and hold Siteman and its officers,
directors, agents and employees harmless from liability resulting from any
claim relating to (x) iXL's license or sale of the Licensed Software or iXL
Independent Inventions or (y) iXL's provision of any services relating to the
Licensed Software (except for claims relating to the validity or scope of the
Licensed Intellectual Property Rights (except as otherwise provided in the
Asset Purchase Agreement)) or iXL Independent Inventions or (z) any claim
that any Derivative Works infringe any third party patent, copyright, or are
the result of a misappropriation of any trade secret, or infringement of any
other intellectual property right of any third party, provided that: (i) iXL
is promptly notified of any and all threats, claims and proceedings related
thereto, (ii) iXL shall have sole control of the defense and/or settlement
thereof, (iii) Siteman furnishes to iXL, upon request, information available
to Siteman for such defense, and (iv) Siteman provides iXL with reasonable
assistance.
b. iXL shall have no obligation under this Section 16 if and to the
extent that such claim arises from: (i) compliance by iXL with Siteman's
specifications, if any, (ii) modification of the Licensed Software other than
by iXL, or (iii) combination of Licensed Software with products other than
those supplied by iXL, and the alleged infringement or misappropriation
relates to
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such compliance, modification or combination. iXL shall also not have any
obligation with respect to a claim if it has provided Siteman with changes
that would have avoided the problem and the changes are not fully
implemented. The preceding exclusions do not in any way affect iXL's
liability and indemnification obligations in connection with the assets
acquired by Siteman in the Asset Purchase Agreement.
c. Siteman shall defend, indemnify and hold iXL and its officers,
directors, agents and employees harmless from liability resulting from any
claim that any Improvements infringe any third party patent, copyright, or
are the result of a misappropriation of any trade secret, or infringement of
any other intellectual property right of any third party, provided that: (i)
Siteman is promptly notified of any and all threats, claims and proceedings
related thereto, (ii) Siteman shall have sole control of the defense and/or
settlement thereof, (iii) iXL furnishes to Siteman, upon request, information
available to iXL for such defense, and (iv) iXL provides Siteman with
reasonable assistance.
d. Siteman shall have no obligation under this Section 16 and to the
extent that such claim arises from: (i) compliance by Siteman with iXL's
specifications, if any, (ii) modification of the Licensed Software other than
by Siteman, or (iii) combination of an Improvement with products other than
those supplied by Siteman, and the alleged infringement or misappropriation
relates to such compliance, modification or combination. Siteman shall also
not have any obligation with respect to a claim if it has provided iXL with
changes that would have avoided the problem and the changes are not fully
implemented.
17. Relationship of Parties. The parties hereto expressly understand and
agree that each party is (a) an independent contractor in the performance of
each and every part of this Agreement, (b) solely responsible for all of its
employees and agents and its labor costs and expenses arising in connection
therewith, and (c) responsible for and will indemnify the other party from
any and all claims, liabilities, damages, debts, settlements, costs,
attorneys' fees, expenses and liabilities of any type whatsoever that may
arise on account of such party's activities or those of its employees or
agents (including, without limitation, subdistributors), including without
limitation, providing unauthorized representations or warranties (or failing
to effectively disclaim all warranties and liabilities on behalf of the other
party) to customers or breaching any term, representation or warranty of this
Agreement. Neither party is in any manner associated with or otherwise
connected with the actual performance of this Agreement on the part of the
other party, nor with the other party's employment of other persons or
incurring of other expenses. Except as expressly provided herein, neither
party shall have the right to exercise any control whatsoever over the
activities or operations of the other party.
18. Assignment.
a. Neither party may assign any right under this Agreement, and any
purported assignment will be null and void and a breach of this Agreement,
except for the following:
i. Either party may assign some or all of its rights and/or
delegate some or all of its obligations under this Agreement with the express
prior written consent of the other party, which may be granted or withheld in
the other party's sole discretion.
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ii. Either party may assign all of its rights indivisibly to an
Affiliate. The Affiliate in question must agree in writing to comply with the
assigning party's obligations under, and to be bound by, this Agreement.
iii. Either party may assign all of its rights indivisibly in
connection with a sale or other disposition of (a) substantially all the
assigning party's stock to a single acquiring person or entity or (b)
substantially all the assets of the assigning party's business relating to
the Licensed Software to a single acquiring person or entity. The acquiring
person or entity must agree in writing to comply with the assigning party's
obligations under, and to be bound by, this Agreement.
b. Notwithstanding the foregoing, any of the following occurrences
shall not be deemed an assignment or otherwise in violation of this Section
18 or this Agreement:
i. an occurrence which involves a reorganization or
restructuring of either party or a conversion by either party into another
form of legal entity (such as to or from a limited liability iXL) if following
such occurrence more than fifty percent (50%) of the then outstanding shares
of such party are owned directly or indirectly by all or substantially all of
the individuals or entities who were beneficial owners such party's shares
immediately prior to such occurrence; or
ii. there is a transfer of shares or securities pursuant to a
contractual obligation with an investor, as a result of the exercise of
rights by such investor pursuant to any agreement valid and existing as of
the Effective Date; or
iii. any transactions in the ordinary course of business resulting
from or related to an initial public offering, or the free trade of shares on
any public market.
c. For purposes of this Agreement, restrictions on transferability of
the licenses granted herein do not apply to an assignment pursuant to this
Section 18.
19. General.
a. No Covenant Not to Compete - Except as otherwise provided in the
Asset Purchase Agreement, nothing in this Agreement or any related document
executed by the parties may be construed to prevent either party from
competing against the other party, and either party may create, develop,
improve, invent, discover, use, license, sublicense, offer, assign, transfer,
purchase or acquire any and all software, code, technologies, products and
services now in existence and hereinafter invented.
b. Amendment and Waiver - Except as otherwise expressly provided
herein, any provision of this Agreement may be amended and the observance of
any provision of this Agreement may be waived (either generally or in any
particular instance and either retroactively or prospectively) only with the
written consent of both parties.
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c. Governing Law and Legal Actions - This Agreement shall be governed
by and construed under the laws of the State of California and the United
States without regard to conflicts of laws provisions thereof. The sole
jurisdiction and venue for actions related to the subject matter hereof shall
be the California state and U.S. federal courts having within their
jurisdiction the location of Siteman's principal place of business. Both
parties consent to the jurisdiction of such courts and agree that process may
be served in the manner provided herein for giving of notices or otherwise as
allowed by California state or U.S. federal law. In any action or proceeding
to enforce rights under this Agreement, the prevailing party shall be
entitled to recover costs and attorneys' fees.
d. Headings - Headings and captions are for convenience only and are
not to be used in the interpretation of this Agreement.
e. Notices - Notices under this Agreement shall be sufficient only if
personally delivered, delivered by a major commercial rapid delivery courier
service with tracking capabilities and costs prepaid, or mailed by certified
or registered mail, return receipt requested and postage prepaid, to a party
at its address first set forth herein or as amended by notice pursuant to
this subsection. If not received sooner, notice by mail shall be deemed
received five (5) days after deposit in the U.S. mails.
f. Severability - If any provision of this Agreement is held to be
illegal or unenforceable, that provision shall be limited or eliminated to
the minimum extent necessary so that this Agreement shall otherwise remain in
full force and effect and enforceable.
g. Remedies - The rights and remedies of a party set forth herein with
respect to failure of the other to comply with the terms and conditions of
this Agreement (including, without limitation, rights of termination of this
Agreement) are not exclusive, the exercise thereof shall not constitute an
election of remedies and the aggrieved party shall in all events be entitled
to seek whatever additional remedies may be available in law or equity.
[CONTINUED ON THE NEXT PAGE]
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h. Entire Agreement - This Agreement (including all Attachments hereto)
and the Asset Purchase Agreement supersede all proposals, oral or written,
all negotiations, conversations, or discussions between or among parties
relating to the subject matter of this Agreement and all past dealing or
industry custom.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the Effective Date first set forth above.
iXL, INC.
By: /s/ U. Bertram Ellis, Jr.
----------------------------
Name: U. Bertram Ellis, Jr.
----------------------------
Title: Director
----------------------------
SITEMAN, INC.
By: /s/ Gari Cheever
----------------------------
Name: Gari Cheever
----------------------------
Title: President
----------------------------
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ATTACHMENT A
LICENSED SOFTWARE
SITEMAN CORE MODULE DESCRIPTIONS
SOFTWARE LICENSED BY THIRD PARTIES OR PUBLIC DOMAIN SOFTWARE
3rd Party .jar files
msxml.jar
orotools.jar
voyager2.0.0.jar
osforms library.
SOFTWARE DEVELOPED AND OWNED BY SELLERS
Siteman.jar
/net/siteman/admin/*.class
/net/siteman/container/*.class
/net/siteman/content/*.class
/net/siteman/html/*.class
/net/siteman/publish/*.class
/net/siteman/xdata/*.class
/net/siteman/exporter/*.class
/net/siteman/importer/*.class
/net/siteman/util/*.class
/net/siteman/storage/*.class
/net/siteman/events/*.class
/net/siteman/stats/*.class
/net/siteman/janitor/*.class
/net/siteman/service/*.class
/net/siteman/callback/*.class
/net/siteman/webmdlink/*.class
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MERCHANTWAVE CORE MODULE DESCRIPTIONS
Software Licensed by Third Parties or Public Domain Software
3rd Party .jars
sybase4.0.jar
jgl3.10.jar
cryptix2.02.jar
Software Developed and Owned by Sellers
MerchantWAVE .jar files.
cwi.jar
cwiservlets.jar
cwidatabase.jar
SOURCE CODE RESPOSITORY -- iXL utilizes a CVS respository to store all the
files necessary to build the application. The MerchantWAVE source code
respository is outlined below. The source code is stored in the /merchantwave
directory and /encanto directory
/merchantwave/source/.../*.java
/merchantwave/database/.../*.qpp
/merchantwave/bin/.../*.class
/encanto/source/.../*.java
/encanto/database/.../*.sql
/merchantwave/server/.../*.ini,*html
/tools/source
/tools/bin
19
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ATTACHMENT B
PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
OWNER APPLICATION STATUS FILING DATE TITLE
NUMBER
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. 08/719,561 Notice of Allowance issued filed 9/25/96 DYNAMIC GENERATION AND
(iXL Enterprises, 8/4/98 DISPLAY OF CATALOGS
Inc. USPTO acknowledged receipt
of the issue fee on 10/28/98
Issue notification has not
been received
- -----------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
ATTACHMENT C
COMMISSIONS, ROYALTIES AND PAYMENTS
The parties agree that iXL will sell and/or sublicense the Licensed
Software to Clients under this Agreement on its own behalf and/or on behalf
of Siteman. It is the intent of the parties that, subject to the terms in
this Attachment C, both situations shall be treated the same for the purpose
of determining each party's share of the License Fees generated from iXL's
Sales of Licensed Software. For purposes of this Attachment C and this
Agreement, the term "License Fees" shall be an amount equal to the greater of
(i) Siteman's then applicable published fees for licensing the Licensed
Software or (ii) the amount actually paid by Clients either directly to
Siteman or to iXL for a license or sublicense to use the Licensed Software;
the term "Sales" shall mean all sales by iXL of the Licensed Software to iXL
Clients from the Effective Date through and including December 31, 1999; and
the term "Recurring Revenue" shall mean ongoing revenue (not including
License Fees) in an amount equal to the greater of (a) Siteman's then
applicable published rates or (b) the amount actually paid by Clients either
directly to Siteman or to iXL, for hosting, access and content service fees
relating to the Licensed Software that are derived from Sales closed by iXL
from the Effective Date through and December 31, 1999.
1. SALES ON BEHALF OF SITEMAN.
For all Sales on behalf of Siteman, Siteman will pay to iXL commissions
equal to a percentage of all License Fees actually received by Siteman for
such Sales as follows:
a. [*] percent [*] of such License Fees for cumulative Sales up to and
including [*] Dollars [*]; and
b. [*] percent [*] of such License Fees for cumulative Sales over
[*] Dollars [*].
2. SALES ON BEHALF OF iXL.
For all Sales on behalf of iXL, iXL shall retain commissions equal to a
percentage of all License Fees actually received by iXL for such Sales as
follows:
a. [*] percent [*] of such License Fees for cumulative Sales up to and
including [*] Dollars [*]; and
b. [*] percent [*] of such License Fees for cumulative Sales over
[*] Dollars [*].
After retaining the foregoing commissions in this Paragraph 2, iXL shall
pay all remaining amounts of such License Fees to Siteman as royalties
hereunder.
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<PAGE>
3. RECURRING REVENUES PAID DIRECTLY TO SITEMAN.
For all Recurring Revenues paid by iXL Clients directly to Siteman,
Siteman will pay to iXL commissions equal to a percentage of all such
Recurring Revenues actually received by Siteman for the initial twelve (12)
months of such Recurring Revenue as follows:
a. [*] percent [*] of such Recurring Revenues for cumulative Recurring
Revenues up to and including [*] Dollars [*]; and
b. [*] percent [*] of such Recurring Revenues for cumulative Recurring
Revenues over [*] Dollars [*].
4. RECURRING REVENUES PAID TO iXL.
For all Recurring Revenues paid by Clients to iXL rather than Siteman,
iXL shall retain commissions equal to a percentage of all such Recurring
Revenues actually received by iXL for the initial twelve (12) months of
such Recurring Revenues as follows:
a. [*] percent [*] of such Recurring Revenues for cumulative Recurring
Revenues up to and including [*] Dollars [*]; and
b. [*] percent [*] of such Recurring Revenues for cumulative Recurring
Revenues over [*] Dollars [*].
After retaining the foregoing commissions in this Paragraph 4, iXL shall
pay all remaining amounts of such Recurring Revenues to Siteman as royalties
hereunder.
5. COMMISSIONS TO BE PAID TO iXL'S SALES PERSONNEL FOR SALES AND RECURRING
REVENUES.
a. For iXL sales force personnel who conclude Sales, iXL agrees to pay
such sales force personnel commissions in an amount not less than [*] percent
[*] of the License Fees derived from such Sales.
b. For iXL sales force personnel who conclude sales resulting in
Recurring Revenue, iXL agrees to pay such sales force personnel commissions
in an amount not less than [*] percent [*] of such Recurring Revenues for
the initial twelve (12) months of such Recurring Revenues.
c. iXL agrees to pay the foregoing commissions in subparagraphs 5.a and
5.b above out of the amounts iXL receives from Siteman under Paragraphs 1 and
3 above in this Attachment C or retained by iXL under Paragraphs 2 and 4
above in this Attachment C, as the case may be, in addition to any regular
iXL commissions payable by iXL to its sales personnel for the sale and license
of the Licensed Software or products or services offered by iXL. As part of
this arrangement, iXL and Siteman will also agree on additional collaborative
methods (e.g., training, joint marketing, etc.) to motivate the iXL sales
force to offer, license and sell the Licensed Software.
22
<PAGE>
6. OTHER COMMISSIONS.
iXL agrees to pay Siteman a [*] percent [*] finder's fee in connection
with any services provided by iXL to Clients that are referred to iXL by
Siteman (excluding iXL Clients and clients that are or were clients of iXL
prior to such referral). The payment of such finders fee shall be the subject
of a separate agreement between the parties to be negotiated within thirty
(30) days after the Effective Date.
7. MISCELLANEOUS.
a. iXL is not entitled to and has no right to receive or retain any
commissions, royalties or any other payment for (a) any sales of the Licensed
Software by iXL or otherwise that do not constitute Sales (as defined in this
Attachment C) or (b) any recurring revenues derived from any sales of the
Licensed Software by iXL or otherwise that do not constitute Recurring
Revenue (as defined in this Attachment C). To the extent iXL receives any
such payments directly from Clients, it shall immediately transfer such
amounts in full to Siteman.
b. All commissions and royalties payable under this Agreement will be
paid within thirty (30) days after the end of each calendar month in which
the commission or royalty accrued during the term of this Agreement. iXL must
submit an invoice to Siteman for the payment of commissions.
c. Siteman and iXL will negotiate in good faith and mutually agree upon
ongoing commissions and royalties for Sales after 1999.
23
<PAGE>
ATTACHMENT D
iXL Clients Who Paid for a Fully Paid-Up License Prior to the Effective
Date
Endeavor Technologies, Inc. d/b/a WebMD
24
<PAGE>
ATTACHMENT E
Dispute Resolution
1. SCOPE OF ARBITRATION. All disputes between iXL and Siteman arising
out of or relating to all royalty disputes and infringement disputes, shall be
resolved by final and binding arbitration conducted in accordance with and
subject to the provisions of the United States Arbitration Act, 9 U.S.C.
Sections 1 ET SEQ., provided, however, that prior to filing a demand for
arbitration, the parties shall attempt to resolve their disputes through
negotiation, and, if the dispute remains unresolved, by non-binding
mediation, as provided in this Attachment E. Any mediator or arbitrator
utilized by the parties under this Agreement must have ten (10) years
experience intellectual property disputes and have experience in the software
and internet industries.
2. MEETING BEFORE ARBITRATION. In the event there is a dispute arising
out of or relating to a payment dispute or infringement dispute, the parties
first shall attempt to resolve the dispute by negotiations between senior
executives of the parties who have authority to settle the controversy. The
disputing party shall give the other party written notice of the dispute.
Within twenty days after receipt of said notice, the receiving party shall
submit a written response to the disputing party. The notice and response
shall include (a) a statement of each party's position and a summary of the
evidence and arguments supporting its position, and (b) the name and title of
the executive who will represent that party. The executives shall meet at a
mutually acceptable time and place within thirty days after the date of
receipt of the disputing party's notice and, after that, as often as they
reasonably deem necessary to exchange relevant information and to attempt to
resolve the dispute. If the matter is not resolved within sixty days after
the receipt of the disputing party's notice, or if the party receiving said
notice will not meet within thirty days, then either party may initiate
mediation of the dispute according to the terms provided below.
3. MEDIATION BEFORE ARBITRATION. In the event the dispute is not
resolved by negotiation as provided in the preceding paragraph, then, prior
to filing a demand for arbitration, either party shall, if it still wishes to
resolve the dispute, refer the dispute to mediation, I.E., an informal,
non-binding conference or conferences between the parties in which a mediator
will seek to guide the parties to a resolution of the dispute. The mediation
shall take place in San Francisco, California, if requested by iXL, and shall
take place in Atlanta, Georgia if requested by Siteman. The mediation shall
be conducted under the auspices of the J.A.M.S./ENDISPUTE "JAMS" office in
the city where the mediation is to be conducted, or, if JAMS has no office in
that city, under the auspices of the JAMS office closest to the city where
the mediation is to be conducted. The parties are free to select any mutually
acceptable mediator from the list provided by such JAMS office. If the
parties cannot agree or have no particular choice of mediator, then a list
and resumes of available mediators will be sent to the parties, each of whom
shall inform JAMS of those mediators who are acceptable, provided that at
least one such mediator shall be designated acceptable. JAMS shall then
select a mediator who is acceptable to both parties. The mediation shall
occur within sixty days after the request for mediation. The fees and costs
of the mediation shall conform to the then current fee schedule at JAMS and,
in the absence of an agreement to the contrary, shall be borne equally by
each party.
25
<PAGE>
4. ARBITRATION. If the dispute is not finally resolved within thirty
days after the first day of the mediation, then either party may demand
arbitration by filing a demand for arbitration. The arbitration shall be
conducted under the auspices of JAMS. An arbitration demanded by iXL shall
take place in San Francisco and an arbitration demanded by Siteman shall take
place in Atlanta, Georgia. The arbitration shall be conducted by one
arbitrator mutually agreed upon by iXL and Siteman, under the JAMS
Arbitration Rules and Procedures in effect on the Effective Date of the
Agreement, except that the parties shall have any right to discovery as would
be permitted under the Federal Rules of Civil Procedure for a period of
ninety days following the selection of the arbitrator, and the arbitrator
shall resolve any dispute which arises in connection with such discovery. The
fees and costs of JAMS and the arbitrator shall, in the absence of an
agreement to the contrary, be borne equally by each party. The prevailing
party shall be entitled to an award of costs, expenses and reasonable
attorneys' fees. Judgment upon the award rendered by the arbitrator may be
entered in any court of competent jurisdiction. The award shall not include,
and the arbitrator shall not have the power to award, any damages or relief
which are excluded by the Agreement.
5. EXCLUSION OF REQUEST FOR INTERIM INJUNCTIVE RELIEF. Notwithstanding
this Attachment E, either party may apply to any court of competent
jurisdiction for a temporary restraining order, preliminary injunction or
other interim injunctive relief, as may be necessary to protect such party's
intellectual property rights and confidential and trade secret information.
26
<PAGE>
ATTACHMENT F
COMPETITORS OF SITEMAN
"Competitor" means any entity that (a) manufactures, markets, sells,
distributes or operates e-commerce solutions that include substantially the
same functionality as the Licensed Software or (b) is engaged in the business
of the development and maintenance of Web authoring and template tools for
multiple Web site management.
27
<PAGE>
[LOGO]
HOSTING/CO-LOCATION SERVICES AGREEMENT
This Hosting/Co-Location Services Agreement (the "Agreement") is made
and entered into this 25th day of October, 1999, by and iXL Memphis Inc., a
Delaware corporation ("iXL"), and Kinzan.com, a CALIFORNIA corporation
("Client").
RECITALS
WHEREAS, iXL operates and provides related services with respect to an
electronic information system consisting of Internet access via high speed
communication lines, routers, and other necessary computer equipment; and
WHEREAS, Client desires the services of iXL and use of its System for
Web hosting and telecommunications services to maintain the availability of
Client's web site(s) via the Internet.
NOW, THEREFORE, in consideration of the mutual covenants and benefits
described in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS.
1.1. "Agreement" means this Hosting/Co-Location Services Agreement,
including all Statements of Service and corresponding exhibits
issued pursuant to this Agreement. "End User" means any person or
entity which accesses the Client Web site via the Internet.
1.2. "Web Site" means the World Wide Web site on which Client Content
will appear.
1.3. "Client Content" means all text, words, names, likenesses,
trademarks, logos, artwork, graphics, video, audio, HTML, JAVA or
other coding, domain names, image maps, links, software
applications, or other content that appear on, or are provided to
iXL for uploading to or downloading from, the Client Web Site.
1.4. "Services" means all services and deliverables described and set
forth in this Agreement and each Statement of Service issued under
this Agreement that are required to be provided by iXL.
2. THE AGREEMENT AND STATEMENT(S) OF SERVICE. Client hereby engages iXL to
host its Web Site(s) or provide other telecommunications services, as
described in a statement of service attached hereto and incorporated
herein which shall at a minimum include a description of the services to
be provided and the corresponding fees (a "Statement of Service"). iXL
hereby accepts such engagement, subject to the terms and conditions of
this Agreement. If there is any difference between the terms of any
Statement of Service attached hereto and any other portion of this
Agreement, the terms of the Statement of Service shall control, with the
exception of Section 18 (which confirms that no joint venture,
partnership or other relationship has been created in connection with
this Agreement). In the event of a conflict between Section 18 of this
Agreement and any language in a Statement of Service, Section 18 of this
Agreement shall control. All services provided by iXL to Client under
this Agreement and under every Statement of Service shall be considered
to be provided under a "Statement of Work" as defined in the Services
Agreement dated January 29, 1999 between iXL and the Client and all
amounts paid by Client, or its customers, to iXL under this Agreement and
every Statement of Services shall be deemed to be payments under section
3(b) of the Services Agreement.
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<PAGE>
3. CHANGE ORDERS; ADMINISTRATION. Any modifications to the specifications
in a Statement of Service after acceptance by Client hereunder shall
require execution of a written change order by both parties to this
Agreement (a "Change Order"). Each Change Order complying with this
section shall be deemed to be an amendment to the applicable Statement of
Service and will become part of this Agreement.
4. CLIENT REPRESENTATIONS, WARRANTIES, AND RESPONSIBILITIES.
4.1. Client and its customers shall assume full responsibility for all
Client Content as it appears on the Web Site. Client and its
customers, and not iXL, shall be responsible for keeping the
information on the Web Site current and accurate. Client shall
clearly identify all parts of the Web Site, including any bulletin
boards or chat rooms, as being controlled by Client. Client remains
solely responsible for its choice of content vendors and for
negotiating terms and conditions with such vendors.
4.2. During the term of this Agreement, and for the purpose of hosting
the Client Content on the Web Site, Client hereby grants to iXL the
nonexclusive worldwide right and license to use, upload, display,
copy and store Client Content.
4.3. Client represents and warrants that to its knowledge: (a) Client is
the owner, valid licensee, or authorized user of the Client Content
and each element thereof, (b) the use of the Client Content shall
not infringe the copyright, trade secret, trademark or other
proprietary or intellectual property right of any third party, or
constitute a defamation, invasion of privacy, or violation of any
right of publicity or other third party right, (c) the Client
Content complies with all legislation, rules and regulations of all
applicable jurisdictions including without limitation, those
applicable to privacy and collection or use of personal data;
potential liability for posting or transmitting data which is
threatening, obscene, indecent, defamatory or in violation of
export control laws, or contrary to laws or regulations relating to
unsolicited e-mails or the practice commonly called "spamming," (d)
use of the Web Site by any party, other than iXL, will conform to
general standards of behavior for the Internet, and (f) Client
Content shall be free from viruses, worms, Trojan horses, and any
other malicious code. Each party hereby acknowledges that there is
no guarantee of security on the Internet and no guarantee that the
Web Site or Client Content will be secure; and iXL assumes no
responsibility for the consequences to the client as a result of a
security breach out of iXL's control.
4.4. Each party represents and warrants to the other party that it has
full authority and right to enter into this Agreement and that there
are no conflicting claims relating to the rights granted by this
Agreement.
5. iXL RESPONSIBILITIES.
5.1. iXL shall provide the Services specified in the Statement of
Service attached hereto as Exhibit A. With the exception of Client
Content, unless specified otherwise in a Statement of Service, iXL
shall procure all hardware, software, materials and other items
necessary for implementing this Agreement and shall own all right,
title, and interest in and to such items. iXL may in its reasonable
discretion change such hardware and software so long as there is no
material change in functionality of the Web Site. iXL assumes no
responsibility for third parties who break encryption coding so
that data being transmitted is visible to others.
5.2. iXL shall determine the method, details, and means of performing
the services to be performed hereunder, subject to the standards
set forth herein. iXL may subcontract to third parties for
implementation of services provided to Client pursuant to this
Agreement, provided that iXL remain fully responsible for any acts
or omissions of such subcontractors. iXL shall retain the right to
perform any and all services for other clients, and Client shall
retain the right to cause work of the same or a different kind to
be performed by its own personnel or other contractors.
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<PAGE>
5.3. iXL will not be responsible for, or have any liability in
connection with, the operation of the Client Web Site with respect
to online commercial transactions, and shall not have any
responsibility or liability for misuse of or failure to protect
credit card or other information provided by Client's customers on
the Client Web Site. In addition, Client assumes the risk of loss
due to (a) Client's offering any products for sale through the
Client Web Site, including "soft" goods, for example, telephone
usage cards, for which customers are given authorization codes by
Client that are effective with or without physical delivery of the
goods sold by Client; or (b) Client's maintaining personal
identification numbers or other authorization codes in connection
with the Client Web Site.
5.4. Additional iXL obligations if any are listed in the Statement of
Service attached hereto as Exhibit A.
6. INTELLECTUAL PROPERTY.
6.1. No press release, announcement, publication, or other use of the
other party's insignia logos, trademarks, tradename or service
marks (collectively, the "Marks") shall be made by either party
without the other party's prior written approval. All use by either
party of the other party's Marks will inure to the benefit of the
party owning the Marks. Upon termination of this Agreement, neither
party shall have any continuing right to use the other party's
Marks and each party shall immediately cease all such use of the
other party's Marks.
6.2. Upon termination of this Agreement, Client shall retain ownership
of Client Content and Client's Domain Names. iXL shall retain
control of all hardware, software, materials, and other items
provided by iXL pursuant to this Agreement and Client shall retain
control of all hardware, software, materials, and other items
provided by Client pursuant to this Agreement.
6.3. iXL shall not provide Client any design elements, graphics,
formatting, CGIs, or other applications or content (collectively
"iXL tools") pursuant to this Agreement. Availability of iXL Tools
shall be subject to separate agreement.
7. UNSOLICITED COMMERCIAL EMAIL AND OTHER PRACTICES.
7.1 The practices commonly known as spamming are prohibited. These
include, but are not limited to, the following: posting an article
or advertisement to more than ten (10) newsgroups, forums, e-mail,
mailings lists or other similar groups or lists (collectively
"Internet Lists"); posting to any Internet List articles which are
off-topic; sending unsolicited mass e-mailings to more than
twenty-five (25) e-mail users, if such unsolicited e-mailings
provoke complaint; and falsifying user information provided to iXL
or to other users of the service.
7.2 iXL reserves the right at any time to implement reasonable
technical mechanisms to prevent such activities, or take other
legal action against any Client engaging in or tolerating spamming
or any other illegal, harassing, obscene or other liability-causing
activity. iXL reserves all legal and equitable rights in enforcing
this policy. iXL acknowledges that Client's customers will be
developing their own content on such sites and that Client will
have only certain controls over such customers. Client acknowledges
that iXL will not be liable for the acts or omissions of Client or
its customers. iXL agrees to cooperate with Client in Client's
development of practices and measures to prevent such activity
described above, and to the extent reasonably practicable, to take
such measures in a manner so as to minimize intrusion to Client's
and its customers' businesses.
7.3. This section does not apply to Web Sites that send solicited email,
from a mailing list that people have taken an active step to
participate in. An active step means that a person has sent an
email or other communications specifically requesting to be placed
on that mailing list.
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<PAGE>
8. FEES AND TAXES. In consideration of the activities contemplated in this
Agreement, Client shall pay to iXL the fees set forth in the Statement of
Service attached hereto as Exhibit A. Client shall pay each invoice for
fees within thirty days following the invoice date. Fees do not include,
and, Client shall be solely responsible for any and all taxes of whatever
nature, including without limitation, withholding taxes or other taxes
imposed by foreign jurisdictions, federal, state, and local sales, use,
transfer, property, privilege, excise, gross receipts, franchise and
other similar taxes and tax-related surcharges (but excluding income
taxes to iXL), however, designated (hereinafter referred to collectively
as "Taxes"), which are levied, imposed or due by reason of sale or
distribution of products, services, or information from Web Site or any
services, or information from Web Site or any services rendered under
this Agreement. iXL shall not be liable for, and Client shall indemnify
iXL against liability for, all such Taxes.
9. TERM AND TERMINATION.
9.1. This Agreement shall commence on the date first written above and
shall continue in effect until it is terminated pursuant to the
provisions of this Section 9. The term of each Statement of
Service shall specify the term applicable to the service provided
under that Statement.
9.2. This Agreement may be terminated by iXL and the Client Web Site
removed from the World Wide Web at any time in the event that
Client commits any material default hereunder which Client fails to
remedy within thirty days after having been notified in writing of
the default. iXL may terminate the hosting services provided for a
web site immediately if (a) the web site contains content that iXL
reasonably determines could cause liability to iXL and Client does
not remove such content within 48 hours upon iXL's request, (b)
Client violates the Unsolicited Commercial Email provision in
Section 7.1 and has not cured the violation within five (5) days.
9.3. If Client fails to pay any invoice hereunder within thirty days
following the date of iXL's notice of non-payment, iXL may remove
Client's Web Site from the World Wide Web, and condition the
continued provision of services and restoration of Client's Web
Site to the World Wide Web upon Client's payment of all outstanding
charges and a reinstallation fee of $1,000
9.4. This Agreement may be terminated by Client at any time in the event
iXL commits a material default hereunder, provided iXL has been
notified of the default in writing and has not cured such default
within thirty days.
9.5. If a Statement of Service is terminated pursuant to this Section
and there are no other Statements of Service attached hereto under
which services are still being provided by iXL, either party may
terminate this Agreement by providing thirty (30) days notice to
the other party. Sections 4 (Warranties), 6 (Intellectual
Property), 8 (Fees and Taxes), 10 (Exclusion of Warranties), 11
(Indemnity), 12 (Limitation of Liability, 13 (Confidentiality), 15
(Non-Solicitation) and 19 (Miscellaneous) of this Agreement shall
survive the termination of this Agreement irrespective of the
reason for termination, subject to Client's obligation to pay iXL
all undisputed compensation earned for services rendered under this
Agreement through the effective date of such termination.
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<PAGE>
10. EXCLUSION OF WARRANTIES. APART FROM THE SPECIFIC WARRANTIES SET OUT
HEREIN OR IN A STATEMENT OF SERVICE ATTACHED HERETO, ALL SERVICES AND
PRODUCTS PROVIDED UNDER THIS AGREEMENT ARE PROVIDED ON AN "AS IS" BASIS.
NEITHER iXL NOR ANY OF ITS AFFILIATES, EMPLOYEES, OFFICERS, DIRECTORS,
AGENTS OR LICENSORS WARRANTS THAT THE SERVICES OR PRODUCTS PROVIDED
PURSUANT TO THIS AGREEMENT WILL BE UNINTERRUPTED OR ERROR FREE, NOR DO
THEY WARRANT THAT CERTAIN RESULTS MAY BE OBTAINED BY CUSTOMER IN
CONNECTION WITH ITS USE OF THE CUSTOMER WEBSITE. iXL AND ITS
AFFILIATES, EMPLOYEES, OFFICERS, DIRECTORS, AGENTS AND LICENSORS MAKE NO
WARRANTY, GUARANTEE OR REPRESENTATION EITHER EXPRESS OR IMPLIED
REGARDING THE MERCHANTABILITY, TITLE, OR FITNESS FOR A PARTICULAR
PURPOSE OF THE CUSTOMER WEBSITE OR ANY SERVICES OR PRODUCTS PROVIDED
UNDER THIS AGREEMENT. iXL DOES NOT MAKE ANY WARRANTY OR GUARANTEE FOR
ANY PRODUCTS OR SERVICES PROVIDED BY VENDORS SUGGESTED BY iXL.
11. INDEMNITY. Notwithstanding anything to the contrary in this Agreement,
Client shall indemnify and hold iXL, its affiliates, directors,
officers, employees, agents and licensors harmless from and against all
claims, action, expenses, losses, and liabilities arising from or
relating to the following: (a) any claim based on clients breach of it's
representation and warranties contained herein, (b) any claim based upon
alleged errors, omissions, or misstatements in any Client Content, (c)
any claim based upon a Domain Name registered or used by iXL at Client's
direction or request, (d) any claim arising out of or relating to the
Web Site, Client Content, or otherwise under this Agreement (including,
but not limited to, any claim resulting from any content posted to the
Web Site by Client or Client's employees, agents or any other third
party), and (e) any injury to person or property, caused by a product,
service, or information, whether or not defective, that is sold or
distributed from the Web Site. Notwithstanding anything to the contrary
in this Agreement, iXL shall indemnify and hold client harmless, its
affiliates, directors, officers, employees, agents and licensors
harmless from and against all claims, action, expenses, losses, and
liabilities arising from or relating to the following: (a) any claim
based on breach iXL's of warranties contained herein, (b) claims of
third parties that are a direct result of iXL's breach of this agreement.
12. LIMITATION OF LIABILITY. With the exception of the indemnification
provisions herein, each party's maximum aggregate liability to other
related to or in connection with this Agreement will be limited to the
total amount paid by Client to iXL for the prior twelve (12) month
period under the Statement in which claim is made. IN ADDITION, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER FOR (1) ANY INCIDENTAL,
CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES OF ANY KIND OR NATURE, OR
(2) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA, PROFITS, GOODWILL,
WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL OTHER
COMMERCIAL DAMAGES OR LOSSES ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR THE USE OR PERFORMANCE OF THE iXL SERVICES, WHETHER IN AN
ACTION BASED ON ANY LEGAL THEORY, CONTRACT, TORT OR OTHERWISE,
REGARDLESS OF WHETHER EITHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
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13. CONFIDENTIALITY. During the course of performance of this Agreement,
each party may disclose to the other certain information ("Confidential
Information"). Each party shall hold the other party's Confidential
Information in confidence and shall use its best efforts to protect it.
Without the consent of the other party, a party shall not disclose the
other party's Confidential Information to any third party, and shall use
it for the sole purpose of performing under this Agreement. At the
conclusion of this Agreement, each party shall either return the other's
Confidential Information in its possession (including all copies) or
shall, at the disclosing party's direction, destroy the other party's
Confidential Information (including all copies) and certify its
destruction to the disclosing party. "Confidential Information" means
any information provided or prepared by a party ("Disclosing Party")
that is provided to, or obtained by the other party (including any
director, officer, employee, agent, subcontractor or other
representative of such party) that includes, but is not limited to,
information that relates to research, product plans, products, services,
clients, markets, software, hardware developments, inventions, processes,
designs, drawings, technical data, know-how or finances of the Disclosing
Party. The term "Confidential Information" shall not include any
information which: (a) is in the public domain at the time of disclosure
or enters the public domain following disclosure through no fault of the
receiving party, (b) the receiving party can demonstrate as already in its
possession prior to disclosure hereunder or is subsequently disclosed to
the receiving party with no obligation of confidentiality by a third party
having the right to disclose it or (c) is independently developed by the
receiving party without reference to the disclosing party's Confidential
Information. Either party may disclose the other party's Confidential
Information upon the order of any competent court or government agency,
provided that prior to disclosure the receiving party shall inform the
other party of such order. Neither party shall disclose the terms and
conditions of this Agreement to any third party. Neither party shall
issue any press release or other public announcement regarding this
Agreement without the other party's prior written approval.
14. ATTRIBUTION. During the term of this Agreement, (i) each party may list
the other party as a client of the other party on the first party's Web
Site and in all other marketing materials, including all digital and
print materials (ii) each may include either a URL or plain text link to
the other party's Web Site on its Web Site. No press release,
announcement, publication or other use of the other party's insignia,
logos, trademarks, tradename or service marks ("Marks") shall be made by
either party without the other party's prior written approval. Upon
termination of this Agreement, neither party shall have any continuing
right to use the other party's Marks and each party shall immediately
cease all such use of the other party's Marks. For the purposes of this
Section 14, iXL shall include iXL Holdings, Inc. and its affiliates.
15. NON-SOLICITATION. During the term of this Agreement and for one (1)
year after the termination of this Agreement, each party agrees that it
shall not, directly or indirectly, solicit for employment, induce or
attempt to induce any employee of the other party to leave the employ.
For purposes of this Section 15, iXL shall include iXL Holdings, Inc.
and its affiliates.
16. FORCE MAJEURE. Neither party shall be liable to the other party for any
delay or failure to carry out the services provided hereunder if such
delay or failure is due to any cause beyond the control of the first
party, including without limitation, restrictions of law, regulations,
orders or other government directives, labor disputes, acts of God, acts
of third party vendors or suppliers, or mechanical or electronic
breakdowns.
6
<PAGE>
17. NOTICE. Any notice required or permitted to be given under this Agreement
shall be in writing and deemed given and effective upon delivery if sent by
personal delivery or by facsimile transmission or five (5) days after
posting if sent by certified United States mail, return receipt requested,
with postage prepaid and addressed as follows:
If to iXL: iXL Hosting
3160 Director's Row
Memphis, TN 38131
With copies to: iXL Enterprises, Inc.
1888 Emery Street NW
Atlanta, GA 30318
Attn: T. William Alvey III, Assistant General Counsel
Fax: (404)-267-3801
If to Client: Kinzan.com
2111 Palomar Airport Road #250
Carlsbad, CA 92009
Attn: Dana McGowan
Fax: (760) 602-2910
A copy to: Kinzan.com
2111 Palomar Airport Road #250
Carlsbad, CA 92009
Attn: Ray Ghanbari
Fax: (760) 602-2910
18. RELATIONSHIP BETWEEN PARTIES. The parties intend that an independent
contractor relationship shall be created by this Agreement. Nothing in this
Agreement shall be construed as establishing a partnership, joint venture,
or employer-employee relationship between the parties.
19. MISCELLANEOUS.
19.1 Assignment. This Agreement shall be binding on, inure to the
benefit of, and be enforceable by each party and their respective
heirs, successors and valid assigns. Neither party shall assign or
transfer the rights or obligations associated with this Agreement, in
whole or in part, without the other party's express written consent,
which shall not be unreasonably withheld; provided that no consent
shall be required in the event of an assignment to any entity
controlling, controlled by, or under common control with such party,
or to another entity in connection with a reorganization, acquisition,
merger, sale of substantially all the assets of a party.
19.2 GOVERNING LAW. This Agreement shall be governed by, construed under
and enforced in accordance with the laws of the State of California.
19.3 COUNTERPARTS. This Agreement may be executed in multiple
counterparts and by facsimile, each of which shall be deemed an
original but all of which together shall constitute one and the same
instrument.
<PAGE>
19.4 ENTIRE AGREEMENT. This Agreement, including all attached
Statement(s) of Service, supersedes and cancels all prior
negotiations, communications, understandings and Agreements between
iXL and Client with respect to the subject matter of this Agreement.
The parties acknowledge that there exist other agreements relating to
matters different than those covered herein. No oral Agreements,
before or after execution of this Agreement, shall be binding until
they are in writing and signed by an authorized officer of both iXL
and Client.
19.5 SEVERABILITY. In the event that any provision of this Agreement is
held void or unenforceable, the entire balance of this Agreement shall
remain in full force and effect.
19.6 HEADINGS. The section and subsection headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below:
iXL-Hosting.
By: /s/ Mike Schwartz
------------------------
Name: Mike Schwartz
------------------------
Title: General Manager, Senior Vice-President
--------------------------------------
Kinzan
By: /s/ Douglas J. Perry
-------------------------
Name: Douglas J. Perry
-------------------------
Title: Vice President
-------------------------
<PAGE>
OFFICE LEASE
REFERENCE PAGE
<TABLE>
<S> <C>
BUILDING: Carlsbad Executive Plaza
------------------------------------------------------------
LANDLORD: CB Graham International, Inc., a Delaware corporation
------------------------------------------------------------
LANDLORD'S RENT PAYMENT ADDRESS: Dept. 60149 in El Monte, CA 91735-01498
------------------------------------------------------------
LANDLORD'S NOTICES ADDRESS: 2141 Palomar Airport Rd., Suite 370, Carlsbad, CA 92009
------------------------------------------------------------
LEASE REFERENCE DATE: July 27, 1998
------------------------------------------------------------
TENANT: iXL-San Diego, Inc., a Delaware corporation
------------------------------------------------------------
TENANT'S CORPORATE NOTICES ADDRESS IXL Holdings, Inc.
and LEASE GUARANTOR: ------------------------------------------------------------
1888 Emery Street N.W.
------------------------------------------------------------
Atlanta, Georgia 20218
------------------------------------------------------------
404/267-3800
------------------------------------------------------------
PREMISES IDENTIFICATION: 2121 Palomar Airport Road, Suite 200
------------------------------------------------------------
(for outline of Premises see Exhibit A)
USE: General offices for Software and Services Development
------------------------------------------------------------
PREMISES RENTABLE AREA: Approximately 7,280 rentable square feet.
------------------------------------------------------------
SCHEDULED COMMENCEMENT DATE: September 1, 1998
------------------------------------------------------------
SCHEDULED TERMINATION DATE: August 31, 2003
------------------------------------------------------------
TERM OF LEASE: (5 years and 0 months) beginning on the Commencement Date
and ending on the Termination Date (unless sooner terminated
pursuant to the Lease)
------------------------------------------------------------
INITIAL ANNUAL RENT (Article 3): $132,015.00 (See Article 38)
------------------------------------------------------------
INITIAL MONTHLY INSTALLMENT OF
ANNUAL RENT (Article 3): $ 11,001.25 (See Article 38)
------------------------------------------------------------
BASE YEAR (DIRECT EXPENSES): 1998
------------------------------------------------------------
BASE YEAR (TAXES): Calendar Year 1998
------------------------------------------------------------
TENANT'S PROPORTIONATE SHARE:
Building Direct Expenses 5.51% based on project size of 132,195 rsf
------------------------------------------------------------
SECURITY DEPOSIT: $16,816.80
------------------------------------------------------------
ASSIGNMENT/SUBLETTING FEE: $250.00
------------------------------------------------------------
REAL ESTATE BROKER DUE COMMISSION: Business Real Estate
-------------------------------------
</TABLE>
The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information
and the Lease, the Lease shall control. This Lease includes Exhibits A
through C, all of which are made a part of this Lease.
LANDLORD: TENANT:
CB GRAHAM INTERNATIONAL, INC., iXL-San Diego, Inc.,
a Delaware corporation a Delaware corporation
BY: RREEF Management Company,
a Delaware corporation
BY: /s/ Jill E. Shanahan BY: /s/ David G. Watkins
------------------------------- ---------------------------------
Jill E. Shanahan David G. Watkins
TITLE: Vice President TITLE: President
DATE: 8/27/98 DATE: 8/26/98
------------------------------- ---------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
--------- ------
<C> <S> <C>
1. USE AND RESTRICTIONS ON USE ........................1
2. TERM ...............................................1
3. RENT ...............................................2
4. RENT ADJUSTMENTS ...................................2
5. SECURITY DEPOSIT ...................................3
6. ALTERATIONS ........................................4
7. REPAIR .............................................4
8. LIENS ..............................................5
9. ASSIGNMENT AND SUBLETTING ..........................5
10. INDEMNIFICATION ....................................6
11. INSURANCE ..........................................7
12. WAIVER OF SUBROGATION ..............................7
13. SERVICES AND UTILITIES .............................7
14. HOLDING OVER .......................................8
15. SUBORDINATION ......................................8
16. RULES AND REGULATIONS ..............................8
17. REENTRY BY LANDLORD ................................8
18. DEFAULT ............................................9
19. REMEDIES ...........................................10
20. TENANT'S BANKRUPTCY OR INSOLVENCY ..................11
21. QUIET ENJOYMENT ....................................12
22. DAMAGE BY FIRE, ETC. ...............................12
23. EMINENT DOMAIN .....................................13
24. SALE BY LANDLORD ...................................13
25. ESTOPPEL CERTIFICATES ..............................13
26. SURRENDER OF PREMISES ..............................14
27. NOTICES ............................................14
28. TAXES PAYABLE BY TENANT ............................14
29. RELOCATION OF TENANT ...............................14
30. DEFINED TERMS AND HEADINGS .........................15
31. TENANT'S AUTHORITY .................................15
32. COMMISSIONS ........................................15
33. TIME AND APPLICABLE LAW ............................15
i
<PAGE>
<C> <S> <C>
34. SUCCESSORS AND ASSIGNS .............................15
35. ENTIRE AGREEMENT ...................................15
36. EXAMINATION NOT OPTION .............................15
37. RECORDATION ........................................16
38. RENT SCHEDULE ......................................16
39. LIMITATION OF LANDLORD'S LIABILITY .................16
40. OPTION TO TERMINATE ................................16
<S> <C>
EXHIBIT A PREMISES
EXHIBIT B TENANT IMPROVEMENTS
EXHIBIT C RULES AND REGULATIONS
EXHIBIT D CONTINUING LEASE GUARANTY
</TABLE>
ii
<PAGE>
LEASE
By this Lease Landlord leases to Tenant and Tenant leases from Landlord
the Premises in the Building as set forth and described on the Reference
Page. The Reference Page, including all terms defined thereon, is
incorporated as part of this Lease.
1. USE AND RESTRICTIONS ON USE.
1.1 The Premises are to be used solely for general office purposes.
Tenant shall not do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other tenants
or occupants of the Building or injure, annoy, or disturb them or allow the
Premises to be used for any improper, immoral, unlawful, or objectionable
purpose. Tenant shall not do, permit or suffer in, on, or about the Premises
the sale of any alcoholic liquor without the written consent of Landlord
first obtained, or the commission of any waste. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises and its occupancy and shall promptly comply with all governmental
orders and directions for the correction, prevention and abatement of any
violations in or upon, or in connection with, the Premises, all at Tenant's
sole expense, provided Tenant is not responsible for structural revisions
required by ADA-type laws. Tenant shall not do or permit anything to be done
on or about the Premises or bring or keep anything into the Premises which
will in any way increase the rate of, invalidate or prevent the procuring of
any insurance protecting against loss or damage to the Building or any of its
contents by fire or other casualty or against liability for damage to
property or injury to persons in or about the Building or any part thereof.
1.2 Tenant shall not, and shall not direct, suffer or permit any of
its agents, contractors, employees, licensees or invitees to at any time
handle, use, manufacture, store or dispose of in or about the Premises or the
Building any (collectively "Hazardous Materials") flammables, explosives,
radioactive materials, hazardous wastes or materials, toxic wastes or
materials, or other similar substances, petroleum products or derivatives or
any substance subject to regulation by or under any federal, state and local
laws and ordinances relating to the protection of the environment or the
keeping, use or disposition of environmentally hazardous materials,
substances, or wastes, presently in effect or hereafter adopted, all
amendments to any of them, and all rules and regulations issued pursuant to
any of such laws or ordinances (collectively "Environmental Laws") (Landlord
shall use best efforts to approve Tenant's emergency use of a generator or
similar uninterruptible power source) nor shall Tenant suffer or permit any
Hazardous Materials to be used in any manner not fully in compliance with all
Environmental Laws, in the Premises or the Building and appurtenant land or
allow the environment to become contaminated with any Hazardous Materials.
Notwithstanding the foregoing, Tenant may handle, store, use or dispose of
products containing small quantities of Hazardous Materials (such as aerosol
cans containing insecticides, toner for copiers, paints, paint remover and
the like) to the extent customary and necessary for the use of the Premises
for general office purposes; provided that Tenant shall always handle, store,
use, and dispose of any such Hazardous Materials in a safe and lawful manner
and never allow such Hazardous Materials to contaminate the Premises,
Building and appurtenant land or the environment. Tenant shall protect,
defend, indemnify and hold each and all of the Landlord Entities (as defined
in Article 30) harmless from and against any and all loss, claims, liability
or costs (including court costs and attorney's fees) incurred by reason of
any actual or asserted failure of Tenant to fully comply with all applicable
Environmental Laws, or the presence, handling, use or disposition in or from
the Premises of any Hazardous Materials (even though permissible under all
applicable Environmental Laws or the provisions of this Lease), or by reason
of any actual or asserted failure of Tenant to keep, observe, or perform any
provision of this Section 1.2.
2. TERM
2.1 The Term of this Lease shall begin on the date ("Commencement
Date") which shall be the later of the Scheduled Commencement Date as shown
on the Reference Page and the date that Landlord shall tender possession of
the Premises to Tenant. Landlord shall tender possession of the Premises
with all the work, if any, to be performed by Landlord pursuant to Exhibit B
to this Lease substantially completed. Tenant shall deliver a punch list of
items not completed within 30 days after Landlord tenders possession of the
Premises and Landlord agrees to proceed with due diligence to perform its
obligations regarding such items. Landlord and Tenant shall execute a
memorandum setting forth the actual Commencement Date and Termination Date.
2.2 Tenant agrees that in the event of the inability of Landlord to
deliver possession of the Premises on the Scheduled Commencement Date,
Landlord shall not be liable for any damage resulting from such inability,
but Tenant shall not be liable for any rent until the time when Landlord can,
after notice to Tenant, deliver possession of the Premises to Tenant. No
such failure to give possession on the Scheduled Commencement Date shall
affect the other obligations of Tenant under this Lease, except that if
Landlord is unable to deliver possession of the Premises within one hundred
twenty (120) days of the Scheduled Commencement Date (other than as a result
of strikes, shortages of materials or similar matters beyond the reasonable
control of Landlord and Tenant is notified by Landlord in writing as to such
delay), Tenant shall have the option to terminate this Lease unless said
delay is as a result of: (a) Tenant's failure to agree to plans and
specifications; (b) Tenant's request for materials, finishes or
1
<PAGE>
installations other than Landlord's standard except those, if any, that
Landlord shall have expressly agreed to furnish without extension of time
agreed by Landlord; (c) Tenant's change in any plans or specifications; or,
(d) performance or completion by a party employed by Tenant. If any delay is
the result of any of the foregoing, the Commencement Date and the payment
of rent under this Lease shall be accelerated by the number of days of such
delay.
2.3 In the event Landlord shall permit Tenant to occupy the Premises
prior to the Commencement Date, such occupancy shall be subject to all the
provisions of this Lease. Said early possession shall not advance the
Termination Date.
3. RENT.
3.1 Tenant agrees to pay to Landlord the Annual Rent in effect from time
to time by paying the Monthly Installment of Rent then in effect on or before
the first day of each full calendar month during the Term, except that the
first month's rent shall be paid upon the execution of this Lease. The
Monthly Installment of Rent in effect at any time shall be one-twelfth of
the Annual Rent in effect at such time. Rent for any period during the Term
which is less than a full month shall be a prorated portion of the Monthly
Installment of Rent based upon a thirty (30) day month. Said rent shall be
paid to Landlord, without deduction or offset and without notice or demand,
at the Landlord's address, as set forth on the Reference Page, or to such
other person or at such other place as Landlord may from time to time
designate in writing.
3.2 Tenant recognizes that late payment of any rent or other sum due
under this Lease will result in administrative expense to Landlord, the
extent of which additional expense is extremely difficult and economically
impractical to ascertain. Tenant therefore agrees that if rent or any other
sum is not paid within ten (10) days of when due and payable pursuant to this
Lease, a late charge shall be imposed in an amount equal to the greater of:
(a) Fifty Dollars ($50.00), or (b) a sum equal to five percent (5%) per month
of the unpaid rent or other payment. The amount of the late charge to be
paid by Tenant shall be reassessed and added to Tenant's obligation for each
successive monthly period until paid. The provisions of this Section 3.2 in
no way relieve Tenant of the obligation to pay rent or other payments on or
before the date on which they are due, nor do the terms of this Section 3.2
in any way affect Landlord's remedies pursuant to Article 19 of this Lease in
the event said rent or other payment in unpaid after date due.
4. RENT ADJUSTMENTS.
4.1 For the purpose of this Article 4, the following terms are defined
as follows:
4.1.1 Lease Year: Each calendar year falling partly or wholly
within the Term.
4.1.2 Direct Expenses: All direct costs of operation, maintenance,
repair and management of the Building (including the amount of any credits
which Landlord may grant to particular tenants of the Building in lieu of
providing any standard services or paying any standard costs described in
this Section 4.1.2 for similar tenants), as determined in accordance with
generally accepted accounting principles, including the following costs by
way of illustration, but not limitation: water and sewer charges; insurance
charges of or relating to all insurance policies and endorsements deemed by
Landlord to be reasonably necessary or desirable and relating in any manner
to the protection, preservation, or operation of the Building or any part
thereof; utility costs, including, but not limited to, the cost of heat,
light, power, steam, gas, and waste disposal; the cost of janitorial
services; the cost of security and alarm services; window cleaning costs;
labor costs; costs and expenses of managing the Building including management
fees; air conditioning maintenance costs; elevator maintenance fees and
supplies; material costs; equipment costs including the cost of maintenance,
repair and service agreements and rental and leasing costs; purchase costs of
equipment other than capital items; current rental and leasing costs of items
which would be amortizable capital items if purchased; tool costs; licenses,
permits and inspection fees; wages and salaries; employee benefits and
payroll taxes; accounting and legal fees; any sales, use or service taxes
incurred in connection therewith. Direct Expenses shall not include
depreciation or amortization of the Building or equipment in the Building
except as provided herein, loan principal payments, costs of alterations of
tenants, premises, leasing costs (including accounting and legal) and
commissions, capital items except as provided in (i), interest expenses on
long-term borrowings, advertising costs or management salaries for executive
personnel other than personnel located at the Building. In addition, Landlord
shall be entitled to amortize and include as an additional rental adjustment:
(i) an allocable portion of the cost of capital improvement items which are
reasonably calculated to reduce operating expenses; (ii) fire sprinklers and
suppression systems and other life safety systems; and (iii) other capital
expenses which are required under any governmental laws, regulations or
ordinances which were not applicable to the Building at the time it was
constructed. All such costs shall be amortized over the reasonable life of
such improvements in accordance with such reasonable life and amortization
schedules as shall be determined by Landlord in accordance with generally
accepted accounting principles, with interest on the unamortized amount at
2.
<PAGE>
one percent (1%) in excess of the prime lending rate announced from time to
time as such by The Northern Trust Company of Chicago, Illinois.
4.1.3 Taxes: Real estate taxes and any other taxes, charges and
assessments which are levied with respect to the Building or the land
appurtenant to the Building, or with respect to any improvements, fixtures
and equipment or other property of Landlord, real or personal, located in the
Building and used in connection with the operation of the Building and said
land, any payments to any ground lessor in reimbursement of tax payments made
by such lessor; and all fees, expenses and costs incurred by Landlord in
investigating, protesting, contesting or in any way seeking to reduce or
avoid increase in any assessments, levies or the tax rate pertaining to any
Taxes to be paid by Landlord in any Lease Year. Taxes shall not include any
corporate franchise, or estate, inheritance or net income tax, or tax imposed
upon any transfer by Landlord of its interest in this Lease or the Building.
4.2 If in any Lease Year, (i) Direct Expenses paid or incurred shall
exceed Direct Expenses paid or incurred in the Base Year (Direct Expenses)
and/or (ii) Taxes paid or incurred by Landlord in any Lease Year shall exceed
the amount of such Taxes which became due and payable in the Base Year
(Taxes), Tenant shall pay as additional rent for such Lease Year Tenant's
Proportionate Share of such excess.
4.3 The annual determination of Direct Expenses shall be made by
Landlord and if certified by a nationally recognized firm of public
accountants selected by Landlord shall be binding upon Landlord and Tenant.
Tenant may review the books and records supporting such determination in the
office of Landlord, or Landlord's agent, during normal business hours, upon
giving Landlord five (5) days advance written notice within sixty (60) days
after receipt of such determination, but in no event more often than once in
any one year period. In the event that during all or any portion of any
Lease Year, the Building is not fully rented and occupied Landlord may make
any appropriate adjustment in occupancy-related Direct Expenses for such year
for the purpose of avoiding distortion of the amount of such Direct Expenses
to be attributed to Tenant by reason of variation in total occupancy of the
Building, by employing sound accounting and management principles to
determine Direct Expenses that would have been paid or incurred by Landlord
had the Building been fully rented and occupied, and the amount so determined
shall be deemed to have been Direct Expenses for such Lease Year.
4.4 Prior to the actual determination thereof for a Lease Year, Landlord
may from time to time estimate Tenant's liability for Direct Expenses and/or
Taxes under Section 4.2, Article 6 and Article 28 for the Lease Year or
portion thereof. Landlord will give Tenant written notification of the
amount of such estimate and Tenant agrees that it will pay, by increase of
its Monthly Installments of Rent due in such Lease Year, additional rent in
the amount of such estimate. Any such increased rate of Monthly Installments
of Rent pursuant to this Section 4.4 shall remain in effect until further
written notification to Tenant pursuant hereto.
4.5 When the above mentioned actual determination of Tenant's liability
for Direct Expenses and/or Taxes is made for any Lease Year and when Tenant
is so notified in writing, then:
4.5.1 If the total additional rent Tenant actually paid pursuant to
Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is
less than Tenant's liability for Direct Expenses and/or Taxes, then Tenant
shall pay such deficiency to Landlord as additional rent in one lump sum
within thirty (30) days of receipt of Landlord's bill therefor; and
4.5.2 If the total additional rent Tenant actually paid pursuant to
Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is
more than Tenant's liability for Direct Expenses and/or Taxes, then Landlord
shall credit the difference against the then next due payments to be made by
Tenant under this Lease. Tenant shall not be entitled to a credit by reason
of actual Direct Expenses and/or Taxes in any Lease Year being less than
Direct Expenses and/or Taxes in the Base Year (Direct Expenses and/or Taxes).
4.6 If the Commencement Date is other than January 1 or if the
Termination Date is other than December 31, Tenant's liability for Direct
Expenses and Taxes for the Lease Year in which said Date occurs shall be
prorated based upon a three hundred sixty-five (365) day year.
5. SECURITY DEPOSIT.
Tenant shall deposit the Security Deposit with Landlord upon the execution of
this Lease. Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this
Lease to be kept and performed by Tenant and not as an advance rental deposit
or as a measure of Landlord's damage in case of Tenant's default. If Tenant
defaults with respect to any provision of this Lease, Landlord may use any
part of the Security Deposit for the payment of any rent or any other sum in
default, or for the payment of any amount which Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default. If
3
<PAGE>
any portion is so used, Tenant shall within five (5) days after written
demand therefor, deposit with Landlord an amount sufficient to restore the
Security Deposit to its original amount and Tenant's failure to do so shall
be a material breach of this Lease. Except to such extent, if any, as shall
be required by law, Landlord shall not be required to keep the Security
Deposit separate from its general funds, and Tenant shall not be entitled to
interest on such deposit. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant at such time after termination of
this Lease when Landlord shall have determined that all of Tenant's
obligations under this Lease have been fulfilled.
6. ALTERATIONS.
6.1 Except for those, if any, specifically provided for in Exhibit B to
this Lease, Tenant shall not make or suffer to be made any alterations,
additions, or improvements, including, but not limited to, the attachment of
any fixtures or equipment in, on, or to the Premises or any part thereof or
the making of any improvements as required by Article 7, without the prior
written consent of Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned. When applying for such consent, Tenant
shall, if requested by Landlord, furnish complete plans and specifications
for such alterations, additions and improvements, to the extent same are
available.
6.2 In the event Landlord consents to the making of any such
alteration, addition or improvement by Tenant, the same shall be made using
Landlord's contractor (unless Landlord agrees otherwise) at Tenant's sole
cost and expense. If Tenant shall employ any Contractor other than
Landlord's Contractor and such other Contractor or any Subcontractor of such
other Contractor shall employ any non-union labor or supplier, Tenant shall
be responsible for and hold Landlord harmless from any and all delays,
damages and extra costs suffered by Landlord as a result of any dispute with
any labor unions concerning the wage, hours, terms or conditions of the
employment of any such labor. In any event Landlord may charge Tenant a
reasonable charge to cover its overhead as it relates to such proposed
6.3 All alterations, additions or improvements proposed by Tenant shall
be constructed in accordance with all government laws, ordinances, rules and
regulations and Tenant shall, prior to construction, provide the additional
insurance required under Article 11 in such case, and also all such
assurances to Landlord, including but not limited to, waivers of lien, surety
company performance bonds and personal guaranties of individuals of substance
as Landlord shall reasonably require to assure payment of the costs thereof
and to protect Landlord and the Building and appurtenant land against any
loss from any mechanic's, materialmen's or other liens. Tenant shall pay in
addition to any sums due pursuant to Article 4, any increase in real estate
taxes attributable to any such alteration, addition or improvement for so
long, during the Term, as such increase is ascertainable; at Landlord's
election said sums shall be paid in the same way as sums due under Article 4.
6.4 All alterations, additions, and improvements in, on, or to the
Premises made or installed by Tenant, including carpeting, shall be and
remain the property of Tenant during the Term but, excepting furniture,
furnishings, movable partitions of less than full height from floor to
ceiling and other trade fixtures, shall become a part of the realty and belong
to Landlord without compensation to Tenant upon the expiration or sooner
termination of the Term, at which time title shall pass to Landlord under
this Lease as by a bill of sale, unless Landlord elects otherwise. Upon such
election by Landlord, Tenant shall upon demand by Landlord, at Tenant's sole
cost and expense, forthwith and with all due diligence remove any such
alterations, additions or improvements which are designated by Landlord to be
removed, and Tenant shall forthwith and with all due diligence, at its sole
cost and expense, repair and restore the Premises to their original
condition, reasonable wear and tear and damage by fire or other casualty
excepted.
7. REPAIR.
7.1 Landlord shall have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises, except as specified in Exhibit B if
attached to this Lease and except that Landlord shall repair and maintain the
structural portions of the Building, including the basic plumbing, air
conditioning, heating and electrical systems installed or furnished by
Landlord. By taking possession of the Premises, and subject to provisions
elsewhere in this Lease, Tenant accepts them as being in good order,
condition and repair and in the condition in which Landlord is obligated to
deliver them. It is hereby understood and agreed that no representations
respecting the condition of the Premises or the Building have been made by
Landlord to Tenant, except as specifically set forth in this Lease.
7.2 Tenant shall, at all times during the Term, keep the Premises in
good condition and repair excepting damage by fire, or other casualty, and
in compliance with all applicable governmental laws, ordinances and
regulations, promptly complying with all governmental orders and directives
for the correction, prevention and abatement of any violations or nuisances
in or upon, or connected with, the Premises, all at Tenant's sole expense.
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7.3 Landlord shall not be liable for any failure to make any repairs or
to perform any maintenance unless such failure shall persist for an
unreasonable time after written (except for emergency) notice of the need or
such repairs or maintenance is given to Landlord by Tenant.
7.4 Except as provided in Article 22, and 17.1 there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the
Premises or to fixtures, appurtenances and equipment in the Building. Except
to the extent, if any, prohibited by law, Tenant waives the right to make
repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect.
7.5 Tenant hereby waives and releases its right to make repairs at
Landlord's expense under Section 1941 and 1942 of the California Civil Code
and its right to terminate the Lease under Section 1932(1) of the California
Civil Code or under any similar law, statute or ordinance now or hereafter in
effect.
8. LIENS.
Tenant shall keep the Premises, the Building and appurtenant land and
Tenant's leasehold interest in the Premises free from any liens arising out
of any services, work or materials performed, furnished, or contracted for by
Tenant, or obligations incurred by Tenant. In the event that Tenant shall
not, within ten business days (10) days following the imposition of any such
lien, either cause the same to be released of record or provide Landlord
with insurance against the same issued by a major title insurance company or
such other protection against the same as Landlord shall accept, Landlord
shall have the right to cause the same to be released by such means as it
shall deem proper, including payment of the claim giving rise to such lien.
All such sums paid by Landlord and all expenses incurred by it in connection
therewith shall be considered additional rent and shall be payable to it by
Tenant on demand. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or that
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Building, and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give to Landlord at least five
business days' prior notice of commencement of any construction on the
Premises.
9. ASSIGNMENT AND SUBLETTING.
9.1 Except as provided in 9.7, Tenant shall not have the right to
assign or pledge this Lease or to sublet the whole or any part of the
Premises whether voluntarily or by operation of law, or permit the use or
occupancy of the Premises by anyone other than Tenant, and shall not make,
suffer or permit such assignment, subleasing or occupancy without the prior
written consent of Landlord, and said restrictions shall be binding upon any
and all assignees of the Lease and subtenants of the Premises. In the event
Tenant desires to sublet, or permit such occupancy of, the Premises, or any
portion thereof, or assign this Lease, Tenant shall give written notice
thereof to Landlord at least sixty (60) days but no more than one hundred
eighty (180) days prior to the proposed commencement date of such subletting
or assignment, which notice shall set forth the name of the proposed
subtenant or assignee, the relevant terms of any sublease or assignment and
copies of financial reports and other relevant financial reports and other
relevant financial information of the proposed subtenant or assignee.
9.2 Notwithstanding any assignment or subletting, permitted or
otherwise, Tenant shall at all times remain directly, primarily and fully
responsible and liable for the payment of the rent specified in this Lease
and for compliance with all of its other obligations under the terms,
provisions and covenants of this Lease. Upon the occurrence of an Event of
Default, if the Premises or any part of them are then assigned or sublet,
Landlord, in addition to any other remedies provided in this Lease or
provided by law, may, at its option, collect directly from such assignee or
subtenant all rents due and becoming due to Tenant under such assignment or
sublease and apply such rent against any sums due to Landlord from Tenant
under this Lease, and no such collection shall be construed to constitute a
novation or release of Tenant from the further performance of Tenant's
obligations under this Lease.
9.3 In addition to Landlord's right to approve of any subtenant or
assignee, Landlord shall have the option, in its sole discretion, in the
event of any proposed subletting or assignment, to terminate this Lease, or
in the case of a proposed subletting of less than the entire Premises, to
recapture the portion of the Premises to be sublet, as of the date the
subletting or assignment is to be effective. The option shall be exercised,
if at all, by Landlord giving Tenant written notice given by Landlord to
Tenant within thirty (30) days following Landlord's receipt of Tenant's
written notice as required above. If this lease shall be terminated with
respect to the entire Premises pursuant to this Section, the Term of this
Lease shall end on the date stated in Tenant's notice as the effective date
of the sublease or assignment as if that date had been originally fixed in
this Lease for the expiration of the Term. If Landlord recaptures under this
Section only a portion of the Premises, the rent to be paid from time to time
during the unexpired Term shall abate proportionately based on the proportion
by which the approximate square footage of the remaining portion of the
Premises shall be less than that of the Premises as of the date immediately
prior to such recapture. Tenant shall, at Tenant's own cost and expense,
discharge in full any outstanding commission obligation
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on the part of Landlord with respect to this Lease, and any commissions
which may be due and owing as a result of any proposed assignment or
subletting, whether or not the Premises are recaptured pursuant to this
Section 9.3 and rented by Landlord to the proposed tenant or any other tenant.
9.4 In the event that Tenant sells, sublets, assigns or transfers this
Lease, Tenant shall pay to Landlord as additional rent an amount equal to
fifty percent (50%) of any Increased Rent (as defined below) when and as such
Increased Rent is received by Tenant. As used in this Section, "Increased
Rent" shall mean the excess of (i) all rent and other consideration which
Tenant is entitled to receive by reason of any sale, sublease, assignment or
other transfer of this Lease, over (ii) the rent otherwise payable by Tenant
under this Lease at such time. For purposes of the foregoing, any
consideration received by Tenant in form other than cash shall be valued at
its fair market value as determined by Landlord in good faith.
9.5 Notwithstanding any other provision hereof, Tenant shall have no
right to make (and Landlord shall have the absolute right to refuse consent
to) any assignment of this Lease or sublease of any portion of the Premises
if at the time of either Tenant's notice of the proposed assignment or
sublease or the proposed commencement date thereof, there shall exist any
uncured default of Tenant or matter which will become a default of Tenant
*(unless such default is cured prior to assignment or sublease commencement
date) with passage of time unless cured, or if the proposed assignee or
sublessee is an entity; (a) with which Landlord is already in negotiation as
evidenced by the issuance of a written proposal; (b) is already an occupant
of the Building unless Landlord is unable to provide the amount of space
required by such occupant; (c) is a governmental agency; (d) is incompatible
with the character of occupancy of the Building; or (e) would subject the
Premises to a use which would: (i) involve increased personnel or wear upon
the Building; (ii) violate any exclusive right granted to another tenant of
the Building; (iii) require any addition to or modification of the Premises
or the Building in order to comply with building code or other governmental
requirements; or, (iv) involve a violation of Section 1.2. Tenant expressly
agrees that Landlord shall have the absolute right to refuse consent to any
such assignment or sublease and that for the purposes of any statutory or
other requirement of reasonableness on the part of Landlord such refusal
shall be reasonable.
9.6 Upon any request to assign or sublet, Tenant will pay to Landlord
the Assignment/Subletting Fee plus, on demand, a sum equal to all of
Landlord's costs, including reasonable attorney's fees, incurred in
investigating and considering any proposed or purported assignment or pledge
of this Lease or sublease of any of the Premises, regardless of whether
Landlord shall consent to, refuse consent, or determine that Landlord's
consent is not required for, such assignment, pledge or sublease. Any
purported sale, assignment, mortgage, transfer of this Lease or subletting
which does not comply with the provisions of this Article 9 shall be void.
9.7 Not withstanding anything contained in this lease to the contrary,
if Tenant is a corporation, partnership or trust, the first transfer or
change within the initial term of this Lease in the number or ownership of
the outstanding voting shares of the corporation, the general partnership
interests in the partnership or the identity of the persons or entities
controlling the activities of such partnership or trust resulting in the
persons or entities owning or controlling a majority of such shares,
partnership interests or activities of such partnership or trust at the
beginning of such period no longer having such ownership or control shall be
regarded as equivalent to an assignment of this Lease to the persons or
entities acquiring such ownership or control and shall not be subject to all
the provisions of this Article 9 to the same extent and for all intents and
purposes as though such an assignment except, Tenant shall notify Landlord in
writing of said changes, such as becoming a publicly traded corporation. A
mortgage on Tenant's personal property shall not be deemed an assignment
hereunder.
10. INDEMNIFICATION.
None of the Landlord Entities shall be liable and Tenant hereby waives all
claims against them for any damage to any property or any injury to any
person in or about the Premises or the Building by or from any cause
whatsoever (including without limiting the foregoing, rain or water leakage
of any character from the roof, windows, walls, basement, pipes, plumbing
works or appliances, the Building not being in good condition or repair, gas,
fire, oil, electricity or theft), except to the extent caused by or arising
from the gross negligence or willful misconduct of Landlord or its agents,
employees or contractors. Tenant shall protect, indemnify and hold the
Landlord Entities harmless from and against any and all loss, claims,
liability or costs (including court costs and attorney's fees) incurred by
reason of (a) any damage to any property (including but not limited to
property of any Landlord Entity) or any injury (including but not limited to
death) to any person occurring in, on or about the Premises or the Building
to the extent that such injury or damage shall be caused by or arise from any
actual or alleged act, neglect, fault, or omission by or of Tenant, its
agents, servants, employees, invitees, or visitors to meet any standards
imposed by any duty with respect to the injury or damage; (b) the conduct or
management of any work or thing whatsoever done by the Tenant in or about the
Premises or from transactions of the Tenant concerning the Premises; (c)
Tenant's failure to comply with any and all governmental laws, ordinances and
regulations applicable to the condition or use of the Premises or its
occupancy; or (d) any breach or default on the part of Tenant in the
performance of any covenant or agreement on the part of the Tenant to be
performed pursuant to this Lease. The
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provisions of this Article shall survive the termination of this Lease with
respect to any claims or liability accruing prior to such termination.
11. INSURANCE.
11.1 Tenant shall keep in force throughout the Term: (a) a Commercial
General Liability insurance policy or policies to protect the Landlord
Entities against any liability to the public or to any invitee of Tenant or a
Landlord Entity incidental to the use of or resulting from any accident
occurring in or upon the Premises with a limit of not less than $1,000,000.00
per occurrence and not less than $2,000,000.00 in the annual aggregate, or
such larger amount as Landlord may prudently require from time to time,
covering bodily injury and property damage liability and $1,000,000
products/completed operations aggregate; (b) Business Auto Liability covering
owned, non-owned and hired vehicles with a limit of not less than
$1,000,000 per accident; (c) insurance protecting against liability under
Worker's Compensation Laws with limits at least as required by statute; (d)
Employers Liability with limits of $500,000 each accident, $500,000 disease
policy limit, $500,000 disease--each employee; (e) All Risk or Special Form
coverage protecting Tenant against loss of or damage to Tenant's alterations,
additions, improvements, carpeting, floor coverings, panelings, decorations,
fixtures, inventory and other business personal property situated in or about
the Premises to the full replacement value of the property so insured; and,
(f) Business Interruption Insurance with limit of liability representing loss
of at least approximately six months of income.
11.2 Each of the aforesaid policies shall (a) be provided at Tenant's
expense; (b) name the Landlord and the building management company, if any,
as additional insureds; (c) be issued by an insurance company with a minimum
Best's rating of "A;VII" during the Term; and (d) provide that said
insurance shall not be cancelled unless thirty (30) days prior written notice
(ten days for non-payment of premium) shall have been given to Landlord; and
said policy or policies or certificates thereof shall be delivered to
Landlord by Tenant upon the Commencement Date and at least thirty (30) days
prior to each renewal of said insurance.
11.3 Whenever Tenant shall undertake any alterations, additions or
improvements in, to or about the Premises ("Work") the aforesaid insurance
protection must extend to and include injuries to persons and damage to
property arising in connection with such Work, without limitation including
liability under any applicable structural work act, and such other insurance
as Landlord shall require; and the policies of or certificates evidencing
such insurance must be delivered to Landlord prior to the commencement of any
such Work.
12. WAIVER OF SUBROGATION.
So long as their respective insurers so permit, Tenant and Landlord hereby
mutually waive their respective rights of recovery against each other for any
loss insured by fire, extended coverage, all risks or other insurance now or
hereafter existing for the benefit of the respective party but only to the
extent of the net insurance proceeds payable under such policies. Each party
shall obtain any special endorsements required by their insurer to evidence
compliance with the aforementioned waiver.
13. SERVICES AND UTILITIES.
13.1 Provided Tenant shall not be in default (after notice and the
expiration of applicable cure periods) under this Lease, and subject to the
other provisions of this Lease, Landlord agrees to furnish to the Premises
during ordinary business hours on generally recognized business days (but
exclusive in any event of Sundays and legal holidays), the following services
and utilities subject to the rules and regulations of the Building prescribed
from time to time: (a) water suitable for normal office use of the Premises;
(b) heat and air conditioning required in Landlord's judgment for the use and
occupation of the Premises; (c) cleaning and janitorial service; (d) elevator
service by nonattended automatic elevators; (e) such window washing as may
from time to time in Landlord's judgment be reasonably required; and, (f)
equipment to bring to Tenant's meter, electricity for lighting, convenience
outlets and other normal office use. To the extent that Tenant is not billed
directly by a public utility, Tenant shall pay, upon demand, as additional
rent, for Tenant's pro-rata share of the master metered electricity used. The
charge shall be at the rates charged for such services by the local public
utility. Landlord shall not be liable for, and Tenant shall not be entitled
to, any abatement or reduction of rental by reason of Landlord's failure to
furnish any of the foregoing, unless such failure shall persist for an
unreasonable time after written notice of such failure is given to Landlord
by Tenant and provided further that Landlord shall not be liable when such
failure is caused by accident, breakage, repairs, labor disputes of any
character, energy usage restrictions or by any other cause, similar or
dissimilar, beyond the reasonable control of Landlord. Landlord shall use
reasonable efforts to remedy any interruption in the furnishing of services
and utilities.
13.2 Should Tenant require any additional work or service, as described
above, including services furnished outside ordinary business hours specified
above, Landlord may, on terms to be agreed, upon reasonable advance notice by
Tenant, furnish such additional service and Tenant agrees to pay Landlord
such charges as may
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be agreed upon, including any tax imposed thereon, but in no event at a
charge less than Landlord's actual cost plus overhead for such additional
service and, where appropriate, a reasonable allowance for depreciation of
any systems being used to provide such service.
13.3 Wherever heat-generating machines or equipment are used by Tenant
in the Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in or for the benefit of the Premises and the cost
thereof, including the cost of installation and the cost of operations and
maintenance, shall be paid by Tenant to Landlord upon demand as such
additional rent.
13.4 Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises, including but not limited to, electronic
data processing machines and machines using current in excess of 200 watts or
110 volts, which will in any way increase the amount of electricity or water
usually furnished or supplied for use of the Premises for normal office use,
nor connect with electric current, except through existing electrical outlets
in the Premises, or water pipes, any apparatus or device for the purposes of
using electrical current or water. If Tenant shall require water or electric
current in excess of that usually furnished or supplied for use of the
Premises as normal office use, Tenant shall procure the prior written consent
of Landlord for the use thereof, which Landlord may refuse, and if Landlord
does consent, Landlord may cause a water meter or electric current meter to
be installed so as to measure the amount of such excess water and electric
current. The cost of any such meters shall be paid for by Tenant. Tenant
agrees to pay as additional rent to Landlord promptly upon demand therefor,
the cost of all such excess water and electric current consumed (as shown by
said meters, if any, or, if none, as reasonably estimated by Landlord) at the
rates charged for such services by the local public utility or agency, as the
case may be, furnishing the same, plus any additional expense incurred in
keeping account of the water and electric current so consumed.
14. HOLDING OVER.
Tenant shall pay Landlord for each day Tenant retains possession of the
Premises or part of them after termination of this Lease by lapse of time or
otherwise at the rate ("Holdover Rate") which shall be 150% of the greater
of: (a) the amount of the Annual Rent for the last period prior to the date
of such termination plus all Rent Adjustments under Article 4; and, (b) the
then market rental value of the Premises as determined by Landlord assuming a
new lease of the Premises of the then usual duration and other terms, in
either case prorated on a daily basis, and also pay all damages sustained by
Landlord by reason of such retention. If Landlord gives notice to Tenant of
Landlord's election to that effect, such holding over shall constitute
renewal of this Lease for a period from month to month or one year, whichever
shall be specified in such notice, in either case at the Holdover Rate, but
if the Landlord does not so elect, no such renewal shall result
notwithstanding acceptance by Landlord of any sums due hereunder after such
termination; and instead, a tenancy at sufferance at the Holdover Rate shall
be deemed to have been created. In any event, no provision of this Article 14
shall be deemed to waive Landlord's right of reentry or any other right under
this Lease or at law.
15. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be subject and
subordinate at all times to ground or underlying leases and to the lien of
any mortgages or deeds of trust now or hereafter placed on, against or
affecting the Building, Landlord's interest or estate in the Building, or any
ground or underlying lease; provided, however, that if the lessor, mortgagee,
trustee, or holder of any such mortgage or deed of trust elects to have
Tenant's interest in this Lease be superior to any such instrument, then, by
notice to Tenant, this Lease shall be deemed superior, whether this Lease was
executed before or after said instrument. Notwithstanding the foregoing,
Tenant covenants and agrees to execute and deliver upon demand such further
instruments evidencing such subordination or superiority of this Lease as may
be required by Landlord. Further notwithstanding, Landlord represents it will
use its best efforts to assure no such subordination shall result in a
termination of this Lease.
16. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with all the rules and regulations
as set forth in Exhibit C to this Lease and all reasonable modifications of
and additions to them from time to time put into effect by Landlord. Landlord
shall not be responsible to Tenant for the non-performance by any other
tenant or occupant of the Building of any such rules and regulations.
17. REENTRY BY LANDLORD.
17.1 Landlord reserves and shall at all times have the right to
re-enter the Premises to inspect the same, to supply janitor service and any
other service to be provided by Landlord to Tenant under this Lease, to show
said
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Premises to prospective purchasers, mortgagees or tenants, and to alter,
improve or repair the Premises and any portion of the Building, without
abatement of rent, except Landlord shall abate rent according to its own
discretion for extensive repairs not requested by Tenant that cause a
considerable portion of the premises to not be used by Tenant, and may for
that purpose erect, use and maintain scaffolding, pipes, conduits and other
necessary structures and open any wall, ceiling or floor in and through the
Building and Premises where reasonably required by the character of the work
to be performed, provided entrance to the Premises shall not be blocked
thereby, and further provided that the business of Tenant shall not be
interfered with unreasonably.
17.2 Landlord shall have the right at any time to change the
arrangement and/or locations of entrances, or passageways, doors and
doorways, and corridors, windows, elevators, stairs, toilets or other public
parts of the Building and to change the name, number, or designation by which
the Building is commonly known. In the event that Landlord damages any
portion of any wall or wall covering, ceiling, or floor or floor covering
within the Premises, Landlord shall repair or replace the damaged portion to
match the original as nearly as commercially reasonable but shall not be
required to repair or replace more than the portion actually damaged.
17.3 Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
by any action of Landlord authorized by this Article 17. Tenant agrees to
reimburse Landlord, on demand, as additional rent, for any expenses which
Landlord may incur in thus effecting compliance with Tenant's obligations
under this Lease.
17.4 For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all of the doors in the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency to obtain entry
to any portion of the Premises. As to any portion to which access cannot be
had by means of a key or keys in Landlord's possession, Landlord is
authorized to gain access by such means as Landlord shall elect and the cost
of repairing any damage occurring in doing so shall be borne by Tenant and
paid to Landlord as additional rent upon demand.
18. DEFAULT
18.1 Except as otherwise provided in Article 20, the following events
shall be deemed to be Events of Default under this Lease:
18.1.1 Tenant shall fail to pay when due any sum of money becoming
due to be paid to Landlord under this Lease, whether such sum be any
installment of the rent reserved by this Lease, any other amount treated as
additional rent under this Lease, or any other payment or reimbursement to
Landlord required by this Lease, whether or not treated as additional rent
under this Lease, and such failure shall continue for a period of five days
after written notice from Landlord after ten (10) day grace period of 3.2
that such payment was not made when due, but if any such notice shall be
given, for the twelve month period commencing with the date of such notice,
the failure to pay within five days after due any additional sum of money
becoming due to be paid to Landlord under this Lease during such period shall
be an Event of Default, without notice.
18.1.2 Tenant shall fail to comply with any term, provision or
covenant of this Lease which is not provided for in another Section of this
Article and shall not cure such failure within twenty (20) days extensions of
cure period subject to Landlord's reasonable consent (forthwith, if the
failure involves a hazardous condition) after written notice of such failure
to Tenant.
18.1.3 Tenant shall fail to vacate the Premises immediately upon
termination of this Lease, by lapse of time or otherwise, or upon termination
of Tenant's right to possession only.
18.1.4 Tenant shall become insolvent, admit in writing its
inability to pay its debts generally as they become due, file a petition in
bankruptcy or a petition to take advantage of any insolvency statute, make an
assignment for the benefit of creditors, make a transfer in fraud of
creditors, apply for or consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property, or file a petition or
answer seeking reorganization or arrangement under the federal bankruptcy
laws, as now in effect or hereafter amended, or any other applicable law or
statute of the United States or any state thereof.
18.1.5 A court of competent jurisdiction shall enter an order,
judgment or decree adjudication Tenant bankrupt, or appointing a receiver of
Tenant, or of the whole or any substantial part of its property, without the
consent of Tenant, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the bankruptcy laws of the
United States, as now in effect or hereafter amended, or any state thereof,
and such order, judgment or decree shall not be vacated or set aside or
stayed within thirty (30) days from the date of entry thereof.
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19. REMEDIES.
19.1 Upon the occurrence of any of such events of default described in
Article 18.1 or elsewhere in this Lease, Landlord shall have the following
rights and remedies in addition to all other rights or remedies available to
Landlord in law or equity:
19.1.1 The rights and remedies provided by California Civil Code
Section 1951.2, including, but not limited to, the right to terminate
Tenant's right to possession of the Premises and to recover 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 rental loss for the same
period that the Tenant proves could be reasonably avoided, as computed
pursuant to subsection (b) of said Section 1951.2;
19.1.2 The rights and remedies provided by California Civil Code
Section 1951.4, that allows Landlord to continue this Lease in effect and to
enforce all of its rights and remedies under this Lease, including the right
to recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession; provided, however, if Landlord elects to
exercise its remedies described in this subsection and Landlord does not
terminate this Lease, and if Tenant requests Landlord's consent to an
assignment of this Lease or a sublease of the Premises at such time as Tenant
is in default, Landlord shall not unreasonably withhold its consent to such
assignment or sublease. Acts of maintenance or preservation, efforts to relet
the Premises or the appointment of a receiver upon Landlord's initiative to
protect its interest under this Lease shall not constitute a termination of
Tenant's right to possession;
19.1.3 The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law;
19.1.4 The right and power, as attorney-in-fact for Tenant, to
enter the Premises and remove therefrom all persons and property, to store
such property in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and to sell such property and apply the proceeds therefrom
pursuant to applicable California law. Landlord, as attorney-in-fact for
Tenant, may from time to time sublet the Premises or any part thereof for such
term or terms (which may extend beyond the Term) and at such rent and such
other terms as Landlord in its sole discretion may deem advisable, with the
right to make alterations and repairs to the Premises. Upon each such
subletting, (i) Tenant shall be immediately liable for payment to Landlord
of, in addition to indebtedness other than rent due hereunder, the cost of
such subletting and such alterations and repairs incurred by Landlord and the
amount, if any, by which the rent for the period of such subletting (to the
extent such period does not exceed the Term) exceeds the amount to be paid as
rent for the Premises for such period, or (ii) at the option of Landlord,
rents received from such subletting shall be applied, first, to payment of
any indebtedness other than rent due hereunder from Tenant to Landlord;
second, to the payment of any costs of such subletting and of such
alterations and repairs; third, to payment of rent due and unpaid hereunder;
and the residue, if any shall be held by Landlord and applied in payment of
future rent as the same become due hereunder. If Tenant has been credited
with any rent to be received by such subletting under clause (i) and such rent
shall not be promptly paid to Landlord by the subtenant(s), or if such
rentals received from such subletting under clause (ii) during any month are
less than those to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. For all purposes set forth in this subparagraph,
Landlord is hereby irrevocably appointed attorney-in-fact for Tenant, with
power of substitution. No taking of possession of the Premises by Landlord,
as attorney-in-fact for Tenant, with power of substitution. No taking of
possession of the Premises by Landlord, as attorney-in-fact for Tenant, shall
be construed as an election on its part to terminate this Lease unless a
written notice of such intention is given to Tenant. Notwithstanding any such
subletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach; and
19.1.5 The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord as attorney-in-fact for Tenant pursuant to
subparagraph 19.1.4.
19.1.6 For purposes of this Article 19: "worth at the time of
award" shall be computed by allowing interest at a per annum rate of ten
percent and rent with respect to each month shall be deemed to be a monthly
rental arrived at by adding (i) one twelfth of the Annual Rent, plus (ii) an
amount equal to the monthly average of all the percentage rental received by
or payable to Landlord during the period that Tenant was conducting Tenant's
business in the Premises in the manner and to the extent required by this
Lease, plus (iii) one twelfth of any items of additional rent paid or payable
by Tenant hereunder during the 12 consecutive month period prior to the month
in which Tenant's default occurs or one twelfth of the annualized amount of
the additional rent paid or payable and the last day of the calendar month
prior to the month in which such default occurs, if such default occurs
during the first 12 calendar months of the Term).
19.2 If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this Lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
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<PAGE>
concerning or to enforce or defend any of Landlord's rights or remedies
arising under this Lease, Tenant agrees to pay all Landlord's reasonable
attorney's fees so incurred. Tenant expressly waives any right to: (a) trial
by jury; and (b) service of any notice required by any present or future law
or ordinance applicable to landlords or tenants but not required by the terms
of this Lease.
19.3 Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies provided in this Lease or any other
remedies provided by law (all such remedies being cumulative), nor shall
pursuit of any remedy provided in this Lease constitute a forfeiture or
waiver of any rent due to Landlord under this Lease or of any damages
accruing to Landlord by reason of the violation of any of the terms,
provisions and covenants contained in this Lease.
19.4 No act or thing done by Landlord or its agents during the Term
shall be deemed a termination of this Lease or an acceptance of the surrender
of the Premises, and no agreement to terminate this Lease or accept a
surrender of said Premises shall be valid, unless in writing signed by
Landlord. No waiver by Landlord of any violation or breach of any of the
terms, provisions and covenants contained in this Lease shall be deemed or
construed to constitute a waiver of any other violation or breach of any of
the terms, provisions and covenants contained in this Lease. Landlord's
acceptance of the payment of rental or other payments after the occurrence of
an Event of Default shall not be construed as a waiver of such Default,
unless Landlord so notifies Tenant in writing. Forbearance by Landlord in
enforcing one or more of the remedies provided in this Lease upon an Event of
Default shall not be deemed or construed to constitute a waiver of such
Default or of Landlord's right to enforce any such remedies with respect to
such Default or any subsequent Default.
19.5 To secure the payment of all rentals and other sums of money
becoming due from Tenant under this Lease, all goods, wares, equipment,
fixtures, furniture, inventory, accounts, contract rights, chattel paper and
other personal property of Tenant situated on the Premises, and such property
shall not be removed therefrom without the consent of Landlord until all
arrearages in rent as well as any and all other sums of money then due to
Landlord under this Lease shall first have been paid and discharged.
20. TENANT'S BANKRUPTCY OR INSOLVENCY.
20.1 If at any time and for so long as Tenant shall be subject to the
provisions of the United States Bankruptcy Code or other law of the United
States or any state thereof for the protection of debtors as in effect at
such time (each a "Debtor's Law"):
20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or
receiver of Tenant's assets (each a "Tenant's Representative") shall have no
greater right to assume or assign this Lease or any interest in this Lease,
or to sublease any of the Premises than accorded to Tenant in Article 9,
except to the extent Landlord shall be required to permit such assumption,
assignment or sublease by the provisions of such Debtor's Law. Without
limitation of the generality of the foregoing, any right of any Tenant's
Representative to assume or assign this Lease or to sublease any of the
Premises shall be subject to the conditions that:
20.1.1.1 Such Debtor's Law shall provide to Tenant's
Representative a right of assumption of this Lease which Tenant's
Representative shall have timely exercised and Tenant's Representative shall
have fully cured any default of Tenant under this Lease.
20.1.1.2 Tenant's Representative or the proposed assignee, as
the case shall be, shall have deposited with Landlord as security for the
timely payment of rent an amount equal to the larger of: (a) three months'
rent and other monetary charges accruing under this Lease; and (b) any sum
specified in Article 5; and shall have provided Landlord with adequate other
assurance of the future performance of the obligations of the Tenant under
this Lease. Without limitation, such assurances shall include, at least, in
the case of assumption of this Lease, demonstration to the satisfaction of
the Landlord that Tenant's Representative has and will continue to have
sufficient unencumbered assets after the payment of all secured obligations
and administrative expenses to assure Landlord that Tenant's Representative
will have sufficient funds to fulfill the obligations of Tenant under this
Lease; and, in the case of assignment, submission of current financial
statements of the proposed assignee, audited by an independent certified
public accountant reasonably acceptable to Landlord and showing a net worth
and working capital in amounts determined by Landlord to be sufficient to
assure the future performance by such assignee of all of the Tenant's
obligations under this Lease.
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20.1.1.3 The assumption or any contemplated assignment of this
Lease or subleasing any part of the Premises, as shall be the case, will not
breach any provision in any other lease, mortgage, financing agreement or
other agreement by which Landlord is bound.
20.1.1.4 Landlord shall have, or would have had absent the
Debtor's Law, no right under Article 9 to refuse consent to the proposed
assignment or sublease by reason of the identity or nature of the proposed
assignee or sublessee or the proposed use of the Premises concerned.
21. QUIET ENJOYMENT.
Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, while paying the rental and performing
its other covenants and agreements contained in this Lease, shall peaceably
and quietly have, hold and enjoy the Premises for the Term without hindrance
or molestation from Landlord subject to the terms and provisions of this
Lease. Landlord shall not be liable for any interference or disturbance by
other tenants or third persons, nor shall Tenant be released from any of the
obligations of this Lease because of such interference or disturbance.
22. DAMAGE BY FIRE, ETC.
22.1 In the event the Premises or the Building are damaged by fire or
other cause and in Landlord's reasonable estimation such damage can be
materially restored within ninety (90) days, Landlord shall forthwith repair
the same and this Lease shall remain in full force and effect, except that
Tenant shall be entitled to a proportionate abatement in rent from the date
of such damage. Such abatement of rent shall be made pro rata in accordance
with the extent to which the damage and the making of such repairs shall
interfere with the use and occupancy by Tenant of the Premises from time to
time. Within forty-five (45) days from the date of such damage, Landlord
shall notify Tenant, in writing, of Landlord's reasonable estimation of the
length of time within which material restoration can be made, and Landlord's
determination shall be binding on Tenant. For purposes of this Lease, the
Building or Premises shall be deemed "materially restored" if they are in
such condition as would not prevent or materially interfere with Tenant's use
of the Premises for the purpose for which it was being used immediately
before such damage.
22.2 If such repairs cannot, in Landlord's reasonable estimation, be
made within ninety (90) days, Landlord and Tenant shall each have the option
of giving the other, at any time with sixty (60) days after such damage,
notice terminating this Lease as of the date of such damage. In the event of
the giving of such notice, this Lease shall expire and all interest of the
Tenant in the Premises shall terminate as of the date of such damage as if
such date had been originally fixed in this Lease for the expiration of the
Term. In the event that neither Landlord nor Tenant exercises its option to
terminate this Lease, then Landlord shall repair or restore such damage, this
Lease continuing in full force and effect, and the rent hereunder shall be
proportionately abated as provided in Section 22.1.
22.3 Landlord shall not be required to repair or replace any damage or
loss by or from fire or other cause to any panelings, decorations,
partitions, additions, railings, ceilings, floor coverings, office fixtures
or any other property or improvements installed on the Premises or belonging
to Tenant. Any insurance which may be carried by Landlord or Tenant against
loss or damage to the Building or Premises shall be for the sole benefit of
the party carrying such insurance and under its sole control.
22.4 In the event that Landlord should fail to complete such repairs
and material restoration within sixty (60) days after the date estimated by
Landlord therefor as extended by this Section 22.4, Tenant may at its option
and as its sole remedy terminate this Lease by delivering written notice to
Landlord, within fifteen (15) days after the expiration of said period of
time, whereupon the Lease shall end on the date of such notice or such later
date fixed in such notice as if the date of such notice was the date
originally fixed in this Lease for the expiration of the Term; provided,
however, that if construction is delayed because of changes, deletions or
additions in construction requested by Tenant, strikes, lockouts, casualties,
Acts of God, war, material or labor shortages, government regulation or
control or other causes beyond the reasonable control of Landlord, the period
for restoration, repair or rebuilding shall be extended for the amount of
time Landlord is so delayed.
22.5 Notwithstanding anything to the contrary contained in this
Article: (a) Landlord shall not have any obligation whatsoever to repair,
reconstruct, or restore the Premises when the damages resulting from any
casualty covered by the provisions of this Article 22 occur during the last
twelve (12) months of the Term or any extension thereof, but if Landlord
determines not to repair such damages Landlord shall notify Tenant and if
such damages shall render any material portion of the Premises untenantable
Tenant shall have the right to terminate this Lease by notice to Landlord
within fifteen (15) days after receipt of Landlord's notice; and (b) in the
event the holder of any
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indebtedness secured by a mortgage or deed of trust covering the Premises or
Building requires that any insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such holder, whereupon this Lease shall
end on the date of such damage as if the date of such damage were the date
originally fixed in this Lease for the expiration of the Term.
22.6 In the event of any damage or destruction to the Building or
Premises by any peril covered by the provisions of this Article 22, it shall
be Tenant's responsibility to properly secure the Premises and upon notice
from Landlord to remove forthwith, at its sole cost and expense, such portion
of all of the property belonging to Tenant or its licensees from such portion
or all of the Building or Premises as Landlord shall request.
22.7 The provisions of this Lease, including this Article, constitute
an express agreement between Landlord and Tenant with respect to any and all
damage to, or destruction of, all or any part of the Premises or the Building
and any statute or regulation of the State of California, including, without
limitation, Sections 1932(2) and 1934(4) of the California Civil Code, with
respect to any rights or obligations concerning damage or destruction in the
absence of an express agreement between the parties, and any other statute or
regulation, now or hereafter in effect, shall have no application to the
Lease or any damage or destruction to all or any part of the Premises or the
Building.
23. EMINENT DOMAIN.
If all or any substantial part of the Premises shall be taken or appropriated
by any public or quasi-public authority under the power of eminent domain, or
conveyance in lieu of such appropriation, either party to this Lease shall
have the right, at its option, of giving the other, at any time within thirty
(30) days after such taking, notice terminating this Lease, except that
Tenant may only terminate this Lease by reason of taking or appropriation, if
such taking or appropriation shall be so substantial as to materially
interfere with Tenant's use and occupancy of the Premises. If neither party
to this Lease shall so elect to terminate this Lease, the rental thereafter
to be paid shall be adjusted on a fair and equitable basis under the
circumstances. In addition to the rights of Landlord above, if any
substantial part of the Building shall be taken or appropriated by any public
or quasi-public authority under the power of eminent domain or conveyance in
lieu thereof, and regardless of whether the Premises or any part thereof are
so taken or appropriated, Landlord shall have the right, at its sole option,
to terminate this Lease. Landlord shall be entitled to any and all income,
rent, award, or any interest whatsoever in or upon any such sum, which may be
paid or made in connection with any such public or quasi-public use or
purpose, and Tenant hereby assigns to Landlord any interest it may have in or
claim to all or any part of such sums, other than any separate award which
may be made with respect to Tenant's trade fixtures and moving expenses;
Tenant shall make no claim for the value of any unexpired Term.
24. SALE BY LANDLORD.
In event of a sale or conveyance by Landlord of the Building, the same shall
operate to release Landlord from any future liability upon any of the
covenants or conditions, expressed or implied, contained in this Lease in
favor of Tenant, and in such event Tenant agrees to look solely to the
responsibility of the successor in interest of Landlord in and to this Lease.
Except as set forth in this Article 24, this Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee. If
any security has been given by Tenant to secure the faithful performance of
any of the covenants of this Lease, Landlord may transfer or deliver said
security, as such, to Landlord's successor in interest and thereupon Landlord
shall be discharged from any further liability with regard to said security.
25. ESTOPPEL CERTIFICATES.
Within (10) days following any written request which Landlord may make from
time to time, Tenant shall execute and deliver to Landlord or mortgagee or
prospective mortgagee a sworn statement certifying: (a) the date of
commencement of this Lease; (b) the fact that this Lease is unmodified and in
full force and effect (or, if there have been modifications to this Lease,
that this Lease is in full force and effect, as modified, and stating the
date and nature of such modifications); (c) the date to which the rent and
other sums payable under this Lease have been paid; (d) the fact that there
are no current defaults under this Lease by either Landlord or Tenant except
as specified in Tenant's statement; and (e) such other matters as may be
requested by Landlord. Landlord and Tenant intend that any statement
delivered pursuant to this Article 25 may be relied upon by any mortgagee,
beneficiary or purchaser and Tenant shall be liable for all loss, cost or
expense resulting from the failure of any sale or funding of any loan caused
by any material misstatement contained in such estoppel certificate. Tenant
irrevocably agrees that if Tenant fails to execute and deliver such
certificate within such ten (10) day period Landlord or Landlord's
beneficiary or agent may execute and deliver such certificate on Tenant's
behalf, and that such certificate shall be fully binding on Tenant.
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26. SURRENDER OF PREMISES.
26.1 Tenant shall, at least thirty (30) days before the last day of
the Term, arrange to meet Landlord for a joint inspection of the Premises.
In the event of Tenant's failure to arrange such joint inspection to be held
prior to vacating the Premises, Landlord's inspection at or after Tenant's
vacating the Premises shall be conclusively deemed correct for purposes of
determining Tenant's responsibility for repairs and restoration.
26.2 At the end of the Term or any renewal of the Term or sooner
termination of this Lease, Tenant will peaceably deliver up to Landlord
possession of the Premises, together with all improvements or additions upon
or belonging to the same, by whomsoever made, in the same conditions received
or first installed, broom clean and free of all debris, excepting only
ordinary wear and tear and damage by fire or other casualty. Tenant may, and
at Landlord's request shall, at Tenant's sole cost, remove upon termination
of this Lease, any and all furniture, furnishings, movable partitions of less
than full height from floor to ceiling, trade fixtures and other property
installed by Tenant, title to which will not be in or pass automatically to
Landlord upon such termination, repairing all damage caused by such removal.
Property not so removed shall, unless requested to be removed, be deemed
abandoned by the Tenant and title to the same shall thereupon pass to
Landlord under this Lease as by a bill of sale. All other alterations,
additions and improvements in, on or to the Premises shall be dealt with and
disposed of as provided in Article 6 hereof.
26.3 All obligations of Tenant under this Lease not fully performed
as of the expiration or earlier termination of the Term shall survive the
expiration or earlier termination of the Term. In the event that Tenant's
failure to perform prevents Landlord from releasing the Premises, Tenant
shall continue to pay rent pursuant to the provisions of Article 14 until
such performance is complete. Upon the expiration or earlier termination of
the Term, Tenant shall pay to Landlord the amount, as estimated by Landlord,
necessary to repair and restore the Premises as provided in this Lease and/or
to discharge Tenant's obligation for unpaid amounts due or to become due to
Landlord. All such amounts shall be used and held by Landlord for payment of
such obligations of Tenant, with Tenant being liable for any additional costs
upon demand by Landlord, or with any excess to be returned to Tenant after
all such obligations have been determined and satisfied. Any otherwise
unused Security Deposit shall be credited against the amount payable by
Tenant under this Lease.
27. NOTICES
Any notice or document required or permitted to be delivered under this Lease
shall be addressed to the intended recipient, shall be transmitted
personally, by fully prepaid registered or certified United States Mail
return receipt requested, or by reputable independent contract delivery
service furnishing a written record of attempted or actual delivery, and shall
be deemed to be delivered when tendered for delivery to the addressee at its
address set forth on the Reference Page, or at such other address as it has
then last specified by written notice delivered in accordance with this
Article 27, or if to Tenant at either its aforesaid address or its last known
registered office or home of a general partner or individual owner, whether
or not actually accepted or received by the addressee.
28. TAXES PAYABLE BY TENANT
In addition to rent and other charges to be paid by Tenant under this Lease,
Tenant shall reimburse to Landlord, upon demand, any and all taxes payable by
Landlord (other than net income taxes) whether or not now customary or within
the contemplation of the parties to this Lease: (a) upon, allocable to, or
measured by or on the gross or net rent payable under this Lease, including
without limitation any gross income tax or excise tax levied by the State,
any political subdivision thereof, or the Federal Government with respect to
the receipt of such rent; (b) upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy of the Premises or any portion thereof, including any sales, use or
service tax imposed as a result thereof; (c) upon or measured by the Tenant's
gross receipts or payroll or the value of Tenant's equipment, furniture,
fixtures and other personal property of Tenant or leasehold improvements,
alterations or additions located in the Premises; or (d) upon this
transaction or any document to which Tenant is a party creating or
transferring any interest of Tenant in this Lease or the Premises. In
addition to the foregoing, Tenant agrees to pay, before delinquency, any and
all taxes levied or assessed against Tenant and which become payable during
the term hereof upon Tenant's equipment, furniture, fixtures and other
personal property of Tenant located in the Premises.
29. RELOCATION OF TENANT
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30. DEFINED TERMS AND HEADINGS
The Article headings shown in this Lease are for convenience of reference and
shall in no way define, increase, limit or describe the scope or intent of
any provision to this Lease. Any indemnification or insurance of Landlord
shall apply to and inure to the benefit of all the following "Landlord
Entities", being Landlord, Landlord's investment manager, and the trustees,
boards of directors, officers, general partners, beneficiaries, stockholders,
employees and agents of each of them. Any opinion granted to Landlord shall
also include or be exerciseable by Landlord's trustee, beneficiary, agents
and employees, as the case may be. In any case where this Lease is signed by
more than one person, the obligations under this Lease shall be joint and
several. The terms "Tenant" and "Landlord" or any pronoun used in place
thereof shall indicate and include the masculine or feminine, the singular or
plural number, individuals, firms or corporations, and each of their
respective successors, executors, administrators and permitted assigns,
according to the context hereof. The term "rentable area" shall mean the
rentable area of the Premises or the Building as calculated by the Landlord
on the basis of the plans and specifications of the Building including a
proportionate share of any common areas. Tenant hereby accepts and agrees to
be bound by the figures for the rentable square footage of the Premises and
Tenant's Proportionate Share as shown on the Reference Page.
31. TENANT'S AUTHORITY
If Tenant signs as a corporation each of the persons executing this Lease on
behalf of Tenant represents and warrants that Tenant has been and is
qualified to do business in the state in which the Building is located, that
the corporation has full right and authority to enter into this Lease, and
that all persons signing on behalf of the corporation were authorized to do
so by appropriate corporate actions. If Tenant signs as a partnership, trust
or other legal entity, each of the persons executing this Lease on behalf of
Tenant represents and warrants that Tenant has complied with all applicable
laws, rules and governmental regulations relative to its right to do business
in the state and that such entity on behalf of the Tenant was authorized to
do so by any and all appropriate partnership, trust or other actions. Tenant
agrees to furnish promptly upon request a corporate resolution, proof of due
authorization by partners, or other appropriate documentation evidencing the
due authorization of Tenant to enter into this Lease.
32. COMMISSIONS.
Each of the parties represents and warrants to the other that it has not
dealt with any broker or finder in connection with this Lease, except as
described on the Reference Page.
33. TIME AND APPLICABLE LAW.
Time is of the essence of this Lease and all of its provisions. This Lease
shall in all respects be governed by the laws of the state in which the
Building is located.
34. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Article 9, the terms, covenants and conditions
contained in this Lease shall be binding upon and inure to the benefit of the
heirs, successors, executors, administrators and assigns of the parties to
this Lease.
35. ENTIRE AGREEMENT.
This Lease, together with its exhibits, contains all agreements of the
parties to this Lease and supersedes any previous negotiations. There have
been no representations made by Landlord or understandings made between the
parties other than those set forth in this Lease and its exhibits. This Lease
may not be modified except by a written instrument duly executed by the
parties to this Lease.
36. EXAMINATION NOT OPTION.
Submission of this Lease shall not be deemed to be a reservation of the
Premises. Landlord shall not be bound by this Lease until it has received a
copy of this Lease duly executed by Tenant and has delivered to Tenant a copy
of this Lease duly executed by Landlord, and and until such delivery Landlord
reserves the right to exhibit and lease the
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Premises to other prospective tenants. Notwithstanding anything contained in
this Lease to the contrary, landlord may withhold delivery of possession of
the Premises from Tenant until such time as Tenant has paid to Landlord any
security deposit required by Article 5, the first month's rent as set forth
in Article 3 and any sum owed pursuant to this Lease.
37. RECORDATION.
Tenant shall not record or register this Lease or a short form memorandum
hereof without the prior written consent of Landlord, and then shall pay all
charge and taxes incident such recording or registration.
38. RENT SCHEDULE.
<TABLE>
<S> <C> <C> <C> <C>
Rent for the period Month 1 through Month 12 shall be $11,001.25 per month
Rent for the period Month 13 through Month 24 shall be $13,759.20 per month
Rent for the period Month 25 through Month 36 shall be $14,268.80 per month
Rent for the period Month 37 through Month 48 shall be $14,705.60 per month
Rent for the period Month 49 through Month 60 shall be $15,288.00 per month
</TABLE>
39. LIMITATION OF LANDLORD'S LIABILITY.
Redress for any claim against Landlord under this Lease shall be limited to
and enforceable only against and to the extent of Landlord's interest in the
building. The obligations of Landlord under this Lease are not intended to and
shall not be personally binding on, nor shall any resort be had to the
private properties of, any of its trustees or board of directors and
officers, as the case may be, its investment manager, the general partners
thereof, or any beneficiaries, stockholders, employees, or agents of Landlord
or the investment manager.
40. OPTION TO TERMINATE.
Provided Tenant is not in default of this Lease. Tenant is granted a limited
Right to Termination this Lease in the event Tenant needs to expand and such
expansion space is not available at the Building. This right may be exercised
at any time but no sooner than month thirty (30) of the term. To exercise
this right Tenant must notify Landlord in writing no less than 180 days prior
to the early termination date. Such notice must be accompanied by payment for
any unamortized tenant improvement and commission funds expended by Landlord
as well as an Early Termination Fee based on the following:
<TABLE>
<S> <C> <C>
Last month of term between and including 30 and 36 12% of total remaining rent of the original term.
Last month of term between and including 37 and 48 10% of total remaining rent of the original term.
Last month of term between and including 49 and 60 8% of total remaining rent of the original term.
</TABLE>
LANDLORD: TENANT:
CB GRAHAM INTERNATIONAL, INC., iXL - San Diego, Inc.,
a Delaware corporation a Delaware corporation
BY: RREEF Management Company,
a Delaware corporation
BY: /s/ Jill E. Shanahan BY: /s/ David G. Watkins
------------------------ --------------------
Jill E. Shanahan David G. Watkins
TITLE: Vice President TITLE: President
DATE: 8/27/98 DATE: 8/26/98
----------------- ------------
<PAGE>
EXHIBIT A
---------
This Exhibit A is attached to and made a part of the Lease
dated July 27, 1998, between CB Graham International, Inc.,
a Delaware corporation, ("Landlord"), and
iXL - San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
Exhibit A is intended only to show the general layout of the Premises of the
beginning of the Term of this Lease. It does not in any way supersede any of
Landlord's rights set forth in Section 17.2 with respect to arrangements
and/or locations of common areas of the Building and changes in such
arrangements and/or locations. It is not to be scaled; any measurements or
distances shown should be taken as approximate.
[MAP]
<PAGE>
EXHIBIT B
---------
This Exhibit B is attached to and made a part of the Lease
dated July 27, 1998, between CB Graham International, Inc.,
a Delaware corporation, ("Landlord"), and
iXL - San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
TENANT IMPROVEMENTS
The Landlord shall cause to be performed, at Landlord's expense, the
following improvements at a total cost not to exceed $19,158:
1. Install glass store-front wall (including glass door) or wall with
large glass window in computer equipment room. New door to include
hardware with building standard lock. If 3rd floor plumbing exists
above computer room, install a water barrier to try and protect
2nd floor equipment.
2. Remove carpet in computer equipment area and install VCT to match
(or compliment) existing VCT.
3. Minor repairs or patches to laminate surfaces in kitchen and/or
reception areas.
4. Install new Landlord specified dishwasher and any electrical service
to accommodate the dishwasher. Assure existing garbage disposal and
hot water heaters operate properly.
5. Service and repair, as needed, the white board cabinetry in large
conference room.
6. Test all electrical outlets. Lights, and switches. Repair as needed.
7. Test all existing window blinds. Repair as needed.
8. Re-key all existing door locks, interior and perimeter, and include
in building master key system. Assure all locks work properly.
Provide 6 new hardware systems for existing doors. Provide tenant
with quantity of keys requested.
9. Clean entire suite (including window blinds), polish hard floors (no
wax) patch holes as needed, assure ceiling tiles are clean and
properly seated after tenant's cabling and wiring are installed.
10. Patch surfaces of doors as needed.
11. Install low grade carpet atop white VCT in open area of the east
side of the Premises.
Tenant may submit a written punch-list for deficiencies in the above
improvements within thirty (30) days of possession of the Premises. Other
than listed above, Tenant understands and accepts premises in its used and
"as-is" condition.
<PAGE>
EXHIBIT C
---------
This Exhibit C is attached to and made a part of the Lease
dated July 27, 1998, between CB Graham International, Inc.,
a Delaware corporation, ("Landlord"), and
iXL - San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the
Building without the prior written consent of the Landlord. Landlord
shall have the right to remove, at Tenant's expense and without notice,
any sign installed or displayed in violation of this rule. All approved
signs or lettering on doors and walls shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person or vendor chosen by
Landlord. In addition, Landlord reserves the right to change from time to
time the format of the signs or lettering and to require previously
approved signs or lettering to be appropriately altered.
2. If Landlord objects in writing to any curtains, blinds, shades or screens
attached to or hung in or used in connection with any window or door of the
premises, Tenant shall immediately discontinue such use. No awning shall be
permitted on any part of the Building. Tenant shall not place anything or
allow anything to be placed against or near any glass partitions or doors
or windows which may appear unsightly, in the opinion of Landlord, from
outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, stairways of the Building. The halls, passages,
exits, entrances, elevators and stairways are not for the general public,
and Landlord shall in all cases retain the right to control and prevent
access to the Building of all persons whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation and
interests of the Building and its tenants provided that nothing contained
in this rule shall be construed to prevent such access to persons with
whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal activities. No tenant and no
employee or invitee of any tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants businesses only and Landlord
reserves the right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Tenant shall not cause
any unnecessary labor by carelessness or indifference to the good order
and cleanliness of the Premises. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Premises,
however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person.
6. Landlord will furnish Tenant free of charge with two keys to each entry
door in the Premises. Landlord may make a reasonable charge for any
additional keys, and Tenant shall not make or have made additional keys,
and Tenant shall not alter any lock or install a new or additional lock
or bolt on any door of its Premises. Tenant, upon the termination of its
tenancy, shall deliver to Landlord the keys of all doors which have been
furnished to Tenant, and in the event of loss of any keys so furnished,
shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
in their installation.
8. No equipment, materials, furniture, packages, supplies, merchandise or
other property will be received in the Building or carried in the
elevators except between such hours as may be designated by landlord.
<PAGE>
9. Tenant shall not place a load upon any floor which exceeds the load per
square foot which such floor was designed to carry and which is allowed
by law. Landlord shall have the right to prescribe the weight, size and
position to all equipment, materials, furniture or other property brought
into the Building. Heavy objects shall, stand on such platforms as
determined by Landlord to be necessary to properly distribute the weight.
Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space in the Building to such a degree as to be
objectionable to Landlord or to any tenants shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators for
other devices sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building must be
acceptable to Landlord. Landlord will not be responsible for loss of, or
damage to, any such equipment or other property from any cause, and all
damage done to the building by maintaining or moving such equipment or
other property shall be repaired at the expense to Tenant.
10. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord. Tenant shall not waste electricity, water
or air-conditioning. Tenant shall keep corridor doors closed.
11. Landlord reserves the right to exclude from the Building between the
hours of 7:00 p.m. and 7:00 a.m. the following day, or such other hours
as may be established from time to time by Landlord, and on Saturday,
Sundays and legal Holidays any person unless that person is known to the
person or employee in charge of the building and has a pass or is
properly identified. Tenant shall be responsible for all persons for whom
it requests passes and shall be liable to Landlord for all acts of such
persons. Landlord shall not be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person.
12. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets, water heaters or other water apparatus and
electricity, gas or air outlets before Tenant and its employees leave the
Premises. Tenant shall be responsible for any damage or injuries
sustained by other tenants or occupants of the building or by Landlord
for noncompliance with this rule.
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown
into any of them, and the expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant
who, or whose employees or invitees, shall have caused it.
14. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or other device on the roof or exterior walls of the
Building. Tenant shall not interfere with radio or television
broadcasting or reception from or in the Building or elsewhere.
15. Except as approved by Landlord, tenant shall not mark, drive nails, screw
or drill into the partitions, woodwork or plaster or in any way deface
the Premises. Tenant shall not cut or bore holes for wires. Tenant shall
not affix any floor covering to the floor of the Premises in any manner
except as approved by Landlord. Tenant shall repair any damage resulting
from noncompliance with this rule.
16. Tenant shall not install, maintain or operate upon the Premises any
vending machine.
17. Tenant shall store all its trash and garbage within its Premises. Tenant
shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance
with directions issued from time to time by Landlord.
18. No cooking shall be done or permitted by any Tenant on the Premises. The
Tenant of Underwriters' Laboratory approved microwave oven or equipment
for brewing coffee, tea, hot chocolate and similar beverages shall be
permitted provided that such equipment and use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations; such equipment must be turned off when Premises is
unoccupied.
19. Tenant shall not use in any space on or in the public halls of the
Buildings any hand trucks except those equipped with rubber tires and
side guards or such other material-handling equipment as Landlord may
approve. Tenant shall not bring any other vehicle of any kind into the
building.
<PAGE>
20. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant except as Tenant's
address.
21. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside
of their regular duties unless under special instruction from Landlord,
and no employee of Landlord will admit any person (Tenant or otherwise)
to any office without specific instructions from Landlord.
22. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in
favor of any other tenant or tenants, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all of
the tenants of the Building.
23. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the
preservation of good order in and about the Building. Tenant agrees to
abide by all such rules and regulations in this Exhibit C stated and any
additional rules and regulations which are adopted. Tenant shall be
responsible for the observance of all of the foregoing rules by tenant's
employees, agents, clients, customers, invitees and guests.
24. Decorating of Premises for Holidays or special events will be allowed but
must conform with safety guidelines. (For example: attach nothing to fire
sprinkler heads). Only fire retardant treated Christmas trees are
allowed. Christmas trees may not be disposed of in trash dumpsters on the
Premises but must be taken to a recycling center.
25. No bicycles, vehicles, birds or animals of any kind shall be brought into
or kept in or about the Premises.
26. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the use of the
Premises for general office purposes.
27. No Tenant shall engage or pay any employees on the Premises except those
actually working for such Tenant on the Premises nor advertise for
laborers giving an address at the Premises. The Premises shall not be
used for lodging or sleeping or for any immoral or illegal purposes.
28. No Tenant shall make, or permit to be made, any unseemly or disturbing
noises or interfere with occupants of this or neighboring buildings or
premises.
29. No Tenant nor any of Tenant's employees, agents, visitors or licensees,
shall at any time bring or keep upon the Premises any inflammable,
combustible or explosive fluid, chemical or substance.
30. The Landlord reserves the right to inspect all safes, freight or other
bulky articles to be brought into the Building and to exclude from the
Building all safes, freight, or other bulky articles. The Landlord
reserves the right to prescribe the weight and position of all safes,
which must be placed upon supports approved by Landlord to distribute
weight.
31. Canvassing, soliciting and peddling in the Building are prohibited and
each Tenant shall cooperate to prevent the same.
32. All office equipment of any electrical or mechanical nature shall be
placed by Tenant in the Premises in settings approved by Landlord, to
absorb or prevent any vibration, noise or annoyance. Extension cords are
not allowed per direction of the Fire department.
33. Landlord shall have the right, exercisable without notice or without
liability to any Tenant, to change the name and address of the Building.
34. The scheduling of moves of Tenant's furniture and equipment into or out
of the Building is subject to the reasonable discretion of Landlord.
<PAGE>
35. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the
Building.
36. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgement may from time to time be needed for
safety and security, for care and cleanliness of the Building and for the
preservation of good order in and about the Building. Tenant agrees to
abide by all such rules and regulations in this Exhibit C stated and any
additional rules and regulations which are adopted.
37. Tenant shall be responsible for the observance of all the foregoing rules
by Tenant's employees, agents, clients, customer, invitees and guests.
<PAGE>
EXHIBIT D
This Exhibit D is attached to and made a part of the Lease
dated July 27, 1998, between CB Graham International, Inc.,
a Delaware corporation, ("Landlord"), and
iXL San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
CONTINUING LEASE GUARANTY
Whereas, iXL San Diego, Inc. a Delaware corporation, ("Tenant") is (a)
engaged in business as a corporate affiliate of the undersigned, or (b) engaged
in selling, marketing, using or otherwise dealing in merchandise, supplies,
products, equipment or other articles supplied to it by the undersigned, or
(c) a subsidiary of the undersigned. Because of our inter-corporate or
business relations, or by reason of any of the foregoing, it will be in our
direct interest and advantage to assist Tenant in securing a lease.
Therefore, in consideration of the making of the lease agreement by and
between CB GRAHAM INTERNATIONAL, INC., a Delaware corporation, as Landlord
and Tenant, dated July 27, 1998 for the premises commonly described as 2121
Palomar Airport Road, Suite 200, Carlsbad, CA (hereinafter referred to as
the "Lease") and for the purpose of inducing Landlord to enter into and make
the Lease, the undersigned hereby unconditionally guarantees the full and
prompt payment of rent and all other sums required to be paid by Tenant
under the Lease ("Guaranteed Payments") and the full and faithful
performance of all terms, conditions, covenants, obligations and agreements
contained in the Lease on the Tenant's part to be performed ("Guaranteed
Obligations") and the undersigned further promises to pay all of Landlord's
costs and expenses (including reasonable attorney's fees) incurred in
endeavoring to collect the Guaranteed Payments or to enforce the Guaranteed
Obligations or incurred in enforcing this guaranty as well as all damages
which Landlord may suffer in consequence of any default or breach under the
Lease or this guaranty.
1. Landlord may at any time and from time to time, without notice to the
undersigned, take any or all of the following actions without affecting
or impairing the liability and obligations of the undersigned on this
guaranty:
a. grant an extension or extensions of time of payment of any
Guaranteed Payment or time for performance of any Guaranteed
Obligation;
b. grant an indulgence or indulgences in any Guaranteed Payment or in
the performance of any Guaranteed Obligation;
c. modify or amend the Lease or any term thereof, or any obligation of
Tenant arising thereunder;
d. consent to any assignment or assignments, sublease or subleases and
successive assignments or subleases by Tenant or the Tenant's assigns
or sublessees or a change or different use of the leased premises;
e. consent to an extension or extensions of the term of the Lease;
f. accept other guarantors; and/or
g. release any person primarily or secondarily liable.
The liability of the undersigned under this guaranty shall in no way be
affected or impaired by any failure or delay in enforcing any Guaranteed
Payment or Guaranteed Obligation or this guaranty or any security therefor or
in exercising any right or power in respect thereto, or by any compromise,
waiver, settlement, change, subordination, modification or disposition of any
Guaranteed Payment or Guaranteed Obligation or of any security therefor. In
order to hold the undersigned liable hereunder, there shall be no obligation
on the part of Landlord, at any time, to resort for payment to Tenant or any
other guaranty or to any security or other rights and remedies, and Landlord
shall have the right to enforce this guaranty irrespective of whether or not
other proceedings or steps are pending or being taken seeking resort to or
realization upon or from any of the foregoing.
INITIAL [ILLEGIBLE]
-----------
<PAGE>
2. The undersigned waives all diligence in collection or in protection or
any security, presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this guaranty, notice of any extensions granted or
other action taken in reliance hereon and all demands and notices of any
kind in connection with this guaranty or any Guaranteed Payment or
Guaranteed Obligation.
3. The undersigned hereby acknowledges full and complete notice and
knowledge of all of the terms, conditions, covenants, obligations and
agreements of the Lease.
4. The payment by the undersigned of any amount pursuant to this guaranty
shall not in any way entitle the undersigned to any right, title or
interest (whether by subrogation or otherwise) of the Tenant under the
Lease or to any security being held for any Guaranteed Payment or
Guaranteed Obligation.
5. This guaranty shall be continuing, absolute and unconditional and
remain in full force and effect until all Guaranteed Payments are made,
all Guaranteed Obligations are performed, and all obligations of the
undersigned under this guaranty are fulfilled.
6. This guaranty shall also bind the successors and assigns of the
undersigned and inure to the benefit of Landlord, its successors and
assigns. This guaranty shall be construed according to the laws of the
state in which the leased premises are located, in which state it shall
be performed by the undersigned.
7. If this guaranty is executed by more than one person, all singular
nouns and verbs herein relating to the undersigned shall include the
plural number and the obligation of the several guarantors shall be
joint and several.
8. The Landlord and the undersigned intend and believe that each provision
of this guaranty comports with all applicable law. However, if any
provision of this guaranty is found by a court to be invalid for any
reason, the parties intend that the remainder of this guaranty shall
continue in full force and effect and the invalid provision shall be
construed as if it were not contained herein.
IN WITNESS WHEREOF, the undersigned has caused this guaranty to be executed
by its duly authorized officer this 27 day of August, 1998.
GUARANTOR:
iXL Holdings, Inc., a Delaware corporation
ATTEST:
By: /s/ James V. Sandy
----------------------------------
Print Name: James V. Sandy
--------------------------
Title: Executive Vice President
-------------------------------
(affix corporate seal)
Secretary
<PAGE>
SUBLEASE
BY AND BETWEEN
iXL-SAN DIEGO, INC.,
A DELAWARE CORPORATION,
SUBLESSOR
AND
KINZAN.COM,
SUBTENANT
<PAGE>
WHEREAS, the parties are agreeable to entering into a sublease of
the Premises on the terms and conditions set forth below; and
WHEREAS, unless otherwise defined in this Sublease, all capitalized
terms used herein have the meanings set out for them in the Main Lease.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual promises set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublessor and Subtenant hereby
agree as follows;
1. INCORPORATION OF RECITALS. The foregoing recitals are
incorporated into and made a part of this Sublease as if each were
specifically recited herein.
2. DEMISE AND TERM. Sublessor hereby subleases the Premises to
Subtenant, and Subtenant hereby hires and accepts the Premises from
Sublessor. The Premises shall include the appurtenant right to the use, in
common with others, of the lobbies, entrances, stairs, corridors, elevators
and other public portions of the building containing the Premises (the
"Building"), to the extent that Sublessor has the right to use the same as
Tenant under the Main Lease. The term of this Sublease (the "Term") shall
commence with respect to Suite 250 on the commencement date established in
the First Amendment for Suite 250 (the "Suite 250 Commencement Date") and the
Term shall commence with respect to Suite 260 on the commencement date
established in the First Amendment for Suite 260 (the "Suite 260 Commencement
Date"). The Term shall end on August 31, 2003 (the "Expiration Date"), unless
sooner terminated as herein provided. Sublessee shall have no option to renew
or extend the term of this Sublease or to expand the Premises, except as
specifically provided in Section 9(e) hereof.
3. SUBORDINATE TO MAIN LEASE. This Sublease is and shall be
subject and subordinate to the Main Lease. A copy of the Main Lease (from
which certain economic terms have been excised) is attached hereto as EXHIBIT
A and made a part hereof.
4. COMPLIANCE WITH MAIN LEASE.
(a) Except as set forth in the immediately succeeding
sentence, the terms, covenants and conditions of the Main Lease (the
"Incorporated Provisions") are incorporated herein by reference.
Section 3.1 and 38 and EXHIBIT B of the Original Lease and
Sections D, E and H of the First Amendment are specifically excluded
from the Incorporated Provisions, and Sections J and K are
specifically included for the benefit of Subtenant although the
terms of Section K shall be equally for Sublessor's benefit. Except
to the extent that the Incorporated Provisions are inapplicable or
are modified by the provisions of this Sublease, the Incorporated
Provisions binding or inuring to the benefit of the landlord
thereunder shall, in respect of this Sublease, bind or inure to the
benefit of Sublessor, and the Incorporated Provisions, binding or
inuring to the benefit of the tenant thereunder shall, in respect
of this Sublease, bind or inure to the benefit of Subtenant, with
the same force and effect as if such Incorporated Provisions were.
2
<PAGE>
SUBLEASE
THIS SUBLEASE ("Sublease") is made and dated as of the 5th day of
April 1999, by and between iXL-San Diego, Inc., a Delaware corporation,
having an address of 2121 Palomar Airport Road, Suite 200, Carlsbad,
California 92009 ("Sublessor") and Kinzan.com, a California corporation,
having an address of 2111 Palomar Airport Road, Suite 250, Carlsbad,
California 92009 ("Subtenant").
WITNESSETH:
WHEREAS, Sublessor is tenant under that certain lease dated July 7,
1998 (the "Original Lease") with CB Graham International, Inc.
("Overlandlord") as landlord, whereby Overlandlord leased to Sublessor
approximately 7,280 rentable square feet of office space (the "Original
Space") located on the second floor of the building located at 2121 Palomar
Airport Road (the "Original Building");
WHEREAS, Sublessor and Subtenant have entered into a Services
Agreement dated January 29, 1999 under which Sublessor will provide services
to Subtenant ("Services Agreement"), Sublessor is an investor in Subtenant
and Subtenant is an iXL venture, Subtenant is desirous of leasing space in
the complex of which the Original Building is a part, Subtenant has requested
that Sublessor assist Subtenant in leasing such space, and Sublessor has
agreed to accommodate Subtenant's request and to sublet space to Subtenant in
conjunction with the Services Agreement (provided, however, that this
Sublease is an additional obligation of and agreement between the parties
hereto, the Services Agreement is referenced herein ONLY because the Services
Agreement requires a reference be made thereto in each agreement which
requires Subtenant to make payment(s) to Sublessor and this Sublease is not
otherwise subject to or affected by the Services Agreement in any way); and
WHEREAS, as a result of the foregoing Sublessor and Overlandlord
have entered that certain First Amendment to Lease dated as of March 19 1999
(the "First Amendment") pursuant to which the Original Space has been
expanded to include approximately 3,537 rentable square feet of office space,
shown more particularly on EXHIBIT B attached hereto and composed of that
portion designated as Suite 250 on EXHIBIT B (approximately 2,980 rentable
square feet) ("Suite 250") and that portion designated as Suite 260 on
EXHIBIT B (approximately 557 rentable square feet) ("Suite 260") (Suite 250
and Suite 260 being hereafter collectively referred to as the "Premises") and
Overlandlord has granted Sublessor a Right of First Offer on contiguous space
("Suite 270") for the benefit of Subtenant if Subtenant desires to expand the
Premises (subject to the terms and conditions hereinafter set forth); and
WHEREAS, the Original Lease, as amended by the First Amendment is
hereinafter referred to as the Main Lease.
WHEREAS, Sublessor desires to sublet the Premises to Subtenant, and
Subtenant desires to sublet the Premises from Sublessor;
3
<PAGE>
completely set forth in this Sublease, and as if the words
"Landlord" and "Tenant" or words of similar import, wherever the
same appear in the Incorporated Provisions, were construed to mean,
respectively, "Sublessor" and "Subtenant" in this Sublease, and as
if the words "Premises," or words of similar import, wherever the
same appear in the Incorporated Provisions, were construed to mean
"Premises" in this Sublease, and as if the word "Lease," or words
of similar import, wherever the same appear in the Incorporated
Provisions, were construed to mean this "Sublease."
(b) The time limits contained in the Main Lease for the
giving of notices, making of demands or performing of any act,
condition or covenant on the part of the tenant thereunder, or
for the exercise by the tenant thereunder of any right, remedy
or option, are changed for the purposes of incorporation herein by
reference by shortening the same in each instance by 5 days, so
that in each instance Subtenant shall have 5 days less time to
observe or perform hereunder than Sublessor has as the tenant under
the Main Lease, except that:
(i) any such time limits which are 7 days or less
shall instead be shortened in each instance by 3 business days,
and
(ii) any such time limits which are 3 days or less
shall instead be shortened in each instance so that such time
limits shall expire 1 business day prior to the expiration of
such time limits under the Main Lease.
(c) If any of the express provisions of this Sublease shall
conflict with any of the Incorporated Provisions, such conflict
shall be resolved in every instance in favor of the express
provisions of this Sublease. If Subtenant receives any notice or
demand from Overlandlord under the Main Lease, Subtenant shall
deliver a copy thereof to Sublessor by overnight courier the next
business day or as soon thereafter as is reasonably possible but
in no event later than two business days after Subtenant's receipt
of such notice. If Sublessor receives any notice of default from
Overlandlord under the Main Lease, Sublessor shall deliver a copy
thereof to Subtenant by overnight courier the next business day or
as soon thereafter as is reasonably possible but in no event later
than two business days after Sublessor's receipt of such notice.
5. PERFORMANCE BY SUBLESSOR. Sublessor shall not be required to
furnish, supply or install anything required under any article of the Main
Lease. Sublessor shall have no liability or responsibility whatsoever for
Overlandlord's failure or refusal to perform under the Incorporated
Provisions. Subtenant shall have the right to instruct Overlandlord with
respect to the performance by Overlandlord of Overlandlord's obligations as
landlord under the Main Lease. Upon Sublessor's receipt of a written notice
from Subtenant that Sublessor has failed to perform an obligation under the
Incorporated Provisions, (because of a failure of Overlandlord to perform its
obligation under the Main Lease) then Sublessor may, at its sole and
exclusive option either (a) use its reasonable efforts to cause Overlandlord
to observe and perform the same, provided, however, that Sublessor does not
guarantee Overlandlord's compliance with the Incorporated Provisions, or (b)
direct Subtenant to pursue its claim directly against Overlandlord which
shall be done at Subtenant's sole cost and expense. Subtenant shall not in
any event have any rights in
4
<PAGE>
respect of the Premises greater than Sublessor's rights under the Main Lease.
Notwithstanding any provision to the contrary contained herein, as to
Incorporated Provisions, Sublessor shall not be required to make any payment
or perform any obligation, and Sublessor shall have no liability to Subtenant
for any matter whatsoever, except for (i) Sublessor's obligation to pay the
rent due under the Main Lease, and (ii) Sublessor's obligation to use
reasonable efforts, upon the written request of Subtenant, to cause
Overlandlord to observe and/or perform its obligations under the Main Lease
(or, in the alternative, to direct Subtenant to pursue its claim against
Overlandlord). Sublessor shall not be responsible for any failure or
interruption, for any reason whatsoever, of the services or facilities that
may be appurtenant to or supplied at the Building, by Overlandlord or
otherwise, including, without limitation, heat, air conditioning, water,
elevator service and cleaning service, if any; and no failure to furnish, or
interruption of, any such services or facilities shall give rise to any: (i)
abatement, diminution or reduction of Subtenant's obligations under this
Sublease; (ii) constructive eviction, whether in whole or in part; or (iii)
liability on the part of Sublessor.
6. NO BREACH OF MAIN LEASE. Subtenant shall not do or permit to be
done any act or thing which may constitute a breach or violation of any term,
covenant or condition of the Main Lease.
7. NO PRIVITY OF ESTATE. Nothing contained in this Sublease shall be
construed to create privity of estate or privity of contract between
Subtenant and Overlandlord.
8. INDEMNITY. Subtenant hereby does and shall indemnify, defend and
hold harmless Sublessor from and against all losses, costs, damages, expenses
and liabilities, including, without limitation, reasonable attorneys' fees,
which Sublessor may incur or pay by reason of: (i) Subtenant's use, occupancy
or management of the Premises; (ii) any accidents, damages or injuries to
persons or property occurring in, on or about the Premises; (iii) any breach
or default hereunder on Subtenant's part; (iv) any work done by or on behalf
of Subtenant in or to the Premises, or (v) any act, omission or negligence
occurring in, on or about the Premises on the part of Subtenant and/or its
officers, employees, agents, customers, invitees or any person claiming
through or under Subtenant.
9. RENT.
(a) Subtenant shall pay to Sublessor base rent (the "Base Rent")
in accordance with the following Base Rent Table.
<TABLE>
<CAPTION>
Base Rent Table***
------------------
Base Rent Period Monthly Base Rent Monthly Base Rent/Square Feet
---------------- ----------------- -----------------------------
<S> <C> <C>
*Commencement Date - 6/30/99 $5,840.80 $1.96
**7/1/99 - 3/31/00 $6,932.52 $1.96
4/1/00 - 3/31/01 $7,209.81 $2.04
4/1/01 - 3/31/02 $7,498.19 $2.12
4/1/02 - 3/31/03 $7,798.11 $2.20
4/1/03 - 8/31/03 $8,110.03 $2.29
</TABLE>
*Monthly rent for April 1999 to be prorated based upon possession
and rent commencement date of Suite 250 in accordance with the Main
Lease.
5
<PAGE>
**Monthly rent for July 1999 to be prorated based upon possession
and rent commencement date of Suite 260 in accordance with the Main
Lease.
***In addition to the amounts set forth in the Base Rent Table,
monthly base rent during the Term shall also include a fee of
$125.00 per month to defray Sublessor's administrative expenses.
(b) Subtenant shall pay the Monthly Base Rent to Sublessor in
advance of the first day of each month during the Term at the offices of
Sublessor identified at the beginning of this Sublease or elsewhere as
Sublessor shall direct. In addition to the Monthly Base Rent, Subtenant shall
also pay to Sublessor any and all other amounts payable by Sublessor to
Overlandlord with respect to the Premises under the Main Lease including,
without limitation, the electricity charges and other operating expenses due
under the Main Lease (the "Additional Charges") on or before the day such
Additional Charges are to be paid under the Main Lease.
(c) "Rent" (which term shall include the Base Rent and any
Additional Charges) shall be paid promptly when due, without notice or demand
therefor and without deduction, abatement, counterclaim or setoff of any
amount for any reason whatsoever. Base Rent and Additional Charges shall be
paid to Sublessor by good unendorsed check of Subtenant at the address of
Sublessor set forth at the beginning of this Sublease or to such other person
and/or at such other address as Sublessor may from time to time designate by
notice to Subtenant. No payment by Subtenant or receipt by Sublessor of any
lesser amount than the amount stipulated to be paid hereunder shall be deemed
other than on account of the earliest stipulated Base Rent or Additional
Charges due under this Sublease; nor shall any endorsement or statement on
any check or letter be deemed an accord and satisfaction, and Sublessor may
accept any check or payment without prejudice to Sublessor's right to recover
the balance due or to pursue any other remedy available to Sublessor.
(d) Upon the execution of (i) this Sublease by both Sublessor and
Subtenant and (ii) consent to this Sublease by Overlandlord as provided
herein, Subtenant may take possession of the Premises. Subtenant hereby
agrees that if Subtenant takes possession of any portion of the Premises
prior to the Suite 250 Commencement Date, then from and after the date
Subtenant takes possession of the Premises (the "Possession Date"), all of
Subtenant's obligations and duties under this Sublease shall be effective
except that respective base and additional rent obligations for Suites 250
and 260 shall not commence until such obligations commence under the Main
Lease. Notwithstanding anything in this Sublease to the contrary, Subtenant
shall pay all charges incurred by Subtenant (including but not limited to
fees, if any, charged by Overlandlord) in connection with Subtenant's
relocation to the Premises, the installation of all equipment and utility
services for the Premises which are required by Subtenant, including, but not
limited to, telephones, computers, and additional electric service.
(e) In the event Subtenant desires to exercise the Right of First
Offer in Section J of the First Amendment as to Suite 270, Suite 270 shall be
deemed included under the Sublease and the Base Rent, Additional Charges and
Security Deposit shall be increased to reflect the increase in the size of
the Premises resulting from the inclusion of
6
<PAGE>
Suite 270. Notwithstanding any provision to the contrary contained
in this Sublease, Subtenant shall not be entitled to exercise the
Right of First Offer if Subtenant is in default under this Sublease
beyond applicable notice and cure periods. Provided Subtenant is
not in uncured default hereunder, Sublessor agrees to cooperate with
Subtenant (at no cost or expense to Sublessor) in order to
facilitate Subtenant's exercise of the Right of First Offer, but
Subtenant acknowledges and agrees that Sublessor has no independent
obligation to honor the Right of First Offer and that the Right of
First Offer will be available to Subtenant only to the extent the
rights are available to Sublessor under the Main Lease.
10. CONDITION OF PREMISES. Sublessor shall deliver the Premises to
Subtenant on the Commencement Date in "as is/where is" condition. Sublessor
shall have no obligations under this Sublease or otherwise to perform any
work, alterations, installations or to remove any asbestos or asbestos
containing material or other hazardous material or substances (collectively,
"ACM"), if any, from the Premises or elsewhere. Sublessor makes no
representations or warranties whatsoever with respect to the presence of ACM
in the Premises or Building, or the Building and/or Premises' compliance with
applicable laws (including environmental laws). In making and executing this
Sublease, Subtenant has relied solely on such investigations, examinations
and inspections as Subtenant has chosen to make. Subtenant acknowledges that
Sublessor has afforded Subtenant the opportunity for full and complete
investigations, examinations, and inspections of the Premises. Subtenant
shall not make any alterations or improvements in the Premises, without
Sublessor's prior written consent, which shall not be unreasonably withheld
or delayed provided Overlandlord has consented to same and Subtenant has
otherwise complied with the requirements of the Main Lease. Subtenant's use,
occupancy, repair, maintenance and improvement of the Premises shall be in
full compliance with applicable laws.
11. CONSENTS AND APPROVALS. In any instance when Sublessor's
consent or approval is required under this Sublease, Sublessor's refusal to
consent to or approve any matter or thing shall be deemed reasonable and in
good faith if such consent or approval has not been obtained from
Overlandlord; provided however, Sublessor covenants to use reasonable
efforts, at the sole cost and expense of Subtenant (including, without
limitation, reasonable attorneys' fees and expenses), to obtain the consent
or approval of Overlandlord and will indicate to Overlandlord in those cases
where its approval is conditioned upon Overlandlord's approval that it has no
objection thereto and agrees that if such consent of Overlandlord shall not
be required, Sublessor shall not unreasonably withhold or delay its consent
to such matter. In the event that Subtenant shall seek the approval by or
consent of Sublessor and Sublessor shall fail or refuse to give such consent
or approval, Subtenant shall not be entitled to any damages from Sublessor
for any withholding or delay of such approval or consent by Sublessor.
12. NOTICE. All notices, consents, approvals, demands and requests
which are required or desired to be given by either party to the other
hereunder shall be in writing and shall be personally delivered, sent by
telefax or by reputable overnight courier delivery service or sent by United
States registered or certified mail and deposited in a United States post
office, return receipt requested and postage prepaid. Notices, consents,
approvals, demands and requests which are served upon Sublessor or Subtenant
in the manner provided herein shall be deemed to
7
<PAGE>
have been given or served for all purposes hereunder on the day personally
delivered or refused, the next business day after sending by overnight
courier as aforesaid or on the third business day after mailing as aforesaid.
All notices, consents, approvals, demands, and requests given to Sublessor or
Subtenant shall be addressed to the address set forth at the beginning of
this Sublease with notices to Sublessor being addressed to the attention of
Dee Warren, Controller, with a copy at the same time and in the same manner
to iXL-Holdings, Inc., 1888 Emery Street N.W., Atlanta, Georgia 20218,
Attention: T. William Alvey, III, Assistant General Counsel. Either party may
from time to time change the names and/or addresses to which notices,
consents, approvals, demands and requests shall be addressed by a notice
given in accordance with the provisions of this Paragraph.
13. TERMINATION OF MAIN LEASE. If for any reason the term of the
Main Lease shall terminate prior to the Expiration Date, this Sublease shall
thereupon be terminated and Sublessor shall not be liable to Subtenant by
reason thereof unless both (a) Subtenant shall not then be in default
hereunder, and (b) said termination shall have been effected because of the
breach or default of Sublessor as tenant under the Main Lease. Sublessor and
Subtenant agree that Section K of the First Amendment shall apply with
respect to any termination under the Main Lease, however, Subtenant
acknowledges and agrees that in the event Sublessor exercises the termination
option provided to Sublessor under the Main Lease, Sublessor shall have no
obligation or liability to Subtenant, and it shall be Subtenant's
responsibility to negotiate a separate agreement with Overlandlord to remain
in the Premises as provided in Section K of the First Amendment. In the event
Subtenant elects to exercise the right to terminate under the Main Lease,
Sublessor agrees to cooperate with Subtenant in order to facilitate
Subtenant's exercise of the termination right (at no cost or expense to
Sublessor), but Subtenant acknowledges and agrees that Sublessor has no
independent obligation to honor the termination right and further agrees that
this Sublease and Subtenant's obligations hereunder shall not terminate
unless and until the Main Lease and the obligations thereunder terminate with
respect to the Premises. Notwithstanding any provision to the contrary
contained herein, Subtenant shall have no right to exercise the right of
termination if Subtenant is in default under this Sublease beyond applicable
notice and cure periods.
14. ASSIGNMENT AND SUBLETTINGS. Subtenant shall not, by operation
of law, merger, consolidation or otherwise, assign, sell, mortgage, pledge or
in any manner transfer this Sublease or any interest therein, or sublet the
Premises or any part or parts thereof, or grant any concession or license or
otherwise permit occupancy of all or any part of the Premises by any person,
except with the prior written consent of Sublessor. Sublessor shall not
unreasonably withhold its consent to an assignment of this Sublease by
Subtenant (which assignment may nevertheless require the consent of
Overlandlord), provided that the assignee proposed by Subtenant shall
demonstrate to the reasonable satisfaction of Sublessor that such proposed
assignee has a net worth and financial capacity equal to or greater than the
net worth and financial capacity of Subtenant. Neither the consent of
Sublessor to an assignment, subletting, concession or license, nor the
references in this Sublease to assignees, subtenants, concessionaires or
licensees, shall in any way be construed to relieve Subtenant of the
requirement of obtaining the consent of Sublessor to any further assignment,
subletting, concession or license for all or any part of the Premises. In the
event Sublessor consents to any assignment of this Sublease, the assignee
shall execute and deliver to Sublessor an agreement in form and substance
satisfactory to Sublessor
8
<PAGE>
whereby the assignee shall assume all of Subtenant's obligations under this
Sublease from and after the date of the assignment. Notwithstanding any
assignment or subletting, including, without limitation, any assignment or
subletting permitted or consented to, the original Subtenant named herein and
any other person(s) who at any time was or were Subtenant shall remain fully
liable on this Sublease, and if this Sublease shall be amended, modified,
extended or renewed, the original Subtenant named herein and any other
person(s) who at any time was or were Subtenant shall remain fully liable on
this Sublease as so amended, modified, extended or renewed. Any violation of
any provision of this Sublease by any assignee, subtenant or other occupant
shall be deemed a violation by the original Subtenant named herein, the then
Subtenant and any other person(s) who at any time was or were Subtenant, it
being the intention and meaning that the original Subtenant named herein, the
then Subtenant and any other person(s) who at any time was or were Subtenant
shall all be liable to Sublessor for any and all acts or omissions of any and
all assignees, subtenants and other occupants of the Premises claiming by,
through or under Subtenant. If this Sublease shall be assigned or if the
Premises or any part thereof shall be sublet or occupied by any person or
persons other than the original Subtenant named herein, Sublessor may collect
rent from any such assignee and/or any subtenants or occupants, and apply the
net amounts collected to the Base Rent and Additional Charges, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of
any of the provisions of this Paragraph, or the acceptance of the assignee,
subtenant or occupant as Subtenant, or a release of any person from the
further performance by such person of the obligations of Subtenant under this
Sublease.
15. INSURANCE. Subtenant shall provide and maintain throughout the
term of this Sublease a policy or policies of comprehensive public liability
insurance in standard form naming Sublessor and Overlandlord as additional
insureds and otherwise complying with Section of the Main Lease with limits of
not less than $2,000,000.00 combined single limit for both bodily injury or
death and for property damage, including water damage. A policy, binder or
other reasonable satisfactory evidence of such insurance shall be delivered
to Sublessor by Subtenant no less than ten (10) days before the Possession
Date. Subtenant shall procure and pay for renewals or replacements of such
insurance from time to time before the expiration thereof, and Subtenant
shall deliver to Sublessor such renewal or replacement policy or binder or
other reasonably satisfactory evidence of such insurance at least 30 days
before the expiration of any existing policy. All such policies shall be
issued by companies licensed to do business in the State of California and
shall contain a provision whereby the same cannot be cancelled or modified
unless Sublessor is given at least 30 days' prior written notice by certified
or registered mail of such cancellation or modification.
16. RIGHT TO CURE SUBTENANT'S DEFAULTS AND DAMAGES. If Subtenant
shall at any time fail to make any payment or perform any other obligation
of Subtenant hereunder within the applicable cure period, if any, then
Sublessor shall have the right, but not the obligation, after five days'
notice to Subtenant, or without notice to Subtenant in the case of any
emergency, and without waiving or releasing Subtenant from any obligations of
Subtenant hereunder, to make such payment or perform such other obligation of
Subtenant in such manner and to such extent as Sublessor shall deem
necessary, and in exercising any such right, to pay any incidental costs and
expenses, employ attorneys, and incur and pay reasonable attorneys' fees.
Subtenant shall pay to Sublessor upon demand all sums so paid by Sublessor
and all incidental costs and
9
<PAGE>
expenses of Sublessor in connection therewith, together with interest thereon
at the rate of 2% per calendar month or any part thereof or the then maximum
rate of interest which may lawfully be collected from Subtenant, whichever
shall be less, from the date of the making of such expenditures.
17. REMEDIES OF SUBLESSOR.
(a) "Default" shall mean a default by Subtenant under any
provision of this Sublease which default has not been cured within
any applicable grace or cure period.
(b) If a Default occurs, Sublessor shall have, in addition
to all its rights and remedies contained in the Incorporated
Provisions pursuant to Section 4 hereof, the following rights and
remedies; all of Sublessor's rights and remedies under this
Sublease are distinct, separate and cumulative, and none will
exclude any other right or remedy allowed by law:
(i) Sublessor may, with or without notice of such
election and with or without entry or other action by
Sublessor, immediately terminate this Sublease, in which
event the Term of this Sublease shall end and all right,
title, and interest of Subtenant hereunder shall expire; or
(ii) Sublessor may enforce the provisions of this
Sublease and may enforce and protect the rights of the
Sublessor hereunder by a suit or suits in equity or at law for
the specific performance of any covenant or agreement herein
or for the enforcement of any other appropriate legal or
equitable remedy, including the recovery of all moneys due or
to become due under any of the provisions of this Sublease.
(c) If Sublessor elects to terminate Subtenant's right to
possession only without terminating this Sublease, Sublessor, at
Sublessor's option, may enter into the Premises, remove Subtenant's
signs and other evidences of tenancy, and take and hold possession
thereof without such entry and possession terminating this Sublease
or releasing Subtenant, in whole or in part, from Subtenant's
obligation to pay Rent under this Sublease for the full Term, and
in the case Sublessor elects to terminate the Sublease or to
terminate possession only, Subtenant will immediately pay to
Sublessor, if Sublessor so elects, a sum equal to the then present
value (as defined in the following sentence) of the entire amount
of the Rent specified in Section 9 of this Sublease for the
remainder of the Term, plus any other sums then due under this
Sublease, less the fair rental value of the Premises for such
period. In calculating this sum, present value shall be computed on
the basis of a discount rate of six percent per annum. In the
alternative, upon and after entry into possession without
termination of the Sublease, Sublessor will use its best efforts to
relet all or any part of the Premises for Subtenant's account for
such rent and for such time and upon such terms as Sublessor in
Sublessor's sole discretion may determine. Sublessor will not be
required to observe any instruction given by Subtenant about such
reletting. Subtenant will, upon demand, pay the cost of Sublessor's
expenses of the reletting. If the consideration collected by
Sublessor upon any such
10
<PAGE>
reletting for Subtenant's account is not sufficient to pay monthly
the full amount of the Rent due under this Sublease, together with
the costs of Sublessor's expenses, Subtenant will pay to Sublessor
the amount of each monthly deficiency upon demand.
(d) Subtenant will pay upon demand all of Sublessor's costs,
charges, and expenses, including reasonable attorneys' fees, and
fees and expenses of agents and others retained by Sublessor in any
litigation, negotiation, or transaction in which Sublessor seeks to
enforce the terms or provisions of this Sublease.
18. BROKERAGE. Sublessor and Subtenant each represents to the
other that no broker or other person had any part, or was instrumental in any
way, in bringing about this Sublease. Sublessor and Subtenant each agree to
indemnify, defend and hold harmless the other from and against, any claims
made by any broker or any person, for a brokerage commission, finder's fee,
or similar compensation, by reason of or in connection with this Sublease,
and any loss, liability, damage, cost and expense (including, without
limitation, reasonable attorneys' fees) in connection with such claims if
such broker or other person had, or claimed to have, dealings with such party
in bringing about this Sublease. The provisions of this Paragraph shall
survive the expiration or termination of this Sublease.
19. WAIVER OF JURY TRIAL AND RIGHT TO COUNTERCLAIM. Subtenant
hereby waives all right to trial by jury in any summary or other action,
proceeding or counterclaim arising out of or in any way connected with this
Sublease. Subtenant also hereby waives all right to assert or interpose a
counterclaim in any summary proceeding or other action or proceeding to
recover or obtain possession of the Premises unless legally required to do so
to preserve the claim.
20. NO WAIVER. The failure of Sublessor to insist in any one or
more cases upon the strict performance or observance of any obligation of
Subtenant hereunder or to exercise any right or option contained herein shall
not be construed as a waiver or relinquishment for the future of any such
obligation of Subtenant or any right or option of Sublessor. Sublessor's
receipt and acceptance of Base Rent or Additional Charges, or Sublessor's
acceptance of performance of any other obligation by Subtenant, with
knowledge of Subtenant's breach of any provision of this Sublease, shall not
be deemed a waiver of such breach. No waiver by Sublessor of any term,
covenant or condition of this Sublease shall be deemed to have been made
unless expressed in writing and signed by Sublessor.
21. COMPLETE AGREEMENT. There are no representations, agreements,
arrangements or understandings, oral or written, between the parties relating
to the subject matter of this Sublease which are not fully expressed in this
Sublease. This Sublease cannot be changed or terminated orally or in any
other manner other than by a written agreement executed by both parties.
22. SUCCESSORS AND ASSIGNS. The provisions of this Sublease,
except as herein otherwise specifically provided, shall extend to, bind and
inure to the benefit of the parties hereto and their respective personal
representatives, heirs, successors and permitted assigns. In the event of any
assignment or transfer of the leasehold estate under the Main Lease, the
transferor or assignor, as the case may be, shall be and hereby is entirely
relieved and freed of all obligations under this Sublease arising after the
date of any such assignment or transfer, except
11
<PAGE>
that Sublessor shall not be relieved and freed of its payment obligations to
Overlandlord under the Main Lease which payment obligations are greater than
the payment obligations of Subtenant to Sublessor hereunder unless
Overlandlord and Sublessor otherwise agree.
23. INTERPRETATION. Irrespective of the place of execution or
performance, this Sublease shall be governed by and construed in accordance
with the laws of the state where the Premises is located. If any provision
of this Sublease or the application thereof to any person or circumstance
shall, for any reason and to any extent, be invalid or unenforceable, the
remainder of this Sublease and the application of that provision to other
persons or circumstances shall not be affected but rather shall be enforced
to the extent permitted by law. The table of contents, captions, headings
and titles, if any, in this Sublease are solely for convenience of reference
and shall not affect its interpretation. This Sublease shall be construed
without regard to any presumption or other rule requiring construction
against the party causing this Sublease to be drafted. Each covenant,
agreement, obligation or other provision of this Sublease shall be deemed and
construed as a separate and independent covenant of the party bound by,
undertaking or making same, not dependent on any other provision of this
Sublease unless otherwise expressly provided. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the parties may require. The
word "person" as used in this Sublease shall mean a natural person or
persons, a partnership, a corporation or any other form of business or legal
association or entity. This Sublease may be executed in counterparts or with
counterpart signature pages.
24. CONSENT OF LANDLORD UNDER MAIN LEASE. This Sublease shall not be
operative or effective for any purpose whatsoever unless and until
Overlandlord shall have given its written consent as provided hereto and any
conditions precedent with respect to such consent have been satisfied or
waived. Sublessor shall have no obligation to satisfy any such conditions
precedent provided, however, that Subtenant may, but shall not be obligated
to, satisfy any such conditions precedent and Sublessor shall reasonably
cooperate with Subtenant (at no cost or expense to Sublessor) in this regard.
Subtenant shall be responsible for the payment of any administrative fees,
attorneys fees or other charges required by Overlandlord in connection with
such consent.
25. HOLDING OVER; SURRENDER. Subtenant shall pay Sublessor a sum for
each day that Subtenant retains possession of the Premises or any part
thereof after termination of this Sublease, by lapse of time or otherwise,
equal to two (2) times the sum which Sublessor is required to pay
Overlandlord for the Premises, and Subtenant shall also pay damages
consequential as well as direct, sustained by Sublessor by reason of such
retention. Nothing in this Section contained, however, shall be construed or
operate as a waiver of Sublessor's right of reentry or any other right of
Sublessor under this Sublease or of Overlandlord under the Main Lease. Upon
termination of this Sublease, Subtenant shall be responsible for the removal of
all alterations or improvements from the Premises which Overlandlord requires
to be removed under the Main Lease, as well as all other surrender
obligations with respect to the Premises under the Main Lease.
26. SECURITY DEPOSIT. Subtenant agrees to deposit with Sublessor, upon
the execution of this Sublease. $8,855.03 as security for the full and
faithful performance by Subtenant of every term, provision, covenant, and
condition of this Sublease. The security deposit will be
12
<PAGE>
held by Sublessor, provided however, that Sublessor will have no obligation
to segregate the amount from Sublessor's other funds. Upon the occurrence of
a Default by Subtenant in respect to any of the terms, provisions, covenants,
or conditions of this Sublease, including, but not limited to, payment of
Rent, Sublessor may use, apply, or retain the whole or any part of the
security so deposited for the payment of any such Rent in default, or for any
other sum which Sublessor may expend or be required to expend by reason of
Subtenant's Default, including, without limitation, any damage or deficiency
in the reletting of the Premises, whether such damage or deficiency accrued
before or after any reentry by Sublessor. If any of the deposit is so used,
Subtenant, on written demand by Sublessor, will promptly pay to Sublessor
such additional sum as may be necessary to restore the deposit to the
original amount set forth in this Section. If Subtenant fully and faithfully
complies with all of the terms, provisions, covenants, and conditions of this
Sublease, the deposit, or any balance thereof will be returned to Subtenant
after the last to occur of the following:
(a) the time fixed as the expiration of the Term of this Sublease;
(b) the surrender of the Premises by Subtenant to Sublessor in
accordance with this Sublease;
(c) the receipt of Sublessor of all sums due pursuant to the
Sublease. Except as otherwise required by law, Subtenant will not be
entitled to any interest on such deposit.
27. COUNTERPARTS. This Sublease may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute but one and the same instrument.
28. NO OFFER. The submission of this Sublease shall not be deemed to be
an offer, an acceptance, or a reservation of the Premises; and Sublessor
shall not be bound hereby until Sublessor has delivered to Subtenant a fully
executed copy of this Sublease, signed by both of the parties on the last
page of this Sublease in the spaces herein provided. Until such delivery,
Sublessor reserves the right to exhibit and lease the Premises to other
prospective tenants.
29. SUBLESSOR'S CONTINGENCY. Sublessor shall have no obligation under
this Sublease unless and until Overlandlord shall have executed and delivered
the First Amendment to Sublessor.
13
<PAGE>
IN WITNESS WHEREOF, Sublessor and Subtenant have executed this Sublease
as of the day and year first above written.
SUBLESSOR: IXL-SAN DIEGO, INC., a Delaware corporation
By: /s/ David Watkins
--------------------------------------
Name: David Watkins
------------------------------------
Title: President
-----------------------------------
SUBTENANT: KINZAN.COM., a California corporation
By: /s/ Gari L. Cheever
--------------------------------------
Name: Gari L. Cheever
------------------------------------
Title: President & CEO
-----------------------------------
14
<PAGE>
ACKNOWLEDGED AND CONSENTED TO:
C.B. Graham International, Inc., a Delaware corporation, Landlord
under the Main Lease, hereby consents to the sublease of the Premises as
described in the foregoing Sublease and confirms that the consent given
hereby satisfies the requirements for landlord's consent of the subletting of
the Premises set forth in the Main Lease.
OVERLANDLORD: C.B. GRAHAM INTERNATIONAL, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
15
<PAGE>
FIRST AMENDMENT TO LEASE
(EXPANSION)
THIS AMENDMENT, dated this 19h day of March, 1999, between CB Graham
International, Inc., a Delaware corporation ("Landlord") and iXL-San Diego,
Inc., a Delaware corporation ("Tenant"), for the premises located in the City
of Carlsbad, County of San Diego State of California, commonly known as
2121 Palomar Airport Road, Suite 200 (the "Premises").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant, entered into that certain Lease dated
July 27, 1998 (hereinafter to as the "Lease"); and
WHEREAS, Landlord and Tenant desire to amend the Lease as more fully set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Unless otherwise specifically set forth herein, all
capitalized terms herein shall have the same meaning as set forth in the
Lease.
A. PREMISES to include an expansion of 3,537 rentable square feet into
2111 Palomar Airport Road, Suite 250 increasing the total Premises to
10,817 rentable square feet. Expansion includes 557 rentable square feet,
formerly known as Suite 260, to be added as soon as available,
approximately May 15, 1999. Exhibit A-1 attached for outline of Premises.
B. COMMENCEMENT DATE for expanded Premises will be April 5, 1999.
C. TERMINATION DATE for entire Premises shall be August 31, 2003.
D. INITIAL ANNUAL RENT shall be $215,205.24, subject to paragraph E
below.
E. INITIAL MONTHLY INSTALLMENT of Annual Base Rent shall be $17,933.77
with increases as follows (Article 38 adjusted as follows):
<TABLE>
<S> <C> <C> <C>
Base Rent for the period Apr. 1, 1999 through Aug. 31, 1999 $17,933.77 per month
Base Rent for the period Sept. 1, 1999 through Mar. 31, 2000 $20,691.72 per month
Base Rent for the period Apr. 1, 2000 through Aug. 31, 2000 $20,969.01 per month
Base Rent for the period Sept. 1, 2000 through Mar. 31, 2001 $21,478.61 per month
Base Rent for the period Apr. 1, 2001 through Aug. 31, 2001 $21,766.99 per month
Base Rent for the period Sept. 1, 2001 through Mar. 31, 2002 $22,203.79 per month
Base Rent for the period Apr. 1, 2002 through Aug. 31, 2002 $22,503.71 per month
Base Rent for the period Sept. 1, 2002 through Mar. 31, 2003 $23,026.11 per month
Base Rent for the period Apr. 1, 2003 through Aug. 31, 2003 $23,338.03 per month
</TABLE>
The monthly rate will be reduced proportionately until improvements for the
2,980 rentable square foot area (based on $5,840.80 per month) and then the
557 rentable square foot (based on $1,091.72 per month) space are
substantially completed. The 2,980 square foot portion is ready for occupancy
as of April 5, 1999 therefore rent for April 1999 shall be $16,063.28 and May
1999 shall be $16,842.05. June 1999 shall be dependent upon the commencement
date for the expansion into what is formerly known as Suite 260.
F. PROPORTIONATE SHARE shall be 8.17% based on a project size of 132,420
rsf.
G. SECURITY DEPOSIT shall be $25,671.83 subject to the terms in Article
5. Landlord acknowledges that Landlord currently holds $16,816.80
previously deposited by Tenant in connection with the master lease and
Tenant is required to include a check for only $8,855.03 with the return of
this executed First Amendment to Lease.
H. TENANT IMPROVEMENTS (Exhibit B-1) Landlord to provide an $11/usf
($11 x 3103 usable square feet = $34,133) allowance paid by Landlord (not
to exceed $34,133) to modify
(AFFIX CORPORATE SEAL)
<PAGE>
Suite 250 and what was formerly known as Suite 260 per details and working
drawings approved by Tenant in accordance with Exhibit B-1 to this
Amendment.
I. UTILITIES (Article 13) are provided to Suite 250 and what was
formerly known as Suite 260 via separate electric meters and Tenant shall
put the accounts for meters serving the space occupied in the 2111 building
in their name and pay the provider directly. The Building hours for HVAC are
7 am to 6 pm Monday through Friday and 8 am to 1 pm on Saturday (Sundays
and legal holidays excepted). After-hours HVAC is subject to fees, but
not to exceed $15 per hour per building address during the term of this
Lease.
J. RIGHT OF FIRST OFFER on contiguous space is hereby provided to Tenant
for Suite 270 at 2111 Palomar Airport Road. Provided Tenant is not then in
default under the terms, covenants and conditions of the Lease beyond
applicable notice and cure periods, Tenant shall have the right to lease
approximately 1,482 square feet (the "Expansion Premises") at such time as
the Expansion Premises is vacated by the prior tenant. In such event,
Landlord shall give written notice to Tenant of the availability of the
Expansion Space and the terms and conditions on which Landlord intends to
offer it to the public and Tenant shall have a period of ten (10) business
days from receipt of Landlord's notice in which to exercise Tenant's
right to lease the Expansion Premises pursuant to the terms and conditions
contained in Landlord's notice, failing which Landlord may lease the
Expansion Premises to any third party on whatever basis Landlord desires,
and Tenant shall have no further rights with respect to the Expansion
Premises. If Tenant exercises an expansion option hereunder, effective as
of the date Landlord delivers the Expansion Premises (the "Delivery Date"),
the Expansion Premises shall automatically be included within the Premises
and subject to all the terms and conditions of the Lease, except as set
forth in Landlord's notice and as follows: (a) Tenant's Proportionate Share
shall be recalculated, using the total square footage of the Premises, as
increased by the Expansion Premises; (b) unless negotiated otherwise, the
Expansion Premises shall be leased on an "as is" basis and Landlord shall
have no obligation to improve the Expansion Premises or grant Tenant any
improvement allowance thereon; and (c) if requested by Landlord, Tenant and
Landlord shall, prior to the beginning of the term for the Expansion
Premises, execute a written memorandum confirming the inclusion of the
Expansion Premises and the Annual Rent for the Expansion Premises.
K. FURTHER EXPANSION COORDINATION. Providing Tenant has not been in
default during the term of this Lease, Landlord shall use its best business
efforts to accommodate Tenant and any affiliate of Tenant the opportunity
to expand within the Building complex known as Carlsbad Executive Plaza.
Should Landlord be unable to accommodate either Tenant or an affiliate's
growth need, Tenant shall be permitted to exercise the Option To Terminate
(Article 40) for the entire Premises covered under this Lease and its
Amendments or Tenant shall be allowed to reduce the rentable square footage
of the Premises to either of the demised suites in either building under the
terms of Article 40 of the master Lease and retain the terms and conditions
of the master Lease. The termination formula shall be prorated based on
length of term remaining and square footage of the demised premises
retained by Tenant. Landlord shall use its best business efforts to
accommodate any affiliate of Tenant that meets the financial requirements
of the Landlord should they desire to retain a demised portion of the
Premises subject to then-market rent.
2. INCORPORATION. Except as modified herein, all other terms and conditions
of the Lease between the parties above described, as attached hereto, shall
continue in full force and effect.
3. LIMITATION OF LANDLORD'S LIABILITY. Redress for any claims against
Landlord under this Amendment or under the Lease shall only be made against
Landlord to the extent of Landlord's interest in the property to which the
Premises are a part. The obligations of Landlord under this Amendment and
the Lease shall not be personally binding on, nor shall any resort be had to
the private properties of, any of its trustees or board of directors and
officers, as the case may be, the general partners thereof or any
beneficiaries, stockholders, employees or agents of Landlord, or its
investment manager.
4. Permitted Sublease. Landlord hereby acknowledges and agrees that Tenant
may sublease the additional premises added to this Amendment consisting of
approximately 3,537 rentable square feet known as 2111 Palomar Airport
Road, Suite 250 as shown on Exhibit A-1 to Kinzan.com. Landlord's separate
consent shall be prepared and attached to said sublease.
(AFFIX CORPORATE SEAL)
<PAGE>
Notwithstanding any provision of the Lease to the contrary, Landlord
agrees that it is not entitled to share in any profits which Tenant may
obtain as a result of the sublease to Kinzan.com and waives any recapture
right which it may have with respect to the premises sublet to Kinzan.com.
IN WITNESS WHEREOF, Landlord and Tenant have executed the Amendment as
of the day and year first written above.
<TABLE>
<S> <C> <C>
LANDLORD: TENANT: GUARANTOR:
CB Graham International, Inc., iXL-San Diego, Inc., iXL Holding, Inc.,
a Delaware corporation a Delaware corporation a Delaware corporation
BY: RREEF Management Company, BY: /s/ David G. Watkins BY: /s/ James V. Sanding
a Delaware corporation ------------------------ ----------------------
David G. Watkins PRINT: James V. Sanding
BY: /s/ Jill E. Shanahan ---------------------
---------------------------
Jill E. Shanahan
TITLE: Vice President TITLE: President TITLE: EVP
--------------------
DATE: DATE: 4/21/99 DATE: 4/22/99
--------------------------- ------------------------- --------------------
</TABLE>
(AFFIX CORPORATE SEAL)
<PAGE>
EXHIBIT A-1
This Exhibit A-1 is attached to and made a part of the
First Amendment to Lease dated March 19, 1999,
between CB Graham International, Inc., a Delaware corporation, ("Landlord"),
and iXL-San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
Exhibit A-1 is intended only to show the general layout of the Premises of
the beginning of the Term of this First Amendment to Lease. It does not in
any way supersede any of Landlord's rights set forth in Section 17.2 with
respect to arrangements and/or locations of common areas of the Building and
changes in such arrangements and/or locations. It is not to be scaled, any
measurements or distances shown should be taken as approximate.
[MAP]
<PAGE>
EXHIBIT B-1
This Exhibit B-1 is attached to and made a part of the
First Amendment to Lease dated March 19, 1999,
between CB Graham International, Inc., a Delaware corporation, ("Landlord"),
and iXL-San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
TENANT IMPROVEMENTS
FOR 2111 PALOMAR AIRPORT ROAD, SUITE 250
1. RESPONSIBILITY FOR THE WORK.
1.1 Except to the extent otherwise provided in Paragraphs 1.2 and 1.3,
Landlord will, at its sole cost and expense, subject to any maximum
allowance, through its architects furnish architectural, mechanical,
and electrical engineering plans required for the performance of the
work listed on the attached SCHEDULE I ("Landlord's Work").
1.2 Tenant may request work ("Tenant's Requested Work") not conforming
with, or in addition to, Landlord's Work. If Landlord approves such
request in accordance with the Lease, any architectural, mechanical,
and electrical plans and specifications required for the Tenant's
Requested Work shall be furnished, at Tenant's sole costs and expense,
by Landlord's architects and engineers.
1.3 Any interior decorating services which are not included in the
Landlord's Work or which Tenant desires to upgrade beyond the quality
level which Landlord is obligated to deliver, such as selection of wall
paint colors and/or wall coverings, fixtures, non-building standard
carpet, and any or all other decorator items required by Tenant in the
performance of said work referred to hereinabove in Paragraphs 1.1 and
1.2 shall be at the Tenant's sole cost and expense.
1.4 Landlord shall diligently pursue the preparation of all plans and
specifications for the improvements provided for in Paragraphs 2 and 3.
All such plans shall be approved by Tenant, which approval shall not be
unreasonably withheld. Complete plans and specifications and a cost
estimate for the portion of the work covered thereby to be borne by
Tenant shall be approved by Tenant within three (3) days of receipt
from Landlord.
2. COMPLETION OF LANDLORD'S WORK. Landlord will, at its sole cost and expense,
subject to any maximum allowance, furnish and install all of Landlord's Work
in accordance with the applicable provisions of the Lease.
3. CAP ON LANDLORD'S COST. Provided the Lease is in full force and effect and
Tenant is not in default thereunder beyond applicable notice and cure
periods, Landlord hereby agrees to pay toward the cost Landlord's Work an
amount equal to the lesser of: (i) the actual cost of Landlord's Work; or
(ii) $11.00 per useable square foot (approximately 3,103 usf) (the
(AFFIX CORPORATE SEAL)
<PAGE>
"Allowance"). Should estimate of all costs exceed Allowance, Tenant to pay
to Landlord the amount the estimated costs exceed Allowance within three (3)
days of written request from Landlord.
4. ARCHITECT'S CERTIFICATE. The certificate of Landlord's architect that the
work to be done by Landlord pursuant to Paragraphs 2 and 3 above has been
substantially completed shall be adequate evidence that Suite 250 is
completed in accordance with the requirements of the Lease and that
possession thereof has been deemed delivered to Tenant, for all purposes
of the Lease, including the commencement of the payment of rent. Tenant
may submit a written punchlist for deficiencies in the above improvements
within thirty (30) days of possession of the Premises.
5. COMPLETION OF TENANT'S REQUESTED WORK. Provided the plans and
specifications and cost estimate are approved by the date provided
hereinabove in Paragraph 1.4, Landlord shall cause Tenant's Requested
Work to be installed by Landlord's contractor, but at Tenant's sole cost
and expense. Prior to commencing any such work, Landlord, its contractor,
or its architects and engineers, shall submit to Tenant a written estimate
of the cost thereof. Said cost shall include a construction management fee
payable to Landlord equivalent to 0.0% of the cost of Tenant's Requested
Work. If Tenant shall fail to approve any such estimate within five (5)
days after submission thereof, such failure shall be deemed a disapproval
thereof, and Landlord's contractor shall not proceed with such work.
Tenant agrees to pay Landlord within thirty (30) days upon being billed
therefor, the cost to Landlord of all such Tenant's Requested Work. Such
bills may be rendered during the progress of the performance of the work
and the furnishing and installation of the materials to which such bills
relate. Landlord may require Tenant to deposit the estimated cost of such
work with Landlord prior to the commencement of such work.
SCHEDULE I
LANDLORD'S WORK
Landlord's Work shall be detailed demolition notes for Suite 250 and in
mutually acceptable Working Drawings to be prepared by Landlord's architect
for expanding into Suite 260.
Detailed notes for Suite 250 to include new flooring throughout, paint on all
walls not covered in wall covering material, remove four offices, reconfigure
ceiling grid as needed, adjust window blinds to accommodate removal of walls,
enlarge communications closet, enclose small conference room, relocate one
window, and safe-off electrical to junction boxes above ceiling grid.
Drawings for expansion into Suite 260 to include matching new carpet in Suite
250, demolish demising wall, relocate exit door to incorporate hall into
Premises, and balance air conditioning. Landlord is solely responsible for
all costs of Landlord's Work including Working Drawings, permits and
construction at a cost to not exceed $11.00 per useable square foot
(approximately 3,103 usf).
(AFFIX CORPORATE SEAL)
<PAGE>
SECOND AMENDMENT TO LEASE
(EXPANSION)
THIS AMENDMENT, dated this 1st day of September, 1999, between CB Graham
International, Inc., a Delaware corporation ("Landlord") and iXL-San Diego,
Inc., a Delaware corporation ("Tenant"), for the premises located in the City
of Carlsbad, County of San Diego State of California, commonly known as 2121
Palomar Airport Road, Suite 200 (the "Premises").
WITNESSETH:
WHEREAS, Landlord and Tenant, entered into that certain Lease dated July
27, 1998 (hereinafter to as the "Lease"); and
WHEREAS, Landlord and Tenant desire to amend the Lease as more fully set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Unless otherwise specifically set forth herein, all
capitalized terms herein shall have the same meaning as set forth in the
Lease.
A. PREMISES to include an expansion of 1,482 rentable square feet into
2111 Palomar Airport Road, Suite 270 increasing the total Premises to
12,299 rentable square feet. Exhibit A-1 attached for outline of Premises.
B. COMMENCEMENT DATE for expanded Premises will be September 16, 1999.
C. TERMINATION DATE for entire Premises shall be August 31, 2003.
D. INITIAL ANNUAL RENT shall be $284,224.32, subject to paragraph E below.
E. INITIAL MONTHLY INSTALLMENT of Annual Base Rent shall be $23,685.36
with increases as follows (Article 38 adjusted as follows):
<TABLE>
<S> <C> <C> <C>
Base Rent for Sept. 1, 1999 through Sept. 30, 1999 $22,188.54
Base Rent for Oct. 1, 1999 through Mar. 31, 2000 $23,685.36 per month
Base Rent for Apr. 1, 2000 through Aug. 31, 2000 $23,962.65 per month
Base Rent for Sept. 1, 2000 through Mar. 31, 2001 $24,621.93 per month
Base Rent for Apr. 1, 2001 through Aug. 31, 2001 $24,910.31 per month
Base Rent for Sept. 1, 2001 through Mar. 31, 2002 $25,504.28 per month
Base Rent for Apr. 1, 2002 through Aug. 31, 2002 $25,804.20 per month
Base Rent for Sept. 1, 2002 through Mar. 31, 2003 $26,491.62 per month
Base Rent for Apr. 1, 2003 through Aug. 31, 2003 $26,803.54 per month
</TABLE>
September 1999 base rent shall be dependent upon the commencement date for
the expansion into what is formerly known as Suite 270 which is expected
to be prior to September 16th, 1999.
F. PROPORTIONATE SHARE shall be 9.29% based on a project size of
132,420 rsf.
G. SECURITY DEPOSIT shall be $29,483.89 subject to the terms in Article 5.
Landlord acknowledges that Landlord currently holds $25,671.83 previously
deposited by Tenant in connection with the master Lease and the First
Amendment to Lease. Tenant is required to include a check for $3,812.06
with the return of this executed SECOND AMENDMENT TO LEASE.
H. TENANT IMPROVEMENTS (Exhibit B-1) Landlord to provide an $18.59/usf
($18.59 x 1300 usable square feet = $24,167) allowance paid by Landlord (not
to exceed $24,167) to modify Suite 270 per details and working drawings
approved by Tenant in accordance with Exhibit B-1 to this Amendment.
Page 1 of 3
<PAGE>
I. UTILITIES (Article 13) are provided to Suite 270 and the previous
Premises in the 2111 building via separate electric meters and Tenant
shall put the accounts for meters serving the space occupied in the 2111
building in their name and pay the provider directly. The Building
hours for HVAC are 7 AM to 6 PM Monday through Friday and 8 am to 1 PM
on Saturday (Sundays and legal holidays excepted). After-hours HVAC is
subject to fees, but not to exceed $15 per hour per building address
during the term of this Lease.
J. RIGHT OF FIRST OFFER on contiguous space is hereby provided to
Tenant for Suite 280 at 2111 Palomar Airport Road. Provided Tenant is
not then in default under the terms, covenants and conditions of the
Lease beyond applicable notice and cure periods, Tenant shall have the
right to lease approximately 1,147 square feet (the "Expansion
Premises") at such time as the Landlord is notified the Expansion
Premises will be vacated by the prior tenant. In such event, Landlord
shall give written notice to Tenant of the availability of the Expansion
Space and the terms and conditions on which Landlord intends to offer it
to the public and Tenant shall have a period of ten (10) business days
from receipt of Landlord's notice in which to exercise Tenant's right to
lease the Expansion Premises pursuant to the terms and conditions
contained in Landlord's notice, failing which Landlord may lease the
Expansion Premises to any third party on whatever basis Landlord
desires, and Tenant shall have no further rights with respect to the
Expansion Premises. If Tenant exercises an expansion option hereunder,
effective as of the date Landlord delivers the Expansion Premises (the
"Delivery Date"), the Expansion Premises shall automatically be included
within the Premises and subject to all the terms and conditions of the
Lease, except as set forth in Landlord's notice and as follows: (a)
Tenant's Proportionate Share shall be recalculated, using the total
square footage of the Premises, as increased by the Expansion Premises;
(b) unless negotiated otherwise, the Expansion Premises shall be leased
on an "as is" basis and Landlord shall have no obligation to improve the
Expansion Premises or grant Tenant any improvement allowance thereon;
and (c) Tenant and Landlord shall, prior to the beginning of the term
for the Expansion Premises, execute a written memorandum confirming the
inclusion of the Expansion Premises and the Annual Rent for the
Expansion Premises.
K. FURTHER EXPANSION COORDINATION. Providing Tenant has not been in
default during the term of this Lease, Landlord shall use its best
business efforts to accommodate Tenant and any affiliate of Tenant the
opportunity to expand within the Building complex known as Carlsbad
Executive Plaza. Should Landlord be unable to accommodate either Tenant
or an affiliate's growth need, Tenant shall be permitted to exercise the
Option To Terminate (Article 40) for the entire Premises covered under
this Lease and its Amendments or Tenant shall be allowed to reduce the
rentable square footage of the Premises to either of the demised suites
in either building under the terms of Article 40 of the master Lease and
retain the terms and conditions of the master Lease. The termination
formula shall be prorated based on length of term remaining and square
footage of the demised premises retained by Tenant. Landlord shall use
its best business efforts to accommodate any affiliate of Tenant that
meets the financial requirements of the Landlord should they desire to
retain a demised portion of the Premises subject to then-market rent.
L. SIGNAGE RIGHTS. Tenant is granted the right to place building
signage stating "iXL" on a plaque placed on either corner of the
concrete fascia on the north side of the 2121 building. Such signage
shall conform to building standard materials and installation. The cost
of designing, fabricating, permitting, and installing the sign shall be
entirely that of the Tenant. Landlord shall reasonable approve the
design and installation of the sign prior to permitting and again prior
to installation. When Tenant is required to remove the sign, Tenant
shall pay all costs associated with removal of the sign and repair any
damage to the building caused by installation and/or removal of the sign.
2. INCORPORATION Except as modified herein, all other terms and conditions
of the Lease between the parties above described, as attached hereto, shall
continue in full force and effect.
Page 2 of 3
<PAGE>
3. LIMITATION OF LANDLORD'S LIABILITY. Redress for any claims against
Landlord under this Amendment or under the Lease shall only be made against
Landlord to the extent of Landlord's interest in the property to which the
Premises are a part. The obligations of Landlord under this Amendment and
the Lease shall not be personally binding on, nor shall any resort be had
to the private properties of, any of its trustees or board of directors and
officers, as the case may be, the general partners thereof or any
beneficiaries, stockholders, employees or agents of Landlord, or its
investment manager.
4. PERMITTED SUBLEASE. Landlord hereby acknowledges and agrees that Tenant
may sublease the additional premises added by this Amendment consisting of
approximately 1,482 rentable square feet, formerly known as 2111 Palomar
Airport Road, Suite 270 and as shown on Exhibit A-1 to Kinzan.com.
Sublease shall be for 5,019 rentable square feet and, when combined, known
as 2111 Palomar Airport Road, Suite 250. Landlord's separate consent shall
be prepared and attached to said sublease. Notwithstanding any provision
of the Lease to the contrary, Landlord agrees that it is not entitled to
share in any profits which Tenant may obtain as a result of the sublease to
Kinzan.com and waives any recapture right which it may have with respect to
the premises sublet to Kinzan.com
IN WITNESS WEHREOF, Landlord and Tenant have executed the Amendment as
of the day and year first written above.
<TABLE>
<S> <C> <C>
LANDLORD: TENANT: GUARANTOR:
CB Graham International, Inc., iXL-San Diego, Inc., iXL-Enterprises, Inc.,
a Delaware corporation a Delaware corporation a Delaware corporation
BY: RREEF Management Company,
a Delaware corporation BY: /s/ David G. Watkins BY: /s/ [ILLEGIBLE]
----------------------------- -------------------------------
David G. Watkins
PRINT: [ILLEGIBLE]
BY: /s/ Jill E. Shanahan ----------------------------
---------------------------
Jill E. Shanahan
TITLE: Vice President TITLE: President TITLE: Chief Financial Officer
----------------------------
DATE: __________________________ DATE: __________________________ DATE: October 26, 1998
----------------------------
</TABLE>
Page 3 of 3
(AFFIX CORPORATE SEAL)
<PAGE>
This Exhibit A-2 is attached to and made a part of the
Second Amendment to Lease dated September 1, 1999,
between CB Graham International, Inc., a Delaware corporation, ("Landlord"),
and iXL-San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
Exhibit A-2 is intended only to show the general layout of the Premises of
the beginning of the Term of this Second Amendment to Lease. It does not in
any way supersede any of Landlord's rights set forth in Section 17.2 with
respect to arrangements and/or locations of common areas of the Building and
changes in such arrangements and/or locations. It is not to be scaled, any
measurements or distances shown should be taken as approximate.
[Diagram]
Page 1 of 1
<PAGE>
EXHIBIT B-2
This Exhibit B-2 is attached to and made a part of the
Second Amendment to Lease dated September 1, 1999,
between CB Graham International, Inc., a Delaware corporation, ("Landlord"),
and iXL-San Diego, Inc., a Delaware corporation ("Tenant"),
for the Premises located in the County of San Diego, State of California,
commonly known as 2121 Palomar Airport Rd., Suite 200, Carlsbad, CA 92009.
TENANT IMPROVEMENTS
FOR EXPANDING 2111 PALOMAR AIRPORT ROAD, SUITE 250
1. RESPONSIBILITY FOR THE WORK.
1.1 Except to the extent otherwise provided in Paragraphs 1.2 and 1.3,
Landlord will, at its sole cost and expense, subject to any maximum
allowance, through its architects furnish architectural, mechanical,
and electrical engineering plans required for the performance of the
work listed on the attached SCHEDULE I ("Landlord's Work").
1.2 Tenant may request work ("Tenant's Requested Work") not conforming
with, or in addition to, Landlord's Work. If Landlord approves such
request in accordance with the Lease, any architectural, mechanical,
and electrical plans and specifications required for the Tenant's
Requested Work shall be furnished, at Tenant's sole cost and
expense, by Landlord's architects and engineers.
1.3 Any interior decorating services which are not included in the
Landlord's Work or which Tenant desires to upgrade beyond the
quality level which Landlord is obligated to deliver, such as
selection of wall paint colors and/or wall coverings, fixtures,
non--building standard carpet, and any or all other decorator items
required by Tenant in the performance of said work referred to
hereinabove in Paragraphs 1.1 and 1.2 shall be at the Tenant's sole
cost and expense.
1.4 Landlord shall diligently pursue the preparation of all plans and
specifications for the improvements provided for in Paragraphs 2 and
3. All such plans shall be approved by Tenant, which approval shall
not be unreasonably withheld. Complete plans and specifications and
a cost estimate for the portion of the work covered thereby to be
borne by Tenant shall be approved by Tenant within three (3) days of
receipt from Landlord.
2. COMPLETION OF LANDLORD'S WORK. Landlord will, at its sole cost and
expense, subject to any maximum allowance, furnish and install all of
Landlord's Work in accordance with the applicable provisions of the Lease.
3. CAP ON LANDLORD'S COST. Provided the Lease is in full force and effect
and Tenant is not in default thereunder beyond applicable notice and cure
periods, Landlord hereby agrees to pay toward the cost of Landlord's Work
an amount equal to the lesser of: (i) the actual cost of Landlord's Work;
or (ii) $18.59 per useable square foot (approximately 1,300 usf) (the
"Allowance"). Should estimate of all costs exceed Allowance, Tenant to
pay to Landlord the amount the estimated costs exceed Allowance within
three (3) days of written request from Landlord.
Page 1 of 2
<PAGE>
ARCHITECTS CERTIFICATE. The certificate of Landlord's architect that the
work to be done by Landlord pursuant to Paragraphs 2 and 3 above has been
substantially completed shall be adequate evidence that Suite 250 is
completed in accordance with the requirements of the Lease and that
possession thereof has been deemed delivered to Tenant, for all purposes
of the Lease, including the commencement of the payment of rent. Tenant
may submit a written punchlist for deficiencies in the above improvements
within thirty (30) days of possession of the Premises.
5. COMPLETION OF TENANT'S REQUESTED WORK. Provided the plans and
specifications and cost estimate are approved by the date provided
hereinabove in Paragraph 1.4, Landlord shall cause Tenant's Requested
Work to be installed by Landlord's contractor, but at Tenant's sole cost
and expense. Prior to commencing any such work, Landlord, its
contractor, or its architects and engineers, shall submit to Tenant a
written estimate of the cost thereof. Said cost shall include a
construction management fee payable to Landlord equivalent to 0.0% of the
cost of Tenant's Requested Work. If Tenant shall fail to approve any
such estimate within five (5) days after submission thereof, such failure
shall be deemed a disapproval thereof, and Landlord's contractor shall
not proceed with such work. Tenant agrees to pay Landlord within thirty
(30) days upon being billed therefor, the cost to Landlord of all such
Tenant's Requested Work. Such bills may be rendered during the progress
of the performance of the work and the furnishing and installation of the
materials to which such bills relate. Landlord may require Tenant to
deposit the estimated cost of such work with Landlord prior to the
commencement of such work.
SCHEDULE I
LANDLORD'S WORK
Landlord's Work shall be per mutually acceptable Working Drawings to be
prepared by Landlord's architect for expanding into Suite 270.
Detailed notes for Suite 270 to include new flooring throughout to match
existing in Suite 250, paint on all walls not covered in wall covering
material, remove all walls except for conference room, reconfigure ceiling
grid as needed, adjust window blinds to accommodate removal of walls, balance
air conditioning, and safe-off electrical to junction boxes above ceiling
grid.
Drawings for expansion into Suite 270 to include installing one wall with
door and window in the reception area of Suite 250 to create a small room for
computer servers. Air conditioning that serves the computer server room
shall be tied to the existing system and after-hours pump in the server room
in the kitchen area.
Landlord is solely responsible for all costs of Landlord's Work including
Working Drawings, permits and construction at a cost to not exceed $24,167.00.
Page 2 of 2
<PAGE>
Exhibit 10.15
TEMPORARY USE LICENSE AGREEMENT
This License Agreement is executed on March 20, 2000, by and between CB Graham
International, Inc., a Delaware corporation (the "Licensor") and kinzan.com, a
California corporation (the "Licensee").
1. GRANT OF LICENSE.
A. Licensor hereby allows Licensee to use the premises located at
2111 Palomar Airport Road, Suite 370, consisting of 2597
rentable square feet (the "Premises"), on the terms set forth
herein. The Premises are depicted on Exhibit "A" attached
hereto. As consideration for use of the Premises, Licensee
shall pay to Licensor, in advance and without offset a license
fee in the amount of $7,271.60 per month. In the event
Licensee holds over past the expiration or termination hereof,
Licensee shall pay to Licensor $303.00 per day of such
holdover period.
B. Licensee shall use the Premises only for the following
purpose: Offices for Internet company.
C. Licensee and its guests and visitors shall not use more than
nine parking spaces at the Building at any one time.
D. The base fee above includes Licensee's portion of common area
operating expenses and taxes.
E. Should Licensee be approved for and receive a fully executed
Lease of three years or longer from the Landlord for Premises
that total at least 8,000 rentable square feet at Carlsbad
Executive Plaza, Licensee shall be refunded $1.50 per square
foot per month ($3,895.50 per month) of the fee paid for any
term of the License Agreement after September 30, 2000. The
refund shall be applied to the base rent of the second month
and thereafter for the new Lease between kinzan.com and the
Landlord of Carlsbad Executive Plaza.
F. Licensee shall pay for signage costs.
2. TERM.
The term of this License Agreement shall commence on March 24, 2000 and
terminate on September 30, 2000; provided however, Licensor or Licensee
may terminate this License Agreement earlier upon at least forty-five
(45) days written notice for any reason.
3. DEPOSIT.
Upon execution hereof, Licensee shall deposit with Licensor the sum of
$7,500 as security for the full performance of all the provisions of
this License Agreement. Licensor may, without waiver of default or
other remedies, use all or part of the Deposit to clean the Premises,
to repair damage to the Premises, or to compensate Licensor for default
by Licensee hereunder. The Deposit may be kept with Licensor's other
funds and shall not bear interest.
4. USE OF PREMISES.
4.1 The Premises shall be used only for the purposes specified
above and for no other purpose. Licensee shall comply with all
legal requirements affecting the Premises and its use.
Licensee shall not (a) do or permit anything to be done, nor
bring or keep anything in or around the Premises, that will
increase the risk of fire or other loss (including by way of
example, bring flammables or explosives into the Premises or
bringing fuel-powered machinery into the Premises), (b) do or
permit anything to be done which may be a nuisance to tenants,
(c) store anything outside of the Building, (d) place any
signs on or around the Building, nor (e) commit or suffer any
waste upon or about the Premises.
4.2
Licensee shall not, and shall not direct, suffer or permit any
of its agents, contractors, employees, licensees or invitees
to at any time handle, use,
1 of 4
<PAGE>
manufacture, store or dispose of in or about the Premises or
the Building any (collectively "Hazardous Materials")
flammables, explosives, radioactive materials, hazardous
wastes or materials, toxic wastes or materials, or other
similar substances, petroleum products or derivatives or any
substance subject to regulation by or under any federal, state
and local laws, regulations and ordinances relating to the
protection of the environment or the keeping, use or
disposition of environmentally hazardous materials,
substances, or wastes (collectively "Environmental Laws").
Licensee shall protect, defend, indemnify and hold each and
all of Licensor's, Licensor's investment manager, and the
trustees, board of directors, officers, general partners,
beneficiaries, stockholders, employees and agents of each of
them harmless from and against any and all loss, claims,
liability or costs (including court costs and attorney's fees)
incurred by reason of any actual or asserted failure of Lessee
to fully comply with all applicable Environmental Laws, or the
presence, handling, use or disposition in or from the Premises
of any Hazardous Materials, or by reason of any actual or
asserted failure of Licensee to keep, observe, or perform any
provision of this paragraph. Licensor represents to Licensee
that to the best of Landlord's knowledge, the Premises are
free of Hazardous Materials prior to occupancy by Licensee.
4.3 Licensee is responsible for all of its agents and visitors and
shall ensure that they do not do anything, which Licensee is
not allowed to do. Licensee shall faithfully observe and
comply with all the rules and regulations, which Licensor may
promulgate from, time to time regarding the use of the common
areas of the Building.
5. UTILITIES.
The license fee set forth in Article 1 shall not include the cost of
utilities. Licensee shall be responsible for the cost of all utility
service for the Premises.
6. ACCEPTANCE OF PREMISES.
By entry hereunder, Licensee acknowledges that it has examined the
Premises and accepts the same "AS IS" and as being entirely
satisfactory. Licensor has no obligation to alter the Premises.
7. ALTERATIONS, REPAIRS AND MAINTENANCE.
Licensee agrees not to make or permit any alterations to the Premises.
Licensee shall maintain the Premises in its present condition and shall
keep the same neat, clean and orderly. Licensee shall repair any damage
it causes, or in lieu of requiring repairs, Licensor shall have the
right to perform such repairs itself, in which case all repair costs
shall be payable by Licensee upon request. Upon termination of this
License Agreement, Licensee shall deliver the Premises to Licensor in
the same condition as it existing upon commencement of this Agreement.
8. INDEMNITY AND RELEASE; INSURANCE.
8.1 Licensee shall defend, indemnify and hold harmless Licensor
and its property manager and other agents (the "Protected
Parties") from and against any and all claims (and all related
liabilities, costs, and attorneys' fees, collectively
"Damages") arising from (a) Licensee's use of the Premises or
anything done, permitted, suffered or omitted by Licensee or
any of its agents or visitors in or about the Premises, and/or
(b) any breach or default by Licensee hereunder, unless such
Damages are due to Licensor's gross negligence or willful
misconduct. As a material part of the consideration to
Licensor, Licensee hereby assumes all risk of damage to
property or injury to persons in or about the Premises from
any cause whatsoever and waives all claims against Licensor
and/or the other Protected Parties on account of the same.
8.2. During the term hereof, Licensee shall maintain in full force
and effect Comprehensive General Liability on an occurrence
basis with a minimum limit of $2,000,000 combined single
limit, naming Licensor and the other Protected
2 of 4
<PAGE>
Parties as named insureds. Such insurance shall insure
Licensee's indemnity obligations herein. In addition, Licensee
shall insure all of its personal property at 100% of its full
replacement value. All insurance shall contain a complete
waiver of subrogation in favor of Licensor and the other
Protected Parties. Except for insurance relating to personal
property owned by Comdisco. A certificate of all such
insurance (including a prohibition against change or
cancellation of coverage without 30 days prior notice to
Licensor) shall be delivered to Licensor prior to Licensee
entering the Premises. Any insurance maintained by Licensor
will apply in excess of, and not contribute with, insurance
provided by Licensor.
9. ENTRY BY LICENSOR.
Licensor and its agents shall have the right to enter the Premises for
any business purpose, including to inspect the same or to make repairs
or alterations to the Building or the Premises and to show the space to
prospective tenants. Licensee shall not alter any lock or install a new
or additional lock on any door of the Premises without the prior
written consent of the Licensor.
10. ASSIGNMENT AND SUBLICENSE.
Licensee shall not (a) assign this License Agreement or any interest in
this License Agreement, (b) permit the use of the Premises by any
person or persons other than Licensee, nor (c) sublicense all or any
part of the Premises.
11. DEFAULT BY LICENSEE.
Time is of the essence hereof. Licensee shall be in default if Licensee
fails to perform any obligation hereunder as and when due. In the event
of such a default, Licensor shall have all rights and remedies allowed
by law. In addition, Licensor shall have the right to terminate this
License Agreement and/or Licensee's right to use the Premises. Upon any
such termination, Licensee shall immediately yield up possession of the
Premises and Licensor may take any and all action, including changing
the locks on the Premises and removing all of Licensee's possessions
from the Premises, to enforce Licensee's obligations.
12. ATTORNEY'S FEES.
In the event of litigation to enforce or to interpret this License
Agreement, the prevailing party shall be entitled to recover, in
addition to all other sums and relief, its reasonable costs and
attorneys fees incurred at and in preparation for arbitration, trial,
appeal and/or review, including costs and attorneys fees in federal
bankruptcy proceedings.
13. NOTICES.
All notices to Licensee shall be in writing and shall be sufficiently
given if delivered to the Premises to the attention of "General
Counsel" or if sent by certified mail to the Premises to the attention
of "General Counsel" or to the address (if any) shown at the end of
this License Agreement.
14. INTERPRETATION.
14.1 This License Agreement shall be governed by the law of the
state where the Building is located. This License Agreement
contains the entire agreement of the parties. This License
Agreement can be amended, or any right or provision waived,
only by written document signed by both parties.
14.2 All obligations, liabilities, indemnities, waivers and
releases of Licensee hereunder, as well as the attorneys' fees
provision hereof, shall survive the expiration or termination
of this License Agreement and/or of Licensee's right to use
the Premises.
15. LIMITATION AND LIABILITY.
3 of 4
<PAGE>
Redress for any claim against Licensor under this License Agreement
shall be limited to and enforceable only against and to the extent of
Licensor's interest in the Building. The obligations of Licensor under
this License Agreement are not intended to and shall not be personally
binding on, nor shall any resort be had to the private properties of,
any of its trustees or board of directors and officers, as the case may
be, its investment manager, the general partners thereof, or any
beneficiaries, stockholders, employees, or agents of Licensor or the
investment manager.
IN WITNESS WHEREOF, Licensor and Licensee have executed this License
Agreement as of the date first written above. Individuals signing on behalf of a
principal warrant that they have the authority to bind their principal. This
License Agreement is subject to acceptance by Licensor.
<TABLE>
<S> <C>
LICENSOR: LICENSEE:
CB GRAHAM INTERNATIONAL, INC., KINZAN.COM,
a Delaware corporation a California corporation
BY: RREEF Management Company,
a Delaware corporation
BY: /s/ Jill E. Shanahan BY: /s/ Gari L. Cheever
------------------------------------------- -----------------------------------------
Jill E. Shanahan
TITLE: Vice President TITLE: President & CEO
------------------------------------------- -----------------------------------------
DATE: DATE: 3-28-00
------------------------------------------- -----------------------------------------
</TABLE>
4 of 4
<PAGE>
EXHIBIT A
to Temporary Use License Agreement
dated March 20, 2000, between CB Graham International, Inc.
a Delaware corporation ("Licensor") and kinzan.com, a
California corporation ("Licensee") for Premises known as
2111 Palomar Airport Road, Suite 370, Carlsbad, CA 92009
PREMISES
Exhibit A is intended only to show the general layout of the Premises as of the
beginning of the Term of this Temporary Use License Agreement. It does not in
any way supersede any of Licensor's rights with respect to arrangements and/or
locations of public parts of the Building and changes in such arrangements
and/or locations. It is not to be scaled; any measurements or distances shown
should be taken as approximate.
- -------------------------------------------------
2111 Palomar Airport Road, Suite 370
Carlsbad, CA 92009-1426
- -------------------------------------------------
1 of 1
<PAGE>
Exhibit 10.16
TEMPORARY USE LICENSE AGREEMENT
This License Agreement is executed on March 30, 2000, by and between CB Graham
International, Inc., a Delaware corporation (the "Licensor") and kinzan.com, a
California corporation (the "Licensee").
1. GRANT OF LICENSE.
A. Licensor hereby allows Licensee to use the premises located at
2111 Palomar Airport Road, Suite 140, consisting of 2319
rentable square feet (the "Premises"), on the terms set forth
herein. The Premises are depicted on Exhibit "A" attached
hereto. As consideration for use of the Premises, Licensee
shall pay to Licensor, in advance and without offset a license
fee in the amount of $6,493.20 per month. In the event
Licensee holds over past the expiration or termination hereof,
Licensee shall pay to Licensor $271.00 per day of such
holdover period.
B. Licensee shall use the Premises only for the following
purpose: Offices for Internet company.
C. Licensee and its guests and visitors shall not use more than
nine parking spaces at the Building at any one time.
D. The base fee above includes Licensee's portion of common area
operating expenses and taxes.
E. Should Licensee be approved for and receive a fully executed
Lease of three years or longer from the Landlord for a
Premises that totals at least 8,000 rentable square feet at
Carlsbad Executive Plaza, Licensee shall be refunded $1.50 per
square foot per month ($3,478.50 per month) of the fee paid
for any term of the License Agreement after September 30,
2000. The refund shall be applied to the base rent of the
second month and thereafter for the new Lease between
kinzan.com and the Landlord of Carlsbad Executive Plaza.
F. Licensee shall pay for signage costs.
2. TERM.
The term of this License Agreement shall have commenced on December 15,
1999 and terminate on September 30, 2000; provided however, Licensor or
Licensee may terminate this License Agreement earlier upon at least
forty-five (45) days written notice for any reason. Licensee previously
paid rent as a sublessee of iXL. The amount paid for December 15, 1999
through April 1, 2000 under the sublease shall be transferred to this
License. The balance due for the unpaid portion of the License is
$9,399.68 and shall be paid to Licensor on or before April 9, 2000.
3. DEPOSIT.
Upon execution hereof, Licensee shall deposit with Licensor the sum of
$6,700 as security for the full performance of all the provisions of
this License Agreement. Licensor has previously received $5,509.29
toward deposit and the balance of $1,190.71 is due April 9, 2000.
Licensor may, without waiver of default or other remedies, use all or
part of the Deposit to clean the Premises, to repair damage to the
Premises, or to compensate Licensor for default by Licensee hereunder.
The deposit may be kept with Licensor's other funds and shall not bear
interest.
4. USE OF PREMISES.
4.1 The Premises shall be used only for the purposes specified
above and for no other purpose. Licensee shall comply with all
legal requirements affecting the Premises and its use.
Licensee shall not (a) do or permit anything to be done, nor
bring or keep anything in or around the Premises, that will
increase the risk of fire or other loss (including by way of
example, bring flammables or explosives into the Premises or
bringing fuel-powered machinery into the Premises), (b) do or
permit anything to be done which may be a nuisance to tenants,
(c) store anything outside of the Building, (d) place any
signs on or around the Building, nor (e) commit or suffer any
waste upon or about the Premises.
1 of 4
<PAGE>
4.2 Licensee shall not, and shall not direct, suffer or permit any
of its agents, contractors, employees, licensees or invitees
to at any time handle, use, manufacture, store or dispose of
in or about the Premises or the Building any (collectively
"Hazardous Materials") flammables, explosives, radioactive
materials, hazardous wastes or materials, toxic wastes or
materials, or other similar substances, petroleum products or
derivatives or any substance subject to regulation by or under
any federal, state and local laws, regulations and ordinances
relating to the protection of the environment or the keeping,
use or disposition of environmentally hazardous materials,
substances, or wastes (collectively "Environmental Laws").
Licensee shall protect, defend, indemnify and hold each and
all of Licensor's, Licensor's investment manager, and the
trustees, board of directors, officers, general partners,
beneficiaries, stockholders, employees and agents of each of
them harmless from and against any and all loss, claims,
liability or costs (including court costs and attorney's fees)
incurred by reason of any actual or asserted failure of Lessee
to fully comply with all applicable Environmental Laws, or the
presence, handling, use or disposition in or from the Premises
of any Hazardous Materials, or by reason of any actual or
asserted failure of Licensee to keep, observe, or perform any
provision of this paragraph. Licensor represents to Licensee
that to the best of Licensor's knowledge, the Premises are
free of Hazardous Materials prior to occupancy by Licensee.
4.3 Licensee is responsible for all of its agents and visitors and
shall ensure that they do not do anything, which Licensee is
not allowed to do. Licensee shall faithfully observe and
comply with all the rules and regulations, which Licensor may
promulgate from, time to time regarding the use of the common
areas of the Building.
5. UTILITIES.
The license fee set forth in Article 1 shall not include the cost of
utilities. Licensee shall be responsible for the cost of all utility
service for the Premises.
6. ACCEPTANCE OF PREMISES.
By entry hereunder, Licensee acknowledges that it has examined the
Premises and accepts the same "AS IS" and as being entirely
satisfactory. Licensor has no obligation to alter the Premises.
7. ALTERATIONS, REPAIRS AND MAINTENANCE.
Licensee agrees not to make or permit any alterations to the Premises.
Licensee shall maintain the Premises in its present condition and shall
keep the same neat, clean and orderly. Licensee shall repair any damage
it causes, or in lieu of requiring repairs, Licensor shall have the
right to perform such repairs itself, in which case all repair costs
shall be payable by Licensee upon request. Upon termination of this
License Agreement, Licensee shall deliver the Premises to Licensor in
the same condition as it existing upon commencement of this Agreement.
8. INDEMNITY AND RELEASE; INSURANCE.
2 of 4
<PAGE>
8.1 Licensee shall defend, indemnify and hold harmless Licensor
and its property manager and other agents (the "Protected
Parties") from and against any and all claims (and all related
liabilities, costs, and attorneys' fees, collectively
"Damages") arising from (a) Licensee's use of the Premises or
anything done, permitted, suffered or omitted by Licensee or
any of its agents or visitors in or about the Premises, and/or
(b) any breach or default by Licensee hereunder, unless such
Damages are due to Licensor's gross negligence or willful
misconduct. As a material part of the consideration to
Licensor, Licensee hereby assumes all risk of damage to
property or injury to persons in or about the Premises from
any cause whatsoever and waives all claims against Licensor
and/or the other Protected Parties on account of the same.
8.2. During the term hereof, Licensee shall maintain in full force
and effect Comprehensive General Liability on an occurrence
basis with a minimum limit of $2,000,000 combined single
limit, naming Licensor and the other Protected Parties as
named insureds. Such insurance shall insure Licensee's
indemnity obligations herein. In addition, Licensee shall
insure all of its personal property at 100% of its full
replacement value. All insurance shall contain a complete
waiver of subrogation in favor of Licensor and the other
Protected Parties. Except for insurance relating to personal
property owned by Comdisco. A certificate of all such
insurance (including a prohibition against change or
cancellation of coverage without 30 days prior notice to
Licensor) shall be delivered to Licensor prior to Licensee
entering the Premises. Any insurance maintained by Licensor
will apply in excess of, and not contribute with, insurance
provided by Licensor.
9. ENTRY BY LICENSOR.
Licensor and its agents shall have the right to enter the Premises for
any business purpose, including to inspect the same or to make repairs
or alterations to the Building or the Premises and to show the space to
prospective tenants. Licensee shall not alter any lock or install a new
or additional lock on any door of the Premises without the prior
written consent of the Licensor.
10. ASSIGNMENT AND SUBLICENSE.
Licensee shall not (a) assign this License Agreement or any interest in
this License Agreement, (b) permit the use of the Premises by any
person or persons other than Licensee, nor (c) sublicense all or any
part of the Premises.
11. DEFAULT BY LICENSEE.
Time is of the essence hereof. Licensee shall be in default if Licensee
fails to perform any obligation hereunder as and when due. In the event
of such a default, Licensor shall have all rights and remedies allowed
by law. In addition, Licensor shall have the right to terminate this
License Agreement and/or Licensee's right to use the Premises. Upon any
such termination, Licensee shall immediately yield up possession of the
Premises and Licensor may take any and all action, including changing
the locks on the Premises and removing all of Licensee's possessions
from the Premises, to enforce Licensee's obligations.
12. ATTORNEY'S FEES.
In the event of litigation to enforce or to interpret this License
Agreement, the prevailing party shall be entitled to recover, in
addition to all other sums and relief, its reasonable costs and
attorneys fees incurred at and in preparation for arbitration, trial,
appeal and/or review, including costs and attorneys fees in federal
bankruptcy proceedings.
13. NOTICES.
3 of 4
<PAGE>
All notices to Licensee shall be in writing and shall be sufficiently
given if delivered to the Premises to the attention of "General
Counsel" or if sent by certified mail to the Premises to the attention
of "General Counsel" or to the address (if any) shown at the end of
this License Agreement.
14. INTERPRETATION.
14.1 This License Agreement shall be governed by the law of the
state where the Building is located. This License Agreement
contains the entire agreement of the parties. This License
Agreement can be amended, or any right or provision waived,
only by written document signed by both parties.
14.2 All obligations, liabilities, indemnities, waivers and
releases of Licensee hereunder, as well as the attorneys' fees
provision hereof, shall survive the expiration or termination
of this License Agreement and/or of Licensee's right to use
the Premises.
15. LIMITATION AND LIABILITY.
Redress for any claim against Licensor under this License Agreement
shall be limited to and enforceable only against and to the extent of
Licensor's interest in the Building. The obligations of Licensor under
this License Agreement are not intended to and shall not be personally
binding on, nor shall any resort be had to the private properties of,
any of its trustees or board of directors and officers, as the case may
be, its investment manager, the general partners thereof, or any
beneficiaries, stockholders, employees, or agents of Licensor or the
investment manager.
IN WITNESS WHEREOF, Licensor and Licensee have executed this License
Agreement as of the date first written above. Individuals signing on behalf of a
principal warrant that they have the authority to bind their principal. This
License Agreement is subject to acceptance by Licensor.
<TABLE>
<S> <C>
LICENSOR: LICENSEE:
CB GRAHAM INTERNATIONAL, INC., KINZAN.COM,
a Delaware corporation a California corporation
BY: RREEF Management Company,
a Delaware corporation
BY: /s/ Jill E. Shanahan BY: /s/ Gari L. Cheever
------------------------------------------- -----------------------------------------
Jill E. Shanahan
TITLE: Vice President TITLE: President & CEO
------------------------------------------- -----------------------------------------
DATE: DATE:
------------------------------------------- -----------------------------------------
</TABLE>
4 of 4
<PAGE>
EXHIBIT A
to Temporary Use License Agreement
dated March 30, 2000, between CB Graham International, Inc.
a Delaware corporation ("Licensor") and kinzan.com, a
California corporation ("Licensee") for Premises known as
2111 Palomar Airport Road, Suite 140, Carlsbad, CA 92009
PREMISES
Exhibit A is intended only to show the general layout of the Premises as of the
beginning of the Term of this Temporary Use License Agreement. It does not in
any way supersede any of Licensor's rights with respect to arrangements and/or
locations of public parts of the Building and changes in such arrangements
and/or locations. It is not to be scaled; any measurements or distances shown
should be taken as approximate.
- -------------------------------------------------
2111 Palomar Airport Road, Suite 140
Carlsbad, CA 92009-1426
- -------------------------------------------------
1 of 1
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions Selected Financial
Data and "Experts" and to the use of our report dated April 6, 2000 (except Note
9, as to which the date is April 26, 2000) in the Registration Statement (Form
S-1) and related Prospectus of Kinzan, Inc. to be filed on April 28, 2000.
Ernst & Young LLP
San Diego, California
April 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> OTHER 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 MAR-31-2000
<PERIOD-START> JAN-29-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 13,802,332 12,707,272
<SECURITIES> 0 0
<RECEIVABLES> 990,345 1,297,929
<ALLOWANCES> 28,109 31,162
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,792,677 14,096,511
<PP&E> 1,194,851 0
<DEPRECIATION> 182,496 0
<TOTAL-ASSETS> 17,725,618 17,172,785
<CURRENT-LIABILITIES> 970,307 2,432,695
<BONDS> 0 0
20,828,976 20,837,976
0 0
<COMMON> 1,170,950 2,370,826
<OTHER-SE> (5,244,615) (8,468,712)
<TOTAL-LIABILITY-AND-EQUITY> 17,725,618 17,172,785
<SALES> 1,972,564 828,528
<TOTAL-REVENUES> 1,972,564 828,528
<CGS> 1,745,417 797,591
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 4,542,095 2,486,367
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 41,571 0
<INCOME-PRETAX> (4,331,898) (2,276,597)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,331,898) (2,276,597)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,331,898) (2,276,597)
<EPS-BASIC> (0.59) (0.17)
<EPS-DILUTED> 0 0
</TABLE>
