-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NngiTI7asESEsLzJ7tWOpxIk5Eg4I5MHh7qN+JQM5VvWev5xdyiCI+jhHw3ffx7K ljGcFQ+SNCpDL6Sxc/22XA== 0000950135-99-005679.txt : 19991223 0000950135-99-005679.hdr.sgml : 19991223 ACCESSION NUMBER: 0000950135-99-005679 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19991222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NET GENESIS CORP CENTRAL INDEX KEY: 0001004874 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043236862 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-93335 FILM NUMBER: 99778632 BUSINESS ADDRESS: STREET 1: 150 CAMBRIDGE PARK DRIVE CITY: CAMBRIDGE STATE: MA ZIP: 02140 BUSINESS PHONE: 6176659200 MAIL ADDRESS: STREET 1: 150 CAMBRIDGE PARK DRIVE CITY: CAMBRIDGE STATE: MA ZIP: 02140 S-1 1 NET.GENESIS CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NET.GENESIS CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7372 04-3236862 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
150 CAMBRIDGEPARK DRIVE CAMBRIDGE, MASSACHUSETTS 02140 (617) 665-9200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ MR. LAWRENCE S. BOHN NET.GENESIS CORP. 150 CAMBRIDGEPARK DRIVE CAMBRIDGE, MASSACHUSETTS 02140 (617) 665-9200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: JOHN D. PATTERSON, JR., ESQ. MARK H. BURNETT, ESQ. ROBERT W. SWEET, JR., ESQ. JOCELYN M. AREL, ESQ. FOLEY, HOAG & ELIOT LLP TESTA, HURWITZ & THIBEAULT, LLP ONE POST OFFICE SQUARE 125 HIGH STREET BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110 TELEPHONE: (617) 832-1000 TELEPHONE: (617) 248-7000 TELECOPY: (617) 832-7000 TELECOPY: (617) 248-7100
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------------- If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value...................... $70,000,000 $18,480 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. Includes the offering price attributable to shares that the underwriters have the option to purchase from the registrant solely to cover over-allotments, if any. ------------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS 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 THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED DECEMBER 22, 1999 PROSPECTUS SHARES [NET.GENESIS LOGO] COMMON STOCK This is an initial public offering of common stock by net.Genesis Corp. We are selling shares of common stock. We estimate that the initial public offering price will be between $ and $ per share. ------------------ Prior to this offering, there has been no public market for our common stock. We have applied to have the shares of common stock approved for quotation on the Nasdaq National Market under the symbol NTGX. ------------------
PER SHARE TOTAL --------- ----- Initial public offering price............................... $ $ Underwriting discounts...................................... Proceeds to net.Genesis, before expenses....................
We have granted the underwriters an option for a period of 30 days to purchase up to additional shares of common stock. ------------------ INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ------------------ 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. HAMBRECHT & QUIST DEUTSCHE BANC ALEX. BROWN ------------------ U.S. BANCORP PIPER JAFFRAY , 2000. 3 Inside Front Cover: Graphic depiction of net.Analysis Application featuring various components of the net.Analysis Application including net.Stream, net.Instrument, net.Analysis Datastore, CartSmarts, net.Analysis 4.5, net.Reporter, HTML Reporter, ReportSite and net.Dashboard in boxes with arrows linking the various components to indicate their interrelationships. Graphic is titled "Architecture for E-Customer Intelligence." Top left corner has net.Genesis company logo and the following text: "We offer e-customer intelligence solutions that enable companies to understand and improve their online businesses. Our flagship product, net.Analysis, combines information about web site visitor behavior with a company's other customer data to improve its ability to market, sell and support products, services and content online." Top right corner of the graphic lists the following critical questions: "What are the profiles of our best customer segments? Which banner advertisements and other online sponsorships generate the most visitors and customers for our web site? Which content do visitors find the most valuable? Is our content cost-effective? How can we make our web site easier to use and more effective at selling our products and services?" Below the net.Analysis Application graphic appears the title "Acting on E-Customer Intelligence Benefits" with the following bullet points listed underneath: - - Better Tailored and Targeted Marketing Initiatives - - Improved E-Commerce Effectiveness - - More Relevant and Cost-Effective Content - - Better Web Site Design - - Improved Allocation of Advertising and Partnership Resources - - Better Web Site Infrastructure Planning At the bottom are graphic depictions of customer web sites 4 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 3 Risk Factors................................................ 7 Use of Proceeds............................................. 20 Dividend Policy............................................. 20 Capitalization.............................................. 21 Dilution.................................................... 23 Selected Financial Data..................................... 24 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 26 Business.................................................... 38 Management.................................................. 56 Transactions with Related Parties........................... 66 Principal Stockholders...................................... 68 Description of Capital Stock................................ 70 Shares Eligible for Future Sale............................. 73 Underwriting................................................ 75 Legal Matters............................................... 77 Experts..................................................... 77 Where You Can Find More Information......................... 77 Index to Financial Statements............................... F-1
------------------------ We own or have rights to trademarks or trade names that we use in conjunction with the sale of our products and services. net.Genesis is a registered trademark that we own. CartSmarts, Design for Analysis, HTML Reporter, net.Activator, net.Analysis, net.Analysis DataStore, net.Dashboard, net.Instrument, net.Reporter, net.Stream and ReportSite are trademarks that we own. This prospectus also contains trademarks and trade names of other companies. 2 5 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 following summary together with the more detailed information in this prospectus, including risk factors, regarding our company and the common stock sold in this offering. NET.GENESIS CORP. We offer e-customer intelligence solutions that enable companies to understand and improve their online businesses. Our flagship software product, net.Analysis, combines information about web site visitor behavior with a company's other online and offline customer data to improve its ability to market, sell and support products, services and content online. Our software and services solution enables companies to better tailor and target marketing initiatives, increase the e-commerce effectiveness of their web sites, provide more relevant and cost-effective content, improve web site design, better allocate advertising and partnership resources, and improve web site infrastructure planning. The Internet has emerged as a global medium for communications and electronic commerce, or e-commerce. As use of the Internet has grown, companies have increasingly invested in a variety of advanced software applications and professional consulting services for their web sites to ensure that customers, partners and employees have a satisfying online experience. These include software applications to serve visitors an enormous variety and number of web pages, present multimedia content and banner advertisements, personalize the online experience, and process orders securely and fulfill them reliably. International Data Corporation estimated that spending on Internet commerce software applications would grow from approximately $444 million in 1998 to approximately $13.1 billion in 2003, a compound annual growth rate of 97%. Online businesses seek to better attract, serve and retain customers and more effectively communicate and conduct e-commerce with them. To achieve this objective, companies must understand the needs and web site behavior of their online customers, or e-customers, as well as the specific costs and benefits of each of their web initiatives, such as online marketing campaigns, web site content, advertising and other promotional sponsorships, and web site infrastructure. Complicating matters, companies often desire to analyze and understand their online customers in relation to their traditional offline businesses. We offer net.Analysis, an e-customer intelligence software application, that allows companies to collect comprehensive data about their customers' online behavior and provides powerful analytic and reporting capabilities to enable them to understand, analyze and measurably improve their online businesses. Our professional services organization helps companies identify the relevant performance measures, or e-metrics, of their online businesses that they can use to make better decisions about their web initiatives. Our solution provides customers with the following benefits: Comprehensive Customer Information. With net.Analysis, companies can track visitor activity on their web sites and combine this information with data gathered from other web applications and offline customer information systems to build a unified e-customer information asset. Powerful Analytical Applications. net.Analysis provides powerful analytic capabilities and flexible reporting options to enable companies to understand, profile and segment their e-customers and identify trends in customer behavior. Open and Extensible Architecture. net.Analysis supports both Microsoft Windows NT and Unix operating systems from a common base of software code, integrates with third-party applications and provides a platform for the development of add-on analytical applications. 3 6 Highly Scalable and Reliable Solution in Complex Environments. We have designed net.Analysis to be scalable and reliable enough to be effective in complex web site environments managing tens of millions to over 100 million hits per day. Strategic E-Customer Intelligence Services. We provide strategic analytic consulting services to assist organizations in understanding their e-customers and developing e-metrics that are relevant to their online businesses. We also help companies design web site modifications and develop customized analyses and reports to meet their online business goals. We have licensed net.Analysis to over 200 customers. Our customers include Akamai, Barnes & Noble, BBC News Online, Bell Atlantic, CBS, Charles Schwab, EarthWeb, eBags, Fidelity Investments, Foofoo.com, General Electric, Intraware, Monster.com, PricewaterhouseCoopers, SallieMae, SmarterKids.com, Tavolo, The Gap and Walt Disney. We target Fortune 1000 companies as well as new businesses using the Internet as their primary business channel. We sell our products through our direct sales force and to a lesser extent indirectly through arrangements with systems integrators, original equipment manufacturers and other technology providers. Our executive offices are located at 150 CambridgePark Drive, Cambridge, Massachusetts 02140, and our telephone number at that location is (617) 665-9200. Our web site is located at www.netgen.com. Information contained on our web site is not part of this prospectus. 4 7 THE OFFERING Common stock offered by net.Genesis................. shares Common stock to be outstanding after this offering............................................ shares Use of proceeds..................................... To fund working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol.............. NTGX
The number of shares of common stock to be outstanding after the offering is based on shares outstanding as of December 15, 1999. This number includes 17,156,970 shares that we will issue upon conversion of our outstanding preferred stock upon completion of this offering and 114,458 shares that we expect to issue in connection with the exercise of a warrant before the completion of this offering. It excludes: - 279,739 shares issuable upon exercise of other warrants that will remain outstanding after this offering, which have an exercise price of $1.84 per share - 2,266,736 shares issuable upon exercise of options outstanding as of December 15, 1999, which have a weighted average exercise price of $1.11 per share - 3,800,000 additional shares reserved as of December 15, 1999 for future issuance under our stock-based compensation plans ------------------------------ Except where we state otherwise, the information we present in this prospectus reflects the automatic conversion of our outstanding preferred stock into common stock upon completion of this offering, amendments to our certificate of incorporation and by-laws to be effective upon completion of this offering and no exercise of the underwriters' option to purchase additional shares in this offering. 5 8 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following tables summarize the financial data of our business. We have computed the pro forma share information included in the statement of operations data as we describe in note 2 of the notes to our financial statements. The pro forma as adjusted column in the balance sheet data reflects: - the conversion of all of our outstanding preferred stock into common stock upon completion of this offering - our issuance of shares of common stock upon exercise of a warrant, which we expect will occur before the completion of this offering - our sale of shares of common stock at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses that we will pay
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------- ------------------ 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Revenue: Product revenue.................................. $ 481 $ 845 $ 937 $ 537 $ 2,272 Service revenue.................................. 102 164 631 430 1,602 ------- ------- ------- ------- ------- Total revenue...................................... 583 1,009 1,568 967 3,874 Gross profit....................................... 359 369 575 555 1,934 Total operating expenses........................... 3,146 3,419 6,459 4,128 11,413 Loss from operations............................... (2,787) (3,050) (5,884) (3,573) (9,479) Net loss........................................... (2,616) (3,110) (5,773) (3,500) (9,586) Dividends and accretion of redeemable preferred stock............................................ (118) (337) (660) (411) (1,300) Net loss available to common stockholders.......... (2,734) (3,447) (6,433) (3,911) (10,886) Basic and diluted net loss available to common stockholders per share........................... $(16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11) Shares used in computing basic and diluted net loss available to common stockholders per share....... 171 567 793 721 1,531 Unaudited pro forma basic and diluted net loss per common share..................................... $ (0.68) $ (0.65) Shares used in computing unaudited pro forma basic and diluted net loss per common share............ 8,440 14,804
SEPTEMBER 30, 1999 ---------------------- PRO FORMA ACTUAL AS ADJUSTED ------- ----------- BALANCE SHEET DATA: Cash and cash equivalents................................... $15,936 Working capital............................................. 14,787 Total assets................................................ 21,150 Long-term portion of capital lease obligations and long-term debt...................................................... 2,173 2,173 Redeemable convertible preferred stock...................... 35,964 -- Total stockholders' equity (deficit)........................ (21,005)
6 9 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk. Any of the following risks could harm our business, results of operations and financial condition and could result in a complete loss of your investment. RISKS RELATED TO OUR BUSINESS OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR FUTURE OPERATIONS Although we were formed in 1994, our current business operations have a limited history. We introduced the first version of our net.Analysis software in January 1996 and recorded our first revenue from this product and related services in February 1996. To date, we have generated only limited amounts of revenue from the sale of net.Analysis and related products and services. Accordingly, you have limited information about our company with which to evaluate our business and prospects. Before buying our common stock, you should consider the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets, particularly those companies whose business depends on the Internet. WE HAVE A HISTORY OF LOSSES, EXPECT TO INCUR SUBSTANTIAL LOSSES AND NEGATIVE OPERATING CASH FLOWS AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE We have not achieved profitability since 1994. We expect to continue to incur substantial losses for the foreseeable future and may never become profitable. We incurred net losses of $2.6 million in 1996, $3.1 million in 1997, $5.8 million in 1998 and $9.6 million in the nine months ended September 30, 1999. As a result of ongoing operating losses, we had an accumulated deficit of $23.8 million at September 30, 1999. As we grow our business, we expect operating expenses and capital expenditures to increase significantly, and we expect to continue to incur losses and negative cash flow from operations. As a result, we will need to generate significant revenue to achieve and maintain profitability. We do not believe that we can sustain the percentage rates at which our revenue has grown in recent quarters. We may not be able to sustain or increase profitability or cash flows from operations on a quarterly or annual basis in the future. Our failure to achieve or maintain profitability may materially and adversely affect the market price of our common stock. WE EXPECT OUR REVENUE AND RESULTS OF OPERATIONS TO FLUCTUATE. THE MARKET PRICE OF OUR COMMON STOCK WOULD LIKELY FALL IF OUR QUARTERLY RESULTS ARE LOWER THAN THE EXPECTATIONS OF SECURITY ANALYSTS OR STOCKHOLDERS We have experienced substantial fluctuations in both our annual and quarterly revenue and results of operations, and we expect those fluctuations to continue for the foreseeable future. We believe the following factors are those most likely to cause our revenue and results of operations to fluctuate: - uncertain demand for our products and services - unanticipated changes in the market for e-customer intelligence solutions - the timing of sales and delivery of our products and services - the timing of customer implementations of our products and utilization of our professional services personnel - the mix of revenue derived from products and services - timing of introductions of new products and services by us or our competitors - seasonal trends in our customers' business activity 7 10 - timing of hiring of personnel and changes in productivity of our professional services personnel and direct sales personnel If our revenue or results of operations fall below the expectations of securities analysts or investors, the market price of our common stock would likely fall, and you could lose some or all of your investment. We budget our expenses in part according to the revenue we forecast. A significant percentage of our expenses, particularly salaries and rent, are relatively fixed. As a result, if our revenue falls below our expectations, we may be unable to curtail our expenses quickly enough to avoid losses greater than expected. As a result, our results of operations may be volatile and difficult to predict. We do not believe that period-to-period comparisons of our revenue and operating results are necessarily meaningful. You should not rely on the results of one quarter as an indication of future performance. MOST OF OUR REVENUE EACH QUARTER IS DERIVED FROM A SMALL NUMBER OF LARGE ORDERS. IF WE FAIL TO COMPLETE ONE OR MORE LARGE ORDERS IN ANY QUARTER, OUR REVENUE COULD BE SIGNIFICANTLY LOWER THAN EXPECTED We derive a significant portion of our revenue in each quarter from a small number of large orders. Our quarterly operating results would be adversely affected if we were unable to complete one or more large orders in any quarter. For example, during 1998 we had two customers that each accounted for more than 10% of our total revenue. Moreover, during six of the last seven quarters, we had at least one customer that accounted for between 15% and 25% of total orders in each of those quarters. OUR SALES CYCLES ARE LONG AND UNPREDICTABLE, MAKING IT DIFFICULT TO FORECAST OUR REVENUES AND BUDGET OUR EXPENSES Our sales cycles are long and unpredictable because we generally need to educate potential customers about the benefits of e-customer intelligence solutions. In addition, we believe that, for many of our potential customers, the purchase of our solution can represent a significant portion of their web site budget and a substantial commitment of personnel resources. As a result, we experience widely varying sales cycles that typically range from two to six months. Our long and varying sales cycles make it difficult to predict the quarter in which particular sales may occur and, therefore, to forecast our revenue and budget our expenses. Moreover, we believe that, as our business develops, a significant portion of our sales will increasingly fall within the last month of a quarter, making it difficult to predict revenue until late in the quarter and to adjust expenses accordingly. ALL OF OUR REVENUE IS DERIVED FROM OUR NET.ANALYSIS SOFTWARE AND RELATED PRODUCTS AND SERVICES, AND ANY DECLINE IN DEMAND FOR THAT PRODUCT OR RELATED PRODUCTS AND SERVICES WOULD SERIOUSLY HARM OUR BUSINESS Since 1996, our net.Analysis software and related products and services have accounted for all of our revenue. We anticipate that sales of our net.Analysis software and related products and services will continue to account for substantially all of our revenue for the foreseeable future. Consequently, any decline in the demand for our net.Analysis software, or its failure to achieve and maintain market acceptance, would seriously harm our business. WE FACE INTENSE COMPETITION, AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, WE COULD EXPERIENCE REDUCED DEMAND FOR OUR PRODUCTS AND SERVICES, PRICE REDUCTIONS AND REDUCED GROSS MARGINS FOR OUR PRODUCTS AND SERVICES, ANY OF WHICH WOULD SERIOUSLY HARM OUR BUSINESS Even though the market for e-customer intelligence solutions and web site analysis software is immature, it is already intensely competitive, fragmented, evolving and subject to rapid technological change. We expect competition to intensify in the future. Increased competition 8 11 could result in reduced demand for our products and services, price reductions and reduced gross margins for our products and services, any of which could seriously harm our business. For a discussion of our primary competitors, see "Business -- Competition." We may not be able to compete successfully against current and future competitors. Many of our competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we do. They have significantly greater name recognition and a larger installed base of customers than we have. In addition, many of our competitors have well- established relationships with our current and potential customers and have extensive knowledge of our target markets. As a result, our competitors may be able to respond more quickly to evolving industry standards and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than we can. In the past, we have lost potential customers to competitors for various reasons and may continue to do so. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. In addition, companies marketing Internet applications that are currently complementary to our products could incorporate into their products enhanced analytic and reporting functionality that could adversely affect demand for our solution. We also expect that industry consolidation will increase competition. For example, Accrue recently acquired Marketwave and announced its acquisition of NeoVista, and as a result can offer a wider selection of products to its customers. Accordingly, it is possible that new competitors or alliances among our competitors may emerge and rapidly acquire significant market share. OUR ABILITY TO INCREASE REVENUE DEPENDS ON EXPANDING OUR DIRECT SALES FORCE, WHICH MAY BE DIFFICULT BECAUSE OF THE SHORTAGE OF QUALIFIED SALES PERSONNEL AND BECAUSE IT TAKES TIME FOR NEW HIRES TO BECOME PRODUCTIVE If we are unable to significantly expand our direct sales force, we may not increase our market share or revenue, which could seriously harm our business. To date, we have derived the substantial majority of our revenue from the efforts of our direct sales force. We believe we must increase the size of our direct sales force in order to increase revenue. Competition for qualified sales personnel is intense, and we may not be able to hire a sufficient number of sales people with the skills we need. Moreover, the technical nature of our products lengthens the time it takes for our new sales people to become productive, typically three to six months. This lag in productivity may make it more difficult to meet our sales growth targets. Further, we may not generate sufficient sales to offset the increased expense resulting from growing our sales force, and we may be unable to manage a larger sales force. IF WE ARE UNABLE TO EXPAND OUR INDIRECT SALES CHANNELS, WE MAY NOT MAINTAIN OR INCREASE OUR MARKET SHARE OR REVENUE, WHICH COULD SERIOUSLY HARM OUR BUSINESS Our strategy includes developing relationships with a variety of Internet-oriented systems integrators, resellers, original equipment manufacturers and application service providers in the United States and abroad to augment the efforts of our direct sales force. These third parties may not succeed in marketing or selling our products and services. We have little or no control over the activities of these third parties, and poor performance by any of them could injure our reputation, create liabilities for us and seriously harm our business. These third parties may also market and sell competing products and services, which could adversely affect sales of our products and services. We may be unable to effectively manage potential conflicts among these third parties. Our reliance on these third parties may also increase our credit risks because we effectively bear the risk of non-payment by both the third parties and their customers. Any failure by these parties to pay for our products and services in a timely manner could have a material adverse effect on our business, cash flows and financial condition. 9 12 OUR FAILURE TO UPGRADE OUR PRODUCTS AND INTRODUCE NEW PRODUCTS TO MEET MARKET REQUIREMENTS WOULD SERIOUSLY AFFECT OUR REVENUES AND HARM OUR BUSINESS If we are unable to upgrade our current products and introduce new products and services to meet new technological innovations or demands of online businesses, we could lose current and potential customers, which would adversely affect our revenue and harm our business. The market for our products experiences rapid technological change, frequent new product introductions, Internet-related technology enhancements, uncertain product life cycles, and changes in customer requirements and preferences. The growth of the Internet and intense competition in our industry exacerbate these market characteristics. For example, if we do not continue to upgrade our products to handle the increasing traffic on our customers' web sites, demand for our solutions could diminish. Similarly, widespread adoption of technology that enables web site visitors to conceal their web site activities could seriously impair the functionality and usefulness of our products. Moreover, in developing our products, we make assumptions regarding the industry standards and technologies that our customers and competitors will adopt. If we choose to support standards or technologies that the industry does not adopt, market acceptance of our products may be significantly reduced or delayed. Upgrading or developing our technology poses complex technical challenges and requires substantial expenditures and lead times. We have experienced delays in releasing new and enhanced products and may experience similar delays in the future. Any delays in developing and releasing our new or enhanced products, or decisions by potential customers to defer purchases in anticipation of new products or releases by us or our competitors, could seriously harm our business. IF WE FAIL TO CONTINUE TO GENERATE REVENUE FROM OUR CURRENT CUSTOMERS, OUR BUSINESS WILL BE SERIOUSLY HARMED Our failure to continue to sell products and services to our existing customers could seriously harm our business. In 1998, we derived approximately 48% of our total revenue from sales of products and services to customers that had made purchases from us before 1998. We expect to continue to derive a significant portion of our revenue from our existing customers. Our ability to retain our customers will depend on a variety of factors, including the analytic capabilities, scalability, openness, reliability and cost-effectiveness of our products and services as well as our ability to effectively market our products and services. If we fail to generate repeat and expanded business from our current customers, our operating results would be seriously harmed. THE EXPANSION OF OUR BUSINESS HAS PLACED, AND CONTINUES TO PLACE, A SIGNIFICANT STRAIN ON OUR MANAGEMENT, OPERATING INFRASTRUCTURE AND RESOURCES AND COULD SERIOUSLY HARM US Our failure to properly manage the expansion of our business could seriously harm us. We have recently experienced a period of significant and rapid expansion of our business that has placed, and continues to place, a significant strain on our management, operating infrastructure and resources. For example, several members of our management team joined us in 1999. From December 15, 1998 to December 15, 1999, the number of our employees grew from 59 to 147, and we plan to continue to expand our business by hiring additional personnel. To the extent that our business continues to grow rapidly, we must, among other measures, implement and improve on a timely basis our operating infrastructure, including our administrative, financial, customer service and operational systems, procedures and controls. In the near future, we plan to implement new software systems for enterprise resource planning and human resources management, including payroll and benefits. We could be seriously harmed if our current and anticipated personnel, systems, procedures and controls are inadequate to support our future operations, or if we are unable to complete the necessary improvements to our systems, procedures and controls on a timely basis. 10 13 IF WE LOSE THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER OR OTHER MEMBERS OF OUR SENIOR MANAGEMENT TEAM, OUR BUSINESS COULD SUFFER Our future success depends on the continued service of our senior management and other key personnel. In particular, we rely on the continued services of Lawrence S. Bohn, our President and Chief Executive Officer, John Delea, our Chief Financial Officer and Vice President of Finance and Administration, Eric Richard, a founder and our Chief Technology Officer, and Matthew Cutler, a founder and our Chief E-Business Intelligence Officer. The loss of the services of one or more of these individuals or any other key personnel could result in reduced sales, delays in new product development, decreased customer satisfaction, a reduction of management resources and other injury to our ability to achieve our business objectives. None of our key personnel is bound by a long-term employment agreement with us, and we do not intend to maintain any life insurance to compensate us for the loss of any of our key personnel. BECAUSE THERE IS INTENSE COMPETITION FOR QUALIFIED PERSONNEL IN OUR INDUSTRY, WE MAY NOT BE ABLE TO RECRUIT OR RETAIN THE PERSONNEL WE NEED, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES Our ability to achieve our business objectives could be adversely affected if we cannot identify, attract, hire, train, retain and motivate a substantial number of additional personnel. In particular, we are seeking to hire highly skilled systems engineers and other technical and engineering personnel, sales personnel, and employees for our professional services organization. Because of the technical nature of our products, it typically takes several months to train our professional service personnel to provide services effectively. If we are unable to expand and train our professional services staff to meet customer demand for our services, our business could be seriously harmed. Our headquarters is located in the metropolitan Boston, Massachusetts area, and competition for qualified personnel in this area, as well as the other areas where we need personnel, is intense. Competition is particularly strong for qualified systems engineers and other software development and technical personnel. Many other employers are able to offer significantly more attractive compensation and benefits than we do. We may be unable to recruit and retain the personnel we need. Our business would be seriously harmed if we are unable to retain our existing employees or to hire the other highly qualified personnel we need. IF THIRD-PARTY SOFTWARE THAT WE USE IN OUR PRODUCTS CEASES TO BE AVAILABLE, OUR BUSINESS COULD BE SERIOUSLY HARMED We integrate third-party software to provide some of the functionality of our software. If we cannot maintain licenses to key third-party software, shipments of our products could be delayed until we can develop or license equivalent software and integrate it into our products, which could seriously harm our business. Our license agreements with the vendors of this software usually have a short term, and the vendors may choose not to renew our licenses. Among other third-party software, we license software for chart creation from Soft-tek International and software for database tools from RogueWave Software. IF WE FAIL TO SUCCESSFULLY PROMOTE OUR CORPORATE AND PRODUCT BRAND NAMES, OR IF WE INCUR SIGNIFICANT EXPENSES PROMOTING AND MAINTAINING OUR BRANDS, OUR BUSINESS COULD BE HARMED As competition in the market for our products increases, we believe the importance of brand name recognition will increase. Our failure to achieve and maintain widespread recognition of our corporate and product brand names may limit our sales opportunities, which could limit our market share and seriously harm our long-term business prospects. Successfully promoting and positioning our corporate and product brands will depend largely on the effectiveness of our marketing efforts and our ability to develop reliable and useful products at competitive prices. We may find it necessary to accelerate expenditures on our sales and marketing efforts or otherwise increase our financial commitment to creating and maintaining brand awareness among potential customers. If 11 14 we fail to successfully promote and maintain our brand or incur significant expenses in promoting our brand, our business, results of operations and financial condition could be materially and adversely affected. IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR BUSINESS MAY BE ADVERSELY AFFECTED AND THE MARKET PRICE FOR OUR COMMON STOCK COULD BE SIGNIFICANTLY REDUCED We currently anticipate that our available cash resources combined with the net proceeds from this offering will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. We may need to raise additional debt or equity capital, however, to fund more rapid expansion of our operations and promotion of our corporate and brand names, to enhance our products and services, or to acquire complementary products, services, businesses or technologies. We have raised capital through the issuance of debt or equity securities three times since June 1998. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock, including shares of common stock sold in this offering. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available on terms favorable to us, our business, results of operations and financial condition could be materially and adversely affected. WE MAY NEED TO ACQUIRE COMPLEMENTARY PRODUCTS, SERVICES, BUSINESSES OR TECHNOLOGIES TO REMAIN COMPETITIVE. ACQUISITIONS MAY BE UNAVAILABLE TO US OR MAY EXPOSE US TO RISKS THAT COULD NEGATIVELY AFFECT OUR OPERATING RESULTS We believe our customers will increasingly demand additional product functionality and features and additional services, and our internal resources may be inadequate to meet those demands on a timely basis. As a result, we may need to acquire products, services, businesses, technologies or other capabilities in order to remain competitive. Our failure to meet customer demands could seriously harm our business. We may be unable to successfully identify or acquire on commercially reasonable terms the products, services, businesses, technologies or capabilities that we need. Many of our competitors have greater financial resources and more well-established industry relationships than we do, and may therefore compete more effectively for acquisition opportunities. If we make an acquisition, we may be exposed to additional risks that could seriously harm our business, including the following: - acquired products, services, technologies and capabilities may not meet customer needs or may not achieve or sustain widespread market acceptance - we may encounter difficulties in assimilating acquired products, services, businesses, technologies and capabilities with our existing products, services, technologies and capabilities - we may encounter difficulties in integrating the personnel and operations of an acquired company with our personnel and operations - acquired products, services, businesses, technologies and capabilities may result in decreased revenue from our existing products and services Acquisitions could disrupt our ongoing business, distract our employees, increase our expenses and adversely affect our results of operations. We could issue equity securities to pay for an acquisition, which could dilute the equity interests of our existing stockholders. In addition, acquisitions may involve investment-related or other charges and amortization of acquired technology, goodwill and other intangible assets, which may adversely affect our results of operations. 12 15 FUTURE EXPANSION OF OUR INTERNATIONAL OPERATIONS WILL REQUIRE SIGNIFICANT MANAGEMENT ATTENTION AND FINANCIAL RESOURCES AND OUR EFFORTS TO EXPAND INTERNATIONALLY MAY NOT SUCCEED We intend to expand our international operations and international sales and marketing efforts. We have limited experience in developing localized versions of our software products and in marketing, selling and distributing our solutions internationally. To date, our only offices outside the United States are located in London, England. To successfully expand international sales, we must expand our international operations, recruit additional international sales and support personnel, and expand our international distribution channels. This international expansion strategy will require significant management attention and financial resources, and we may not be successful in implementing our strategy. In particular, because we rely on international resellers, our success in international markets will depend to a significant degree on the success of those resellers and their willingness to dedicate resources to the sale of our products and services. International sales are subject to other inherent risks, such as: - compliance with multiple, conflicting and changing governmental laws and regulations - the existence of protectionist laws and business practices that favor local competition - longer sales and collection cycles, including difficulties obtaining and enforcing judgments against delinquent customers - foreign currency exchange rate fluctuations - difficulties in managing and staffing distant foreign operations - reduced protection for intellectual property rights in some countries - import and export licensing requirements - impact of recessions in economies outside the United States - seasonal reductions in business activity - political and economic instability Our failure to manage these risks adequately could seriously harm our business. OUR BUSINESS AND PROSPECTS WOULD SUFFER IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS Our success depends in large part on our intellectual property, particularly our software. If we fail to successfully enforce our intellectual property rights, other companies might copy our technology or introduce products or services that compete with ours. This could reduce our revenues and weaken our competitive position. We rely solely on a combination of copyright, trademark and trade secrets law, assignment of invention and confidentiality agreements, confidentiality procedures and licensing arrangements to establish and protect our intellectual property rights. We have no patents. We have filed a provisional patent application relating to our net.Activator technology. We have registered the trademark net.Genesis in the United States and claim trademark rights in CartSmarts, Design for Analysis, HTML Reporter, net.Activator, net.Analysis, net.Analysis DataStore, net.Dashboard, net.Instrument, net.Reporter, net.Stream and ReportSite. Our efforts to protect our intellectual property may be inadequate. Existing trade secret, copyright and trademark laws offer only limited protection. In addition, the laws of some foreign countries where we market our products and services do not protect intellectual property rights to the same extent as do the laws of the United States. We may be required to spend significant resources to monitor infringement of and enforce our intellectual property rights. Third parties could copy or otherwise obtain and use our products or technology without our authorization. They could also independently develop similar technology that may infringe our intellectual property rights. We may not be able to detect infringement and may lose our competitive position in the market before we do so. Competitors may also design around our 13 16 technology or develop competing technologies. If this occurs, our business and prospects would be materially and adversely affected. OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD HARM OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reliance on intellectual property rights is pervasive in our industry, and we expect that as competition intensifies, companies will continue to pursue vigorous enforcement of their intellectual property rights through litigation and other means. As a result, third parties may claim that our products or services infringe their intellectual property rights. Any such claim could seriously harm our business, results of operations and financial condition. We have not performed a comprehensive analysis of patents that may limit our ability to do business. An increasing number of companies are seeking and obtaining patents regarding methods of doing business on the Internet, and valid patents may have been issued or may in the future be issued that apply to our methods of doing business. Defending any claim of intellectual property infringement, regardless of merit, is expensive and time-consuming and may distract our management's attention away from our business. As a result of any claim or anticipated claim, we may agree or be forced to: - pay substantial damages - cease selling or using products and services that incorporate the infringed intellectual property - obtain a license for the infringed intellectual property, which might not be available on commercially reasonable terms or which could adversely affect our results of operations and financial condition - attempt to modify our products and services to avoid infringing others' intellectual property rights, which we might be unable to do at all or quickly enough to prevent serious harm to our competitive position in the market WE MAY BE ADVERSELY AFFECTED BY UNEXPECTED YEAR 2000 ISSUES Unexpected "year 2000" issues may harm our business. The year 2000 issue refers generally to the problems that some software may have in determining the correct century for the year. This inability to determine the correct century may result in system failures or erroneous results. Our review of our software products, embedded software applications, material internal software systems and non-information technology systems may not have been adequate to identify year 2000 issues that may affect our business. Any errors or defects in our products could result in delay or loss of revenue, diversion of development resources, damage to our reputation, increased service and warranty costs, or legal liabilities, any of which could seriously harm our business. We may incur substantial expenses attempting to cure any year 2000 problems we encounter. Moreover, year 2000 issues may adversely affect the Internet or the operations of our customers and suppliers, which could have similarly adverse results. We do not have a contingency plan for unexpected year 2000 issues. IF OUR SOFTWARE PRODUCES INACCURATE INFORMATION ABOUT THE ONLINE CUSTOMER BEHAVIOR AND TRANSACTIONS WE TRACK OR DISRUPTS THE FUNCTIONING OF OTHER APPLICATIONS, WE MAY EXPERIENCE CUSTOMER DISSATISFACTION, LOSS OF CUSTOMERS, OR BOTH, AND BE EXPOSED TO LAWSUITS The failure of our products to provide accurate information concerning web site visitor behavior could result in adverse publicity, loss of or delay in market acceptance and claims by customers against us, any of which could seriously harm our business, results of operations and financial condition. Software often contains defects, particularly when first introduced or updated, which can adversely affect performance or result in inaccurate data. We may not discover software defects that adversely affect our products until after they are deployed. Moreover, our products 14 17 typically become incorporated in our customers' online business technology infrastructure, which vary greatly in composition and complexity. As a result, we cannot anticipate and plan for the configuration of every customer's technology infrastructure, and our products may not work properly in every installation or may disrupt the proper functioning of other applications within that infrastructure. Accordingly, customers may discover errors or flaws in our products. Our license agreements typically contain provisions that attempt to limit our liability, but these provisions may not be enforceable in all circumstances. In some circumstances, we may be liable for damages caused by those errors, which could seriously harm our business. We carry only limited amounts of product liability insurance, which may be insufficient to protect us from any losses we suffer. RISKS RELATED TO OUR INDUSTRY IF THE INTERNET FAILS TO GROW AS A MEDIUM FOR COMMUNICATION AND ELECTRONIC COMMERCE, OUR FUTURE REVENUE AND BUSINESS PROSPECTS WOULD BE MATERIALLY AND ADVERSELY AFFECTED Our future revenue and business prospects depend in part on a significant increase in the use of the Internet as a medium for communication and electronic commerce. The Internet is still emerging as a channel for selling goods and services to consumers and businesses. Further, Internet advertising and marketing is new and rapidly evolving, and it cannot yet be compared with traditional advertising media or marketing programs to gauge its effectiveness. Our business and prospects will be materially and adversely affected if the Internet does not become accepted as a medium for purchasing goods and services online or for advertising and marketing. WE PARTICIPATE IN THE UNPROVEN MARKET FOR E-CUSTOMER INTELLIGENCE SOLUTIONS, WHICH MAKES THE DEMAND FOR OUR PRODUCTS UNCERTAIN The market for e-customer intelligence products and services is in an early stage of development and may not continue to grow. Accordingly, the demand for our products is uncertain. Many companies in our target markets are unaware that e-customer intelligence solutions such as ours are available or beneficial and may choose to allocate their resources elsewhere, including internally developed e-customer intelligence capabilities. Moreover, many companies may continue to rely on traditional offline customer intelligence methods. In order for us to be successful, our potential customers must recognize the value of and decide to invest in e-customer intelligence solutions, and, in particular, adopt our solution. Any failure of this market to continue to develop would seriously harm our business. WE DEPEND ON THE CONTINUED VIABILITY OF THE INTERNET INFRASTRUCTURE Our business depends upon the development and maintenance of a viable Internet infrastructure. The current Internet infrastructure may be unable to support an increased number of users, greater frequency of use or increases in the bandwidth requirements of users. The timely development of products such as high-speed modems and communications equipment will be necessary to continue reliable Internet access. In addition, the Internet has experienced outages and delays as a result of damage to portions of its infrastructure. Outages and delays, including those resulting from year 2000 problems, could adversely affect our customers' web sites and third-party web applications and the willingness of our current and potential customers to use our e-customer intelligence solutions. Even if the necessary infrastructure or technologies are developed, we may have to spend considerable resources to adapt our offerings accordingly. In addition, the effectiveness of the Internet may decline due to delays in the development or adoption of new standards and protocols designed to support increased levels of activity. If new standards or protocols are developed, we may be required to incur substantial expenditures to adapt our products. Any of these events could seriously harm our business. 15 18 THE FUNCTIONALITY OF OUR PRODUCTS COULD BE LIMITED BY THE PRIVACY CONCERNS OF ONLINE COMMERCE PARTICIPANTS AND GOVERNMENT REGULATORY REQUIREMENTS, WHICH COULD SERIOUSLY HARM OUR BUSINESS Web sites typically capture information about the preferences and demographics of online users each time a user visits the web site or volunteers information in response to survey or other questions. Our net.Analysis software product enables organizations to analyze and use this customer information for their business purposes, including marketing campaigns and customer solicitations. Privacy concerns may cause web site visitors to resist providing personal data, to avoid web sites known to collect data on visitor behavior and to take other steps to prevent the involuntary collection of personal data, all of which would impair the effectiveness of our products and could seriously harm our business. Moreover, even the perception of privacy concerns may indirectly inhibit market acceptance of our products or services. If customer privacy concerns are not adequately addressed, our business could be seriously harmed. In addition, federal, state, local or foreign governments or agencies have adopted and may in the future adopt legislative or regulatory requirements designed to protect individual privacy on the Internet. For example, the United States' Children's Online Privacy Act, which took effect in October 1999, imposes new obligations on all online businesses that target children under the age of 13 and other requirements on all businesses engaged in online commerce to protect the privacy of children under the age of 13. In addition, the European Union has adopted a directive addressing data privacy that may result in limitations on the collection and use of specific personal information regarding Internet users. Developments like these may significantly impair the growth or evolution of the Internet and online commerce. As a result, the demand for products like net.Analysis may not grow as anticipated. This could seriously harm our business. IF GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES RELATED TO DOING BUSINESS ON THE INTERNET CAUSE A DECLINE IN E-COMMERCE AND INTERNET ADVERTISING AND MARKETING, OUR BUSINESS AND PROSPECTS COULD BE MATERIALLY AND ADVERSELY AFFECTED Laws and regulations directly applicable to Internet communications, commerce and marketing are becoming more prevalent. If any of these laws hinders the growth in use of the Internet generally or decreases the acceptance of the Internet as a medium for communication, commerce and marketing, our business and prospects may suffer materially. The United States Congress has enacted Internet laws regarding children's privacy, copyrights and taxation. Other laws and regulations may be adopted covering issues such as user privacy, pricing, content, taxation and quality of products and services. State and foreign governments might attempt to regulate Internet transmissions or levy sales or other taxes relating to Internet activity. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet and Internet advertising and marketing services. In addition, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. INCREASED LIMITATION OR ABOLITION OF THE USE OF COOKIES COULD LIMIT OUR ABILITY TO COLLECT DATA, IMPAIR THE EFFECTIVENESS OF OUR SOLUTION AND REQUIRE PRODUCT MODIFICATIONS, ANY OF WHICH COULD SERIOUSLY HARM OUR BUSINESS The passage of laws limiting or abolishing the use of cookies could seriously harm our business. A cookie is information created by a web server that is stored on an end-user's computer, often without the user's knowledge, that can be used to track and record the user's online behavior and profile. Cookies generally may be removed or disabled by the user. Our products capture some data with cookies to identify unique user information and preferences. Some countries have imposed laws limiting the use of cookies, and a number of commentators, advocates and governmental bodies in the United States and other countries have urged passage of laws limiting or abolishing the use of cookies. If these laws were passed, we would have to disable certain data collection 16 19 features of our products, which would reduce their usefulness to our customers, and we might be unable to develop alternative methods to gather data currently obtained with cookies. Even if we could develop those methods, the development could involve significant expenses and might not occur in time to prevent damage to our competitive position. RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK FOLLOWING THE OFFERING, TRADING IN OUR COMMON STOCK MAY BE LIMITED AND YOU MUST BE ABLE TO WITHSTAND A POSSIBLE LOSS OF YOUR INVESTMENT This is our initial public offering. A public market for trading our common stock has not existed before this offering. Although this offering will result in a public trading market for our common stock, we do not know how liquid the market for our stock will be. The price of the common stock being sold in this offering will be determined through negotiations between the underwriters and us. If you purchase common stock in this offering, you may not be able to resell such stock at or above the price you paid. THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING The market price of our common stock after this offering may vary from its initial public offering price. Fluctuations in market price and volume are particularly common among securities of Internet and other technology companies. As a result, you may be unable to sell your shares of common stock at or above the initial offering price. The market price of our common stock may fluctuate significantly in response to the following factors, some of which are beyond our control: - general fluctuations in stock market prices and volume, which are particularly common among highly volatile securities of software and Internet-related companies like ours - variations in our quarterly operating results - changes in securities analysts' estimates of our financial performance - changes in market valuations of similar companies - announcements by us or our competitors of significant products, contracts, acquisitions or strategic partnerships - additions or departures of key personnel WE COULD BE THE SUBJECT OF SECURITIES CLASS ACTION LITIGATION DUE TO FUTURE STOCK PRICE VOLATILITY The stock market in general, and market prices for the securities of Internet-related companies like ours in particular, recently have experienced extreme volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. Recently, when the market price of a stock has decreased rapidly, holders of that stock have often instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, our defense of the lawsuit could be costly and divert the time and attention of our management. SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE Sales of a substantial number of shares of common stock after this offering, or the perception that sales could occur, could adversely affect the market price of the common stock. On completion of this offering, we will have shares of common stock outstanding and 2,546,475 shares subject to outstanding options and warrants. In general, the shares sold in this offering will be freely tradable without restriction or further registration under the federal securities laws. 17 20 The remaining 21,452,826 shares of common stock outstanding on completion of the offering will be "restricted securities" as that term is defined in Rule 144. Our directors, executive officers and most other stockholders have executed lock-up agreements that limit their ability to sell common stock. These stockholders have agreed not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the date of this prospectus without the prior written approval of Hambrecht & Quist LLC, which could be given at any time. When the lock-up agreements expire or are terminated, most of the restricted securities will become eligible for sale. MANAGEMENT COULD APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE OUR MARKET VALUE OR IMPROVE OUR OPERATING RESULTS We will use our net proceeds from this offering for general corporate purposes and working capital. We have not reserved or allocated the net proceeds for any specific purpose, and we cannot state with certainty how our management will use the net proceeds. Accordingly, our management will have considerable discretion in applying the net proceeds. We may use the net proceeds for purposes that do not result in any increase in our results of operations or market value. OUR DIRECTORS AND MANAGEMENT WILL COLLECTIVELY CONTROL OVER % OF OUR OUTSTANDING COMMON STOCK Immediately after this offering, our directors and executive officers and their affiliates will collectively control approximately % of our outstanding common stock. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might adversely affect the market price of our common stock. ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY Provisions of our certificate of incorporation and by-laws may discourage, delay or prevent a merger, acquisition or change of control that a stockholder may consider favorable. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include: - authorizing the issuance of "blank check" preferred stock - providing for a classified board of directors with staggered, three-year terms - providing that directors may only be removed for cause by a two-thirds vote of stockholders - limiting the persons who may call special meetings of stockholders - prohibiting stockholder action by written consent - establishing advance notice requirements for nominations for election to the board of directors and for proposing matters to be submitted to a stockholder vote Delaware law may also discourage, delay or prevent someone from acquiring or merging with our company or obtaining control of our company. INVESTORS IN THIS OFFERING WILL PAY A MUCH HIGHER PRICE THAN THE BOOK VALUE OF OUR COMMON STOCK The initial public offering price per share of our common stock is $ higher than the pro forma net tangible book value per share of our common stock, based on an assumed public offering 18 21 price of $ per share. As a result, investors purchasing common stock in this offering will incur immediate and substantial dilution. In the past, we issued options and warrants to acquire common stock at prices significantly below the assumed initial public offering price per share. To the extent these outstanding options and warrants are ultimately exercised, there will be further dilution to investors. THE FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS MIGHT PROVE INACCURATE. AS A RESULT, OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS Some of the statements we make in this prospectus are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or similar terminology. These statements involve known and unknown risks and uncertainties that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. We cannot guarantee any future results, levels of activity, performance or achievements. Moreover, neither we nor anyone else assumes responsibility for the accuracy and completeness of these statements. We undertake no obligation to update any of the forward-looking statements after the date of this prospectus. This prospectus contains various third-party data and estimates related to our business and the Internet, including those relating to revenue generated by e-commerce and the size of the Internet commerce software applications market. These data and estimates have been included in studies published by independent market research firms. The estimates are based on surveys, financial reports and models used by these firms, as well as a number of assumptions regarding the growth of e-commerce and the Internet. If the underlying data or one or more of the assumptions contained in these studies turn out to be incorrect, actual results or circumstances may be materially different from the estimates included in this prospectus. 19 22 USE OF PROCEEDS We estimate that the net proceeds from our sale of the shares of common stock we are offering will be approximately $ million, based on an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses that we will pay. Our estimated net proceeds will be $ million if the underwriters fully exercise their over-allotment option. We intend to use our net proceeds for working capital and other general corporate purposes, which may include acquisitions of businesses, products and technologies that are complementary to our business. Although we have evaluated possible acquisitions from time to time, we currently have no commitments or agreements to make any acquisitions and we cannot assure you that we will make any acquisitions in the future. Pending those uses, we intend to invest the net proceeds in U.S. government securities and other short-term, investment-grade, interest-bearing instruments or high-grade corporate notes. DIVIDEND POLICY We have never declared or paid any cash dividends on shares of our capital stock. We currently intend to retain any earnings to fund the development and growth of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account our financial condition, operating results, cash needs and growth plans. Our agreement with our lender contains restrictive covenants that generally prohibit us from paying cash dividends, making any distribution on any class of stock or making stock repurchases. 20 23 CAPITALIZATION The following table summarizes our capitalization as of September 30, 1999: - on an actual basis, reflecting a charter amendment filed on December 22, 1999 that increased our authorized number of shares of common stock to 100,000,000 - on a pro forma as adjusted basis to reflect: - the conversion of all of our outstanding preferred stock into common stock upon completion of this offering - the issuance of 114,458 shares of common stock upon exercise of a warrant, which we expect will occur before the completion of this offering - a charter amendment, to be effective upon completion of this offering, that will, among other things, authorize a class of undesignated preferred stock - our sale of shares of common stock at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses that we will pay You should read this table together with our financial statements and related notes appearing elsewhere in this prospectus.
SEPTEMBER 30, 1999 ----------------------- PRO FORMA ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Long-term portion of capital lease obligations and long-term debt...................................................... $ 2,173 $ 2,173 -------- -------- Redeemable convertible preferred stock, $0.001 par value; 16,761,457 shares authorized and 16,231,540 issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma as adjusted.......................... 35,964 -- -------- -------- Stockholders' equity (deficit): Convertible preferred stock, $0.001 par value; 925,430 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma as adjusted............................................... 1,717 -- Preferred stock (undesignated), $0.001 par value; no shares authorized, actual; 5,000,000 shares authorized, pro forma as adjusted; no shares issued or outstanding............................................ -- -- Common stock, $0.001 par value; 100,000,000 shares authorized; 4,264,919 shares issued and outstanding, actual; shares issued and outstanding, pro forma as adjusted...................................... 4 Additional paid-in capital................................ 4,447 Deferred compensation..................................... (3,818) (3,818) Note receivable from stockholder.......................... (96) (96) Accumulated deficit....................................... (23,801) (23,801) Accumulated other comprehensive income.................... 542 542 -------- -------- Total stockholders' equity (deficit)................... (21,005) -------- -------- Total capitalization.............................. $ 17,132 $ ======== ========
21 24 The information in the foregoing table excludes: - 279,739 shares issuable upon exercise of other warrants outstanding as of September 30, 1999, which have an exercise price of $1.84 per share - 1,798,812 shares issuable upon exercise of options outstanding as of September 30, 1999, which have a weighted average exercise price of $0.48 per share - 701,578 additional shares reserved as of September 30, 1999 for future issuance under our 1995 Stock Option Plan 22 25 DILUTION Our pro forma net tangible book value as of September 30, 1999 was approximately $15.0 million, or $0.70 per share of common stock. Pro forma net tangible book value per share is determined by dividing the amount of our total tangible assets less our total liabilities by the pro forma number of shares of common stock outstanding, after giving effect to the conversion of our outstanding preferred stock and the exercise of a warrant, which we expect will occur before the completion of this offering. After giving effect to our sale of shares of common stock at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses that we will pay, our adjusted pro forma net tangible book value as of September 30, 1999 would have been $ million, or $ per share. This amount represents an immediate increase in pro forma net tangible book value to our existing stockholders of $ per share and an immediate dilution to new investors of $ per share. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of September 30, 1999.................................................... $0.70 Increase per share attributable to new investors.......... ----- Adjusted pro forma net tangible book value per share after this offering............................................. ----- Dilution per share to new investors......................... $ =====
If the underwriters exercise their option to purchase additional shares in this offering in full, our adjusted pro forma net tangible book value at September 30, 1999 would have been $ million, or $ per share, representing an immediate increase in pro forma net tangible book value to our existing stockholders of $ per share and an immediate dilution to new investors of $ per share. The following table summarizes as of September 30, 1999, on a pro forma basis after giving effect to the conversion of our outstanding preferred stock and the exercise of a warrant as described above, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders and by new investors, based upon the assumed initial public offering price of $ per share before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
SHARES PURCHASED TOTAL CONSIDERATION --------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing stockholders............ 21,536,347 % $37,035,661 % $1.72 New investors.................... ---------- ----- ----------- ------ Total....................... 100.0% 100.0% ========== ===== =========== ======
The preceding discussion and tables assume no exercise of any stock options or warrants outstanding as of September 30, 1999, except as stated above. As of September 30, 1999, there were outstanding options to purchase a total of 1,798,812 shares of common stock at a weighted average exercise price of $0.48 per share and warrants, other than that described above, to purchase a total of 279,739 shares of common stock at an exercise price of $1.84 per share. To the extent any of these options or warrants are exercised, there will be further dilution to new investors. 23 26 SELECTED FINANCIAL DATA You should read the following selected financial data in conjunction with our financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. We derived the statement of operations data for the years ended December 31, 1996, 1997 and 1998 and the balance sheet data as of December 31, 1997 and 1998 from our financial statements audited by PricewaterhouseCoopers LLP, which appear elsewhere in this prospectus. We derived the statement of operations data for the period from our inception (May 6, 1994) to December 31, 1994 and the year ended December 31, 1995 and the balance sheet data as of December 31, 1994, 1995 and 1996 from our financial statements audited by PricewaterhouseCoopers LLP, which do not appear in this prospectus. We derived the statement of operations data for the nine months ended September 30, 1998 and 1999 and the balance sheet data as of September 30, 1999 from our unaudited financial statements that appear 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 only of 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.
PERIOD FROM NINE MONTHS INCEPTION ENDED (MAY 6, 1994) YEAR ENDED DECEMBER 31, SEPTEMBER 30, TO DECEMBER 31, ------------------------------------ ------------------ 1994 1995 1996 1997 1998 1998 1999 --------------- ------ ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenue: Product revenue.................. $ -- $ 151 $ 481 $ 845 $ 937 $ 537 $ 2,272 Service revenue.................. 46 140 102 164 631 430 1,602 ----- ------ ------- ------- ------- ------- -------- Total revenue...................... 46 291 583 1,009 1,568 967 3,874 ----- ------ ------- ------- ------- ------- -------- Cost of revenue: Cost of product revenue.......... -- 15 105 91 232 76 99 Cost of service revenue.......... 13 34 119 549 761 336 1,841 ----- ------ ------- ------- ------- ------- -------- Total cost of revenue.............. 13 49 224 640 993 412 1,940 ----- ------ ------- ------- ------- ------- -------- Gross profit....................... 33 242 359 369 575 555 1,934 ----- ------ ------- ------- ------- ------- -------- Operating expenses: Sales and marketing.............. 4 159 1,563 1,271 3,045 1,845 6,068 Research and development......... 12 327 1,192 1,410 2,266 1,528 3,026 General and administrative....... 4 78 381 738 1,148 755 2,047 Stock-based compensation......... -- -- 10 -- -- -- 272 ----- ------ ------- ------- ------- ------- -------- Total operating expenses........... 20 564 3,146 3,419 6,459 4,128 11,413 ----- ------ ------- ------- ------- ------- --------
24 27
PERIOD FROM NINE MONTHS INCEPTION ENDED (MAY 6, 1994) YEAR ENDED DECEMBER 31, SEPTEMBER 30, TO DECEMBER 31, ------------------------------------ ------------------ 1994 1995 1996 1997 1998 1998 1999 --------------- ------ ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Income (loss) from operations...... 13 (322) (2,787) (3,050) (5,884) (3,573) (9,479) Other income (loss)................ 1 8 171 (60) 111 73 (107) ----- ------ ------- ------- ------- ------- -------- Net income (loss).................. $ 14 $ (314) $(2,616) $(3,110) $(5,773) $(3,500) $ (9,586) ----- ------ ------- ------- ------- ------- -------- Dividends and accretion of redeemable preferred stock....... -- -- (118) (337) (660) (411) (1,300) ----- ------ ------- ------- ------- ------- -------- Net income (loss) available to common stockholders.............. $ 14 $ (314) $(2,734) $(3,447) $(6,433) $(3,911) $(10,886) ===== ====== ======= ======= ======= ======= ======== Basic and diluted net income (loss) available to common stockholders per share........................ $0.59 $(6.46) $(16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11) ===== ====== ======= ======= ======= ======= ======== Shares used in computing basic and diluted net income (loss) available to common stockholders per share........................ 23 49 171 567 793 721 1,531 ===== ====== ======= ======= ======= ======= ======== Unaudited pro forma basic and diluted net loss per common share............................ $ (0.68) $ (0.65) ======= ======== Shares used in computing unaudited pro forma basic and diluted net loss per common share............ 8,440 14,804 ======= ========
DECEMBER 31, ------------------------------------------- SEPTEMBER 30, 1994 1995 1996 1997 1998 1999 ---- ------ ------ ------- -------- ------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents......................... $63 $1,413 $ 650 $ 253 $ 2,261 $ 15,936 Working capital................................... 9 1,383 2,449 866 1,688 14,787 Total assets...................................... 80 1,522 3,489 1,642 3,866 21,150 Long-term portion of capital lease obligations and long-term debt.................................. -- 3 112 -- -- 2,173 Redeemable convertible preferred stock............ -- -- 4,082 5,856 13,566 35,964 Total stockholders' equity (deficit).............. 19 1,454 1,767 (4,712) (11,081) (21,005)
25 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Financial Data" and our financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere in this prospectus. OVERVIEW We offer e-customer intelligence solutions that enable companies to understand and improve their online businesses. Our flagship software product, net.Analysis, combines information about web site visitor behavior with a company's other online and offline customer data to improve its ability to market, sell and support products, services and content online. We license net.Analysis to customers for a fee and also provide related maintenance and support services. In addition, we provide professional consulting services to assist customers throughout a net.Analysis deployment. These services include analytic consulting, product implementation, application integration, customization of e-customer analysis reporting, training and support. From our inception in May 1994 through December 31, 1995, our operations consisted primarily of start-up activities, including raising capital, recruiting personnel, conducting research and development for net.Analysis and several other Internet software product and service offerings that we have since discontinued, establishing the market for our initial products and purchasing operating assets. Since 1995, we have invested in research and development for net.Analysis, building sales channels, expanding marketing activities and developing administrative operations. In January 1996, we began actively marketing our net.Analysis product. To date, we have developed and released four major versions of net.Analysis. We currently have over 200 customers. We market and sell our products primarily through our direct sales force. Since 1996, our net.Analysis software and related products and services have accounted for all of our revenue. We anticipate that licensing of net.Analysis and related products and services will continue to account for substantially all of our revenue for the foreseeable future. Consequently, a decline in the price of or demand for our net.Analysis software, or its failure to achieve or maintain market acceptance, would seriously harm our business, financial condition and results of operations. We license net.Analysis and our other software products to our customers primarily on a perpetual basis. Our pricing model is based on the number of the customer's managed servers, the platform supported and the number of end users of our software, allowing for additional revenue as a customer's requirements grow. Support and maintenance contracts, which are purchased with initial product licenses and are renewable annually thereafter, entitle customers to telephone, e-mail and web-based support and to routine product upgrades, when and if available. The price for our support and maintenance services is based on a percentage of the then-current list price of the software. Consulting fees for implementation services and training are charged either on a time-and-materials basis or on a fixed-fee basis in the case of packaged services such as our FastPath implementation package. We recognize revenues in accordance with Statement of Position (SOP) 97-2, "Software Revenue Recognition," which we adopted in 1998. Our standard license agreement provides for a fee to use the product in perpetuity up to a maximum number of managed servers and end users. Fees from licenses are recognized as revenue when a contract has been executed and the product has been delivered, provided fees are fixed or determinable and collection is probable. Revenue under arrangements where multiple products or services are sold together under one contract is allocated to each element based on their relative fair values, with these fair values being determined using the price charged when that element is sold separately. License fees from 26 29 software sold together with services are generally recognized upon delivery of the software, provided that the above criteria have been met and the services are not essential to the functionality of any other element of the transaction. In instances where these criteria have not been met, both the license and professional services fees are recognized under the percentage-of-completion method of contract accounting, based upon the proportion of hours expended to total estimated hours at completion. Losses, if any, on fixed-price contracts are recognized when the loss is determined. Service revenue consists of fees from professional services and from software maintenance and support. Professional services include analytic consulting, product implementation, application integration, report customization, training and support. We bill professional services fees either on a time-and-materials basis or on a fixed-price schedule. We recognize professional services fees as we perform the services. Customers typically purchase maintenance and support agreements annually. Customers purchasing maintenance and support agreements receive routine product upgrades as they become generally available and telephone, e-mail and web-based support. We recognize revenue from maintenance and support agreements ratably over the term of the agreement, typically one year. We record cash receipts from clients and billed amounts due from clients in excess of revenue recognized as deferred revenue. The timing and amount of cash receipts from clients can vary significantly depending on specific contract terms and can therefore have a significant impact on the amount of deferred revenue in any given period. Since our inception, we have incurred substantial costs to develop our technology and products, to recruit and train personnel for our engineering, sales and marketing and professional services departments, and to establish our administrative organization. As a result, we have incurred net losses in each fiscal quarter since December 31, 1994 and, as of September 30, 1999, had an accumulated deficit of $23.8 million. We anticipate that our operating expenses will increase substantially in future quarters as we increase sales and marketing operations, develop new distribution channels, fund greater levels of research and development, broaden professional consulting services and support, and improve operational and financial systems. We expect that these operating expenses, as well as anticipated capital expenditures, will constitute a material use of our cash resources. We expect to incur additional losses and continued negative cash flow from operations. We may not achieve or sustain profitability or positive cash flow from operations. You should not rely upon our past operating results as an indication of future performance. While we have experienced significant percentage growth in revenue in recent periods, we have a limited operating history and we do not believe that our recent percentage revenue growth rates are sustainable or indicative of our future revenue growth rates. We have recorded deferred stock-based compensation related to grants of stock options. This amount represents the difference between the exercise price of these stock option grants and the amount subsequently determined to be the fair market value of the underlying common stock for financial reporting purposes at the time of grant. Of this amount, we amortized approximately $117,000 in the nine months ended September 30, 1999. We will amortize $3.8 million of stock-based compensation, plus the additional amounts recorded in connection with stock options granted after September 30, 1999, over the remaining vesting periods of the options, generally four years or less, which will affect our reported results of operations through 2003. 27 30 RESULTS OF OPERATIONS The following table expresses our operating data as percentages of total revenue for each period indicated.
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, -------------------------- ------------------ 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Revenue: Product revenue............................. 82.5% 83.8% 59.7% 55.5% 58.6% Service revenue............................. 17.5 16.2 40.3 44.5 41.4 ------ ------ ------ ------ ------ Total revenue................................. 100.0 100.0 100.0 100.0 100.0 ------ ------ ------ ------ ------ Cost of revenue: Cost of product revenue..................... 18.0 9.0 14.8 7.8 2.6 Cost of service revenue..................... 20.4 54.4 48.5 34.8 47.5 ------ ------ ------ ------ ------ Total cost of revenue......................... 38.4 63.4 63.3 42.6 50.1 ------ ------ ------ ------ ------ Gross profit.................................. 61.6 36.6 36.7 57.4 49.9 ------ ------ ------ ------ ------ Operating expenses: Sales and marketing......................... 268.1 126.0 194.2 191.0 156.6 Research and development.................... 204.5 139.8 144.5 158.1 78.1 General and administrative.................. 65.4 73.2 73.2 78.1 52.9 Stock-based compensation.................... 1.7 -- -- -- 7.0 ------ ------ ------ ------ ------ Total operating expenses...................... 539.7 339.0 411.9 427.2 294.6 ------ ------ ------ ------ ------ Loss from operations.......................... (478.1) (302.4) (375.2) (369.8) (244.7) Other income (loss)........................... 29.3 (5.9) 7.1 7.6 (2.7) ------ ------ ------ ------ ------ Net loss...................................... (448.8%) (308.3%) (368.1%) (362.2%) (247.4%) ====== ====== ====== ====== ======
Comparison of Nine Months Ended September 30, 1998 and 1999 Total Revenue. Total revenue increased by $2.9 million, or 301%, to $3.9 million for the nine months ended September 30, 1999 from $1.0 million for the nine months ended September 30, 1998. Product Revenue. Product revenue increased by $1.7 million, or 323%, to $2.3 million for the nine months ended September 30, 1999 from $537,000 for the nine months ended September 30, 1998. The growth in product revenue was due primarily to higher unit sales of net.Analysis as a result of increased market awareness of our solution, introductions of new features, increases in both the size and productivity of our sales force, and increased average dollar size of licenses, attributable to larger implementations and price increases. Product revenue as a percentage of total revenue increased to 59% for the nine months ended September 30, 1999 from 55% for the nine months ended September 30, 1998. We anticipate that revenue from licenses of net.Analysis will continue to represent a majority of our revenues in the future. We expect that because of our small historical revenue base, the recent percentage growth rates of our product revenue will not be sustainable in the future. Service Revenue. Service revenue increased by $1.2 million, or 273%, to $1.6 million for the nine months ended September 30, 1999 from $430,000 for the nine months ended September 30, 1998. This growth was due primarily to expanded service offerings and greater sales of maintenance contracts associated with higher unit volume and dollar value of sales of net.Analysis licenses. We expect that the recent percentage growth rates of our service revenue will not be sustainable in the future. 28 31 Cost of Product Revenue. Cost of product revenue consists primarily of royalties associated with third-party software embedded in our software products and software product costs, such as user manuals, packaging and media costs. Cost of product revenue increased by $23,000, or 31%, to $99,000 for the nine months ended September 30, 1999 from $76,000 for the nine months ended September 30, 1998. The increase was primarily attributable to higher volumes of product shipped and related third-party royalties. Cost of product revenue as a percentage of product revenue declined to 4% for the nine months ended September 30, 1999 from 14% for the nine months ended September 30, 1998. This decrease was attributable to economies of scale realized as a result of shipping greater quantities of product in the nine months ended September 30, 1999. Cost of Service Revenue. Cost of service revenue consists primarily of salaries, benefits and associated overhead costs of our professional services organization. Cost of service revenue increased by $1.5 million, or 448%, to $1.8 million for the nine months ended September 30, 1999 from $336,000 for the nine months ended September 30, 1998. The increase was due primarily to an increased number of personnel in our professional services organization. This growth has required that we invest in hiring and training personnel and building a management and operational infrastructure. This investment has resulted in the cost of service revenue increasing as a percentage of service revenue. Cost of service revenue as a percentage of service revenue increased to 115% for the nine months ended September 30, 1999 from 78% for the nine months ended September 30, 1998. We expect that in dollar amount our cost of service revenue will continue to exceed our service revenue for at least the next several quarters. Sales and Marketing Expenses. Sales and marketing expenses consist primarily of personnel costs, including related overhead costs and commissions, as well as travel and entertainment expenses, trade show and other promotional expenses, advertising, and other marketing costs. Sales and marketing expenses increased by $4.2 million, or 229%, to $6.1 million for the nine months ended September 30, 1999 from $1.8 million for the nine months ended September 30, 1998. The increase was primarily due to increased personnel in our sales and marketing departments, and increased marketing communications expenditures associated with product introductions and efforts to create increased awareness of our products and services. Sales and marketing expenses as a percentage of total revenue declined to 157% for the nine months ended September 30, 1999 from 191% for the nine months ended September 30, 1998. We expect that sales and marketing expenses will continue to increase in dollar amount to support marketing programs for new product launches, promotion of awareness of our corporate and brand names, international expansion and increased sales efforts. Research and Development Expenses. Research and development expenses consist primarily of salaries, benefits and related overhead costs attributable to our research and development organization, as well as the cost of consultants. Research and development expenses increased by $1.5 million, or 98%, to $3.0 million for the nine months ended September 30, 1999 from $1.5 million for the nine months ended September 30, 1998. The increase was primarily attributable to increased staffing and associated support for software engineers required to expand and enhance our product offerings. Research and development expenditures are charged to operations as incurred. Research and development expenses as a percentage of total revenue declined to 78% for the nine months ended September 30, 1999 from 158% for the nine months ended September 30, 1998. We believe that research and development expenses will continue to increase in dollar amount as we add additional research and development personnel. General and Administrative Expenses. General and administrative expenses consist primarily of salaries, benefits and overhead costs associated with our executive, finance, human resource, legal, accounting and internal information system functions. General and administrative expenses increased by $1.3 million, or 171%, to $2.0 million for the nine months ended September 30, 1999 from $755,000 for the nine months ended September 30, 1998. The increase was primarily the result of increased staffing and associated expenses necessary to manage and support our growth. General and administrative expenses as a percentage of total revenue declined to 53% for the nine months 29 32 ended September 30, 1999 from 78% for the nine months ended September 30, 1998. We expect that general and administrative expenses will continue to increase in dollar amount as we expand our operations and infrastructure to support our planned future growth and transition to operating as a public company. Stock-based Compensation. We incurred stock-based compensation expense of $272,000 for the nine months ended September 30, 1999. The expense includes $155,000 related to extension of options in connection with employee severance. It also includes $117,000 for amortization of the deferred expense attributable to the issuance during 1999 of stock options with exercise prices less than the amount subsequently determined to be the fair market value of the underlying stock for financial reporting purposes on the date of grant. These options generally vest over four years or less. The remaining deferred compensation expense of approximately $3.8 million will be amortized over the remaining vesting periods of the options, and will affect periods ending subsequent to September 30, 1999. Other Income (Loss). Other income (loss) consists of interest income, interest expense, other income, loss on disposal of fixed assets and other expenses. Other income (loss) decreased by $180,000 from income of $73,000 in the nine months ended September 30, 1998 to a loss of $107,000 for the nine months ended September 30, 1999 due to higher interest expense incurred on larger average outstanding borrowings during the nine months ended September 30, 1999. Comparison of 1997 and 1998 Total Revenue. Total revenue increased by $559,000, or 55%, to $1.6 million for 1998 from $1.0 million for 1997. Two customers, E*Trade and Bell Atlantic, each accounted for more than 10% of our total revenue in 1998. Product Revenue. Product revenue increased by $92,000, or 11%, to $937,000 for 1998 from $845,000 for 1997. The increase in product revenue was primarily due to higher unit sales of net.Analysis as a result of increased market awareness of our products, introductions of new features, increases in both the size and productivity of our sales force, and also to increased average dollar size of licenses. Product revenue as a percentage of total revenue declined to 60% for 1998 from 84% for 1997. Service Revenue. Service revenue increased by $468,000, or 286%, to $631,000 for 1998 from $164,000 for 1997. Service revenue as a percentage of total revenue increased to 40% for 1998 from 16% for 1997. This growth was primarily due to expanded service offerings. Cost of Product Revenue. Cost of product revenue increased by $141,000, or 155%, to $232,000 for 1998 from $91,000 for 1997. The increase was attributable to increases in product revenue and third-party royalties. Cost of product revenue as a percentage of product revenue increased to 25% for 1998 from 11% for 1997, primarily as a result of an increase in the cost of licenses of third-party software that we resell as part of our solution. Cost of Service Revenue. Cost of service revenue increased by $212,000, or 39%, to $761,000 for 1998 from $549,000 for 1997. The increase was principally a result of an increase in the number of our professional services personnel. Cost of service revenue as a percentage of service revenue declined to 121% for 1998 from 335% for 1997, primarily as a result of increased utilization of our expanded professional services organization. Sales and Marketing Expenses. Sales and marketing expenses increased by $1.8 million, or 140%, to $3.0 million for 1998 from $1.3 million for 1997. The increase was due to increased headcount in our sales and marketing departments, and increased marketing communications expenditures associated with our products and services. Research and Development Expenses. Research and development expenses increased by $856,000, or 61%, to $2.3 million for 1998 from $1.4 million for 1997. The increase was primarily 30 33 related to increased staffing and associated support for software engineers required to expand and enhance our product and services offerings. General and Administrative Expenses. General and administrative expenses increased by $409,000, or 55%, to $1.1 million for 1998 from $738,000 for 1997. The increase was due to increased staffing and associated expenses necessary to manage and support our growth. Other Income (Loss). Other income (loss) increased by $171,000 from a loss of $60,000 in 1997 to income of $111,000 in 1998. The increase was due primarily to a loss of $101,000 recognized in 1997 on the disposal of fixed assets related to a discontinued service offering. Comparison of 1996 and 1997 Total Revenue. Total revenue increased by $426,000, or 73%, to $1.0 million for 1997 from $583,000 for 1996. Product Revenue. Product revenue increased by $364,000, or 76%, to $845,000 for 1997 from $481,000 for 1996. The increase in product revenue was primarily due to higher unit sales of net.Analysis as a result of increased market awareness of our products and introductions of new features. Product revenue as a percentage of total revenue increased to 84% for 1997 from 83% for 1996. Service Revenue. Service revenue increased by $62,000, or 61%, to $164,000 for 1997 from $102,000 for 1996. This growth was primarily due to greater sales of maintenance contracts to customers associated with higher unit sales of net.Analysis licenses. Cost of Product Revenue. Cost of product revenue decreased by $14,000, or 13%, to $91,000 for 1997 from $105,000 for 1996. Cost of product revenue as a percentage of product revenue declined to 11% for 1997 from 22% for 1996. Cost of Service Revenue. Cost of service revenue increased by $430,000, or 362%, to $549,000 for 1997 from $119,000 for 1996. The increase was due primarily to an increased number of personnel in our professional services organization. Cost of service revenue as a percentage of service revenue increased to 335% for 1997 from 117% for 1996, primarily as a result of growth in the size of our customer support staff. Sales and Marketing Expenses. Sales and marketing expenses decreased by $292,000, or 19%, to $1.3 million for 1997 from $1.6 million for 1996. The decrease was primarily due to decreased personnel in our sales and marketing departments, and reduced marketing communications expenditures. Research and Development Expenses. Research and development expenses increased by $218,000, or 18%, to $1.4 million for 1997 from $1.2 million for 1996. The increase was primarily related to increased staffing and associated support for software engineers required to expand and enhance our product and service offerings. General and Administrative Expenses. General and administrative expenses increased by $357,000, or 94%, to $738,000 for 1997 from $381,000 for 1996. The increase was due to increased staffing and associated expenses necessary to manage and support our growth. Other Income (Loss). Other income (loss) decreased by $231,000 from a gain of $171,000 in 1996 to a loss of $60,000 in 1997. The decrease was due primarily to a loss of $101,000 recognized in 1997 on the disposal of fixed assets related to a discontinued service offering versus a gain of $112,000 recognized in 1996 on the sale of a product line. 31 34 Quarterly Results of Operations The following tables present our unaudited quarterly results of operations for the seven quarters ended September 30, 1999 both in dollar amount and as a percentage of our total revenue. You should read the following table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus. We have prepared this unaudited information on the same basis as our audited financial statements. In the opinion of our management, this information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our operating results for the quarters presented. You should not draw any conclusions about our future results from the results of operations for any quarter.
THREE MONTHS ENDED ---------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1998 1998 1998 1998 1999 1999 1999 -------- -------- --------- -------- -------- -------- --------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenue: Product revenue................ $ 191 $ 156 $ 190 $ 400 $ 468 $ 676 $ 1,127 Service revenue................ 42 168 220 202 354 458 790 ----- ------- ------- ------- ------- ------- ------- Total revenue.................... 233 324 410 602 822 1,134 1,917 ----- ------- ------- ------- ------- ------- ------- Cost of revenue: Cost of product revenue........ 23 25 28 156 31 43 25 Cost of service revenue........ 63 80 193 425 417 527 896 ----- ------- ------- ------- ------- ------- ------- Total cost of revenue............ 86 105 221 581 448 570 921 ----- ------- ------- ------- ------- ------- ------- Gross profit..................... 147 219 189 21 374 564 996 ----- ------- ------- ------- ------- ------- ------- Operating expenses: Sales and marketing............ 274 460 1,111 1,200 1,600 1,865 2,602 Research and development....... 340 495 694 739 789 981 1,257 General and administrative..... 182 306 267 392 497 499 1,051 Stock-based compensation....... -- -- -- -- 13 36 223 ----- ------- ------- ------- ------- ------- ------- Total operating expenses:........ 796 1,261 2,072 2,331 2,899 3,381 5,133 ----- ------- ------- ------- ------- ------- ------- Loss from operations............. (649) (1,042) (1,883) (2,310) (2,525) (2,817) (4,137) ----- ------- ------- ------- ------- ------- ------- Other income (loss).............. 8 5 61 38 (53) (71) 18 ----- ------- ------- ------- ------- ------- ------- Net loss......................... $(641) $(1,037) $(1,822) $(2,272) $(2,578) $(2,888) $(4,119) ===== ======= ======= ======= ======= ======= =======
32 35
THREE MONTHS ENDED ---------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1998 1998 1998 1998 1999 1999 1999 -------- -------- --------- -------- -------- -------- --------- (AS PERCENTAGES OF TOTAL REVENUE) STATEMENT OF OPERATIONS DATA: Revenue: Product revenue................... 82.0% 48.2% 46.3% 66.5% 56.9% 59.6% 58.8% Service revenue................... 18.0 51.8 53.7 33.5 43.1 40.4 41.2 ------ ------ ------ ------ ------ ------ ------ Total revenue....................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ------ ------ ------ ------ ------ ------ ------ Cost of revenue: Cost of product revenue........... 9.8 7.7 6.8 26.0 3.7 3.8 1.3 Cost of service revenue........... 26.9 24.7 47.2 70.5 50.8 46.5 46.8 ------ ------ ------ ------ ------ ------ ------ Total cost of revenue............... 36.7 32.4 54.0 96.5 54.5 50.3 48.1 ------ ------ ------ ------ ------ ------ ------ Gross profit........................ 63.3 67.6 46.0 3.5 45.5 49.7 51.9 ------ ------ ------ ------ ------ ------ ------ Operating expenses: Sales and marketing............... 117.9 142.2 270.8 199.4 194.5 164.5 135.7 Research and development.......... 146.1 152.8 169.0 122.7 95.9 86.4 65.6 General and administrative........ 78.3 94.6 65.1 65.2 60.5 44.0 54.8 Stock-based compensation.......... -- -- -- -- 1.6 3.2 11.6 ------ ------ ------ ------ ------ ------ ------ Total operating expenses:........... 342.3 389.6 504.9 387.3 352.5 298.1 267.7 ------ ------ ------ ------ ------ ------ ------ Loss from operations................ (279.0) (322.0) (458.9) (383.8) (307.0) (248.4) (215.8) Other income (loss)................. 3.5 1.4 14.7 6.2 (6.4) (6.3) .9 ------ ------ ------ ------ ------ ------ ------ Net loss............................ (275.5)% (320.6)% (444.2)% (377.6)% (313.4)% (254.7)% (214.9)% ====== ====== ====== ====== ====== ====== ======
We have experienced substantial fluctuations in our quarterly results of operations and we expect those fluctuations to continue. We believe the following factors are those most likely to cause our revenue and results of operations to fluctuate: - uncertain demand for our products and services - unanticipated changes in the market for e-customer intelligence solutions - the timing of sales and delivery of our products and services - the timing of customer implementations of our products and utilization of our professional services personnel - the mix of revenue derived from products and services - the timing of introductions of new products and services by us or our competitors - seasonal trends in our customers' business activity - timing of hiring of personnel and changes in productivity of our professional services personnel and direct sales personnel For example, costs related to the hiring of our chief executive officer during the three months ended June 30, 1998 substantially increased our general and administrative expenses in the quarter. During the third and fourth quarters of 1998, our cost of service revenue grew more rapidly than our service revenue, due to increases in personnel and recruiting expenses related to our initiative to increase the capacity of our professional services organization. Sales and marketing expense grew more rapidly in the third quarter of 1998 than in previous quarters due to a substantial increase in the number of our field sales personnel, who typically require initial training and may take several months to become fully productive. Our results of operations in the fourth quarter of 1998 were 33 36 also affected by higher than usual cost of product revenue, attributable to license fees for third-party software purchased during the quarter for resale by us as part of our net.Analysis solution. We establish our expenditure levels for product development, sales and marketing and other operating expenses based, in large part, on our expected future revenue. Our expectations regarding future revenue may not be accurate. As a result, if revenue falls below expectations, our operating results are likely to be adversely and disproportionately affected because only a small portion of our expenses vary with revenue. Due to the above factors and others described in "Risk Factors," our operating results are difficult to forecast. We believe that period to-period comparisons of our historical operating results are not necessarily meaningful and should not be relied upon as an indication of future performance. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have financed our operations primarily through private sales of preferred stock, resulting in net proceeds of $35.0 million through September 30, 1999. To a lesser extent, we have financed our operations through debt and lease financing. As of September 30, 1999, we had $15.9 million in cash and cash equivalents and $14.8 million in working capital. As of September 30, 1999, we had cash and cash equivalents totaling $15.9 million, an increase from $2.3 million of cash and cash equivalents held as of December 31, 1998. This increase resulted primarily from our sale of preferred stock in June 1999, which provided net proceeds of $20.8 million, reduced by cash used to fund operations and investing activities for the nine months ended September 30, 1999. Our operating activities resulted in net cash used of $2.4 million for 1996, $2.7 million for 1997, $5.1 million for 1998 and $8.4 million for the nine months ended September 30, 1999, primarily due to operating losses. Our investing activities resulted in net cash used of $2.3 million for the nine months ended September 30, 1999, primarily due to capital expenditures. Our investing activities resulted in net cash used of $2.5 million in 1996 and net cash provided of $960,000 and $132,000 for 1997 and 1998, respectively. Our financing activities resulted in net cash provided of $24.4 million for the nine months ended September 30, 1999, primarily due to our sale of preferred stock in June 1999. Our financing activities resulted in net cash provided of $4.2 million for 1996, $1.3 million for 1997 and $7.0 million for 1998. Our financing activities in these periods principally consisted of sales of preferred stock and borrowings under a term loan agreement. We have a subordinated debt agreement providing for term loans of up to $4.0 million and an equipment line of credit of up to $1.0 million with Comdisco, Inc. The term loans and the equipment line are payable in 36 monthly payments and bear interest at rates of 13.5% and 9%, respectively. The term loan agreement provides for a prepayment penalty of 1% to be charged upon repayment within twelve months of the closing date of the loan. As of September 30, 1999, we had $3.0 million and $425,000 outstanding under the term loan agreement and equipment line, respectively. In order to make additional borrowings under these loan arrangements, we must maintain certain financial covenants. We were in compliance with these financial covenants as of September 30, 1999. Capital expenditures totaled $493,000 for 1996, $111,000 for 1997, $776,000 for 1998 and $2.0 million for the nine months ended September 30, 1999. Our capital expenditures consisted of purchases of property and equipment, including computer equipment and software. We expect capital expenditures to increase for the foreseeable future as we increase our number of employees, increase the size of our operating facilities, and improve and expand our information systems. Since inception, we have generally funded capital expenditures either through the use of working capital or with equipment loans and lease financing. 34 37 As of December 31, 1998, we had net operating loss carryforwards of $10.7 million and research and development credit carryforwards of $315,000. The net operating loss and credit carryforwards will expire at various dates through 2018, if not used. Under the provisions of the Internal Revenue Code, substantial changes in our ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. We have established a full valuation allowance in our financial statements to reflect the uncertainty of our ability to use available tax loss carryforwards and other deferred tax assets. We expect to experience significant growth in our operating expenses for the foreseeable future in order to execute our business plan. As a result, we expect that operating expenses, as well as anticipated capital expenditures, will constitute a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions of, or investments in, complementary products, services, businesses or technologies. We believe that the net proceeds from the sale of common stock in this offering, together with our existing cash and cash equivalents, will be sufficient to finance our operations through at least the next 12 months. Thereafter, we may find it necessary to obtain additional equity or debt financing. Any needed financing may not be available to us on commercially reasonable terms, if at all. YEAR 2000 READINESS The "year 2000" issue refers generally to the problems that some software may have in determining the correct century for the year. For example, software with date-sensitive functions that is not year 2000 compliant may not be able to distinguish whether "00" means 1900 or 2000, which may result in failures or the creation of erroneous results. Many currently installed computer systems and software products were originally coded to accept only two-digit entries in the date code field and cannot reliably distinguish dates beginning on January 1, 2000 from dates prior to the year 2000. Many companies' software and computer systems may need to be upgraded or replaced in order to correctly process dates beginning in 2000. State of Readiness. Our business depends on the operation of numerous systems that could potentially be affected by year 2000 related problems. Those systems include, among others: - hardware and software systems we use to deliver services to our customers, including our proprietary software systems as well as hardware and software supplied by third parties; - communications networks, such as the Internet and private intranets, which we depend on to communicate both internally and with our customers and potential customers; - the internal systems of our customers and suppliers; - the hardware and software systems we use internally to manage our business; and - non-information technology systems and services we use in our business, such as telephone systems and building systems. With the assistance of an external consultant, we have conducted a review of our internal operational systems as well as our software product and service offerings to determine their year 2000 readiness. We have largely completed all phases of our year 2000 assessment and remediation program, except for contingency planning. With regard to our software products and services, we have tested our net.Analysis version 4.0 and later releases to determine whether our products will function across dates of potential concern for software applications. Based on the results of these tests, we have concluded that these releases of our software are year 2000 compliant. Despite testing by us and by current and potential clients, and assurances from developers of products incorporated into our products, our products may contain undetected errors or defects associated with year 2000 date functions. Known or unknown errors or defects in our products could result in delay or loss of revenue, diversion of development resources, damage to our reputation, or increased service and warranty costs, any of 35 38 which could seriously harm our business. Some commentators have predicted significant litigation regarding year 2000 compliance issues, and we are aware of such lawsuits against other software vendors. Because of the unprecedented nature of such litigation, it is uncertain whether or to what extent we may be affected by it. We have made available to our customers year 2000 compliant versions of net.Analysis under the terms and conditions of our standard maintenance and support agreements. We continue to respond to customer questions about prior versions of our products on a case-by-case basis. With regard to internal systems, we have primarily focused on information technology systems that serve critical operational, financial, administrative and customer support functions. Our evaluation and remediation of year 2000 issues have centered on ensuring that we are operating on manufacturer-provided software and system updates that the manufacturers have identified either directly to us or generally through product literature as being year 2000 ready. We have not undertaken audits and tests of those systems to ensure year 2000 readiness because vendors for these systems have made written representations either directly to us or through product literature that their systems are year 2000 compliant. If our vendors do not provide us adequate assurance of the year 2000 readiness of their systems, we intend where possible to identify other vendors offering comparative product offerings who can provide us such assurances. As a result, some of these systems may, either independently or in combination with other systems, become affected by the year 2000 date change. In addition, we are aware of a number of non-critical software products we use internally in everyday operations which are not expected to be year 2000 certified by their manufacturers. These systems are generally off-the-shelf software products that we believe are replaceable without material effect on the company if they prove to be defective in the year 2000. Further, we have not initiated and do not plan to initiate a review of our non-information technology systems that we believe are not critical. Costs. To date, we have not incurred any material expenditures in connection with identifying or evaluating year 2000 compliance issues. Most of our expenses have related to, and are expected to continue to relate to, the operating costs associated with time spent by employees in the evaluation process and year 2000 compliance matters generally. While we have not completed all of our year 2000 readiness efforts, based on our assessment to date of year 2000 readiness of systems critical to our business operations, we do not anticipate that we will incur significant operating expenses or be required to invest heavily in computer systems improvements to be year 2000 compliant. However, significant uncertainty exists concerning the potential costs and effects associated with year 2000 compliance. If expenses relating to year 2000 compliance are higher than anticipated, it could seriously harm us. Risks. We are not currently aware of any year 2000 compliance problems relating to our software solutions that would seriously harm us. However, we cannot assure you that we will not discover year 2000 compliance problems that will require substantial expenditures to correct. In addition, clients use our software products in numerous and varied computing environments and in combination with numerous other software products. We have not undertaken a study of our customers' year 2000 readiness nor have we undertaken a study of the environments in which our software may be deployed. There can be no assurance that our testing procedures are adequate to identify all potential year 2000 issues. Furthermore, our success may depend on our customers' success in identifying and managing year 2000 issues in a timely manner. We expect that in general, many of our larger clients will restrict or eliminate software system purchasing decisions in the first quarter of 2000 in order to gain system stability for the year 2000 date change. Depending on the success of our customers in identifying and mitigating their year 2000 issues, significant remediation of year 2000 issues may be required in the first quarter of 2000. This may have the result of significantly reducing new contract sales opportunities in the first quarter of 2000 and may deter customers from continuing to install software previously acquired from us. This may cause us serious harm. 36 39 Contingency Plan. We have not developed a contingency plan. The results of our year 2000 testing and the responses received from third-party vendors and service providers will be taken into account in determining the nature and extent of any contingency plans. Our business and financial condition could be seriously harmed in the event of unanticipated year 2000 related problems. RECENTLY ENACTED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133, as recently amended, is effective for fiscal years beginning after June 15, 2000. Because we do not currently hold any derivative instruments and do not currently engage in hedging activities, we expect the adoption of SFAS No. 133 will not have a material impact on our financial position or operating results. DISCLOSURES ABOUT MARKET RISK Based on the nature and current levels of our investments, we have concluded that we have no material market risk exposure. 37 40 BUSINESS net.Genesis offers e-customer intelligence solutions that enable companies to understand and improve their online businesses. The Company's flagship software product, net.Analysis, combines information about web site visitor behavior with an organization's other online and offline customer data to improve its ability to market, sell and support products, services and content online. The Company's solution enables customers to better tailor and target their marketing initiatives, increase the e-commerce effectiveness of their web sites, provide more relevant and cost-effective content, improve web site design, better allocate advertising and partnership resources, and improve web site infrastructure planning. INDUSTRY BACKGROUND Growth of the Internet and Online Commerce The Internet has emerged as a global medium that allows millions of people to obtain information, communicate and conduct business. As Internet usage has grown, companies have increasingly come to rely on both web sites and private intranets as important business channels. Through the Internet, a company can establish and maintain large numbers of direct relationships while avoiding many traditional investments in business infrastructure, such as retail outlets, distribution networks and sales personnel. Both traditional and Internet-based companies use the Internet to communicate marketing and other information to current and potential customers and to manage relationships with vendors, business partners, employees and others. Increasingly, companies are using the Internet to generate revenue through the sale of goods and services or the sale of advertising. In October 1999, International Data Corporation estimated that revenue from Internet commerce would increase from approximately $50 billion in 1998 to approximately $1.3 trillion in 2003. Increasing Investments in Web Site Infrastructure As use of the Internet increased and businesses became aware of its potential, both traditional and Internet-based companies began to invest more heavily in the development, design and support of their web sites. Early web sites began merely as efforts to build corporate brand identity and contained little more than general corporate and marketing information. Many companies have now enhanced the content and features of their web sites, not only to attract and retain customers, but also to better serve their customers' needs. For example, companies focused on electronic commerce, or e-commerce, have spent significant funds to purchase a variety of advanced third-party software applications to ensure that customers have a satisfying online experience. These include software applications to serve visitors an enormous variety and number of web pages, present multimedia content and banner advertisements, and process orders securely and fulfill them reliably. In April 1999, International Data Corporation estimated that spending on Internet commerce software applications would grow from approximately $444 million in 1998 to approximately $13.1 billion in 2003, a compound annual growth rate of 97%. Continued competition among e-commerce businesses for online customers has also contributed to the trend toward increased web site functionality. For example, to attract and retain customers and build long-term customer loyalty, many companies are now seeking to provide more personalized service to their online customers. Numerous software applications now enable companies to customize or personalize their web sites based on customers' stated or implied preferences, as well as their demographic and behavioral profiles, previous purchasing history or other offline relationships with the company. To support this high level of functionality, companies must often manage large databases and integrate specialized web applications with offline applications and databases, including their transaction processing, financial accounting and customer relationship management systems. As a result, many web sites have become complex systems comprised of multiple, geographically 38 41 dispersed servers running a variety of software applications and managing extremely large volumes of online visitor traffic. The E-Customer Intelligence Opportunity As companies have increased investments in their web sites and as those sites have become more important to their overall business operations, they have begun to devote more attention to establishing and achieving specific business goals for their web initiatives. For many companies, the principal objectives of their web sites are to better attract, serve and retain customers and more effectively conduct e-commerce with them. Companies have also begun to evaluate whether they have allocated their resources wisely among their various web investments, such as online marketing campaigns, web site content, advertising and other promotional sponsorships, and information technology infrastructure. To achieve these objectives, companies must understand the needs and behavior of their online customers as well as the specific costs and benefits of each of their web initiatives. Complicating matters, companies often desire to analyze and understand their online customers in relation to their traditional offline businesses. To gain an understanding of their online customers, or e-customers, companies often initially purchase inexpensive web site statistics reporting software. These solutions generally provide basic information on web site traffic, but do not answer many of the detailed questions that business professionals have about customer behavior and patterns over time. Marketing executives and information technology professionals need answers to critical questions, such as: - where do our online customers come from? which banner ad placements, affiliates and other online sponsorships generate the most visitors and customers for our web site? where are the best sources for new customers? - how do customers typically navigate our web site? how can we make our web site easier to use and more effective at selling our products and services? which pages do our best customers visit most often before making a purchase on our site? - what are the profiles of our best customer segments? how do their web site behavior and other characteristics differ from visitors who do not make purchases? - are our existing offline customers using the online channel? which ones? how? - which web pages do visitors view the most often? is the content we are providing in these web pages cost-effective? - how are our employees using our intranet? what content do they seek most often? how can we deliver information to our employees more effectively and reduce our support costs? - can our suppliers easily transact business with us from our web site? - from which page do most visitors leave our web site? is there a problem with that page? to which web sites do they go? - does our information technology infrastructure have sufficient capacity? what are the most common failures? what infrastructure requirements do we anticipate based on our online visitor activity? To answer these questions and develop actionable business plans, companies need an easy-to-use system that gathers comprehensive intelligence about online customers and their behavior. Businesses also need professional consulting services to help them identify the customer intelligence they can use to take full advantage of their online business opportunities. They need highly functional analytical solutions and robust, interactive reporting capabilities that will help marketing and information technology personnel understand and draw conclusions from this customer intelligence. They need analysis that they can readily put into action in the form of improvements to their web sites and other online and offline marketing initiatives, and they need to 39 42 be able to evaluate the effectiveness of those initiatives. Most companies also require an open, scalable system that can function with other third-party applications in complex web environments receiving millions of hits per day and that can integrate with their existing customer information systems to provide a comprehensive view of their customer base. THE NET.GENESIS SOLUTION We offer an e-customer intelligence solution that allows companies to collect comprehensive data about visitor activity on their web sites and provides powerful analytical and reporting capabilities to enable them to understand, analyze and measurably improve their online businesses. Our professional services organization helps companies identify relevant performance measures for their online businesses, or e-metrics, that they can use to make better decisions about their web initiatives. Our solution provides our customers with the following benefits: Comprehensive Customer Information. Through net.Analysis, organizations can track visitor activity on their web sites and combine this information with data gathered from their other web applications and offline customer information systems. net.Analysis collects near real-time and historical information about web site visitor activity, down to the level of each individual mouse-click. With its net.Instrument architecture, net.Analysis enables an organization to correlate this online customer behavior with information from third-party web applications and databases, as well as with offline customer information, such as transaction histories, call center logs, customer profiles and marketing campaign data. This integrated database provides organizations with a comprehensive view of their online customers, and grows more valuable over time as it accumulates increasingly detailed information about the organization's customers and their characteristics, preferences and behavior. Powerful Analytical Applications. net.Analysis provides powerful analytical capabilities and flexible reporting options designed to serve the business needs of different constituencies within an organization. These analytical applications help companies identify trends in customer behavior and purchasing patterns and thereby assess and improve the effectiveness of their marketing, advertising and e-commerce initiatives. Marketing executives, information technology professionals and other managers can select the data they wish to analyze, apply filters that refine the data and navigate through the data to identify unusual patterns and significant trends. net.Analysis' interactive data navigation capabilities provides high levels of detail, enabling users to comprehensively analyze the data, or drill down, to a level as specific as individual customers' paths through a web site, or clickstreams, or their demographic profiles. For example, users can correlate specific marketing campaigns with customer purchases to determine whether the campaign was effective in increasing sales. Users can also match this data with customer profiles to identify the customer segments that responded best to the marketing campaign. With this information, companies can better tailor their web sites, marketing campaigns and e-commerce initiatives to meet the needs of their online customers. net.Analysis also serves as a platform on which we, our solution providers and our customers can build additional analytical applications. For example, we recently introduced CartSmarts, an add-on application to net.Analysis that helps e-commerce companies better understand customers' online shopping behavior. Open and Extensible Architecture. net.Analysis has an open and extensible architecture, meaning that it is designed for integration with third-party software applications and databases. net.Analysis also supports multiple operating platforms, including Microsoft Windows NT and Unix, from a common base of software code. net.Analysis' open architecture makes it easier for organizations to gather information from a broad range of data sources and facilitates the incorporation of net.Analysis into complex web sites. This flexible architecture makes our solution attractive to companies seeking an e-customer intelligence solution that will integrate with their other web applications and existing offline systems. In addition, third parties may seek to build add-on applications or include the capabilities of net.Analysis in systems or services that they offer to their customers. For example, other software companies may seek to enter original equipment 40 43 manufacturer agreements with us and incorporate net.Analysis in a suite of integrated software applications. Similarly, application service providers, or companies that offer the usage of software as a service to their customers, may seek to license net.Analysis to provide advanced e-customer intelligence services to companies that do not independently license net.Analysis. Highly Scalable and Reliable Solution in Complex Environments. Because our target market includes some of the busiest web sites on the Internet, we have designed net.Analysis to be scalable and reliable enough to be effective in complex web site environments managing tens of millions to over 100 million hits per day. Its architecture uses high-speed, near real-time data collection techniques and intelligent data aggregation algorithms to maintain performance speed, even when used to analyze data from large sites hosted on multiple, geographically dispersed servers. One key to our product's scalability is the method by which the application collects, aggregates and stores data to maximize performance speed while preserving our product's ability to drill down deeply into the data. In addition, because net.Analysis frequently operates in complex, integrated web environments where one or more software applications may fail, we have built into net.Analysis backup, recovery and alert mechanisms to maintain data and analytic integrity during failures and ensure its reliability as a business-critical application. Strategic E-Customer Intelligence Services. We provide professional consulting services to help organizations understand the depth of critical business information that net.Analysis can gather from customer activity on their web sites. In addition to product installation and configuration, application integration and training services, we provide advanced analytic consulting services to assist organizations in understanding their business needs, developing e-metrics that are relevant to their businesses and designing web site modifications and developing customized analyses and reports to address their particular requirements. We have also developed a formalized web site analysis methodology, Design for Analysis, that assists customers in designing or redesigning their web sites in ways that will facilitate analysis and reporting of their online businesses. Our professional services organization also helps companies plan cost-effective e-customer intelligence strategies by, for example, evaluating trade-offs between the value of storing massive quantities of data and the hardware, software and organizational costs associated with that storage. We believe that, by helping organizations better understand, segment and target their online business activities to their customer base and improve the effectiveness of their web sites, our e-customer intelligence solution enables organizations to: - attract customers and increase online commerce revenue - improve customer satisfaction, retention and loyalty - maximize the lifetime value of customer relationships - increase the return on their spending on their web site initiatives We believe our e-customer intelligence solution enables our customers to achieve significant benefits in the following areas: - better tailored and targeted marketing initiatives. net.Analysis provides rich behavioral profiles of online visitor segments, enabling marketing professionals to tailor online and offline marketing initiatives such as online promotions, e-mail campaigns, direct mail and other promotional efforts. - improved e-commerce effectiveness. With net.Analysis, companies can understand the web usage behavior and purchasing patterns of their best online customers and target their content, features and online marketing campaigns to those customers and prospects that resemble those customers. Also, companies can understand which marketing campaigns are ineffective and find ways to improve them. 41 44 - more relevant and cost-effective content. net.Analysis gives online business managers information they can use to improve the content of their web sites and intranets by expanding coverage of popular subject matters and de-emphasizing products, services and content that users rarely request. Content managers can also assess the level of interest in particular content and determine whether that content is cost-effective. - better web site design. By helping web site designers understand how users navigate through a web site to reach the content they seek, net.Analysis enables designers to shorten the path to the most popular content and develop a more intuitive web site layout for both new and experienced users. - improved allocation of advertising and partnership resources. By enabling companies to trace each step of every visitor's path from arrival at the web site to departure, net.Analysis helps companies identify which online advertisements or promotional sponsorships were most effective at achieving specific business goals, such as registering new users or increasing sales of particular products. - better web site infrastructure planning. net.Analysis enables companies to better measure how their web sites perform under varying traffic loads and with different end-user access technologies. With this type of information, companies can better plan investments in building additional capacity and improving interfaces with new user technology. STRATEGY Our objective is to be the leading provider of e-customer intelligence software and services. Our strategy to achieve this objective includes the following elements: Extend Leadership Position in E-Customer Intelligence Solutions. We intend to continue to devote significant resources to the development of leading e-customer intelligence solutions for complex, high-traffic web environments. We began developing our core technology in 1994, when few companies had a commercial presence on the web, and have continued to build our expertise in developing highly functional, scalable and reliable e-customer intelligence solutions. We intend to continue to enhance net.Analysis' data collection, analytical and reporting functions to provide a more comprehensive view of online customer relationships and to integrate with leading online commerce applications and third-party offline data sources. We also intend to equip marketing and executive personnel with additional customer analysis, segmentation and predictive modeling applications. For example, we recently introduced CartSmarts, an add-on application to net.Analysis that helps e-commerce companies better understand customers' online shopping behavior. We also recently announced our net.Activator product development initiative, which is intended to allow our customers to use the information gathered through net.Analysis as direct input to other software applications such as applications for direct e-mail marketing campaigns and ad targeting. Expand Sales and Distribution Channels. We believe the market for e-customer intelligence solutions is only beginning to emerge in the United States and is even less developed outside the United States. We intend to significantly expand our direct sales force in the United States and in selected locations in Europe and Asia to enhance our long-term competitive position. We also plan to develop relationships with additional systems integrators, original equipment manufacturers, resellers and application service providers in the United States and abroad to augment the efforts of our direct sales force. In particular, our business development organization is focused on establishing relationships with systems integrators to take advantage of their substantial service and distribution capabilities. We intend to continue to train selected system integrators to provide the full range of our professional services directly to customers. In addition, we may begin to use, or license application service providers to use, net.Analysis to offer e-customer intelligence services on a subscription basis to e-commerce sites that do not independently license net.Analysis. 42 45 Deepen Penetration into Installed Base of Customers. As of December 15, 1999, we had an installed base of more than 200 customers in a broad range of industries. Many of our customers purchase additional products and services from us after the initial installation of net.Analysis. For example, in 1998, we derived approximately 48% of our total revenue from sales of products and services to customers that had made purchases from us before 1998. We believe several trends will create additional opportunities to market our products and services to our existing customers, including the intensifying competition among web sites for visitor attention, enhanced web site functionality, better integration of web sites with existing business systems, growing internal pressures to demonstrate the value of investments in web sites, and demand for professional consulting services in developing e-metrics. Moreover, as we develop new applications or product enhancements, we believe our existing customer base will be a significant market opportunity for those products and related services. Expand Strategic Technology Relationships. We believe that an extensive network of strategic technology alliances will enhance the attractiveness of our solution and provide additional marketing and distribution channels. We have established strategic relationships with a number of companies to offer a solution that integrates with other technologies important to our customers' online business initiatives. For example, we have developed relationships with DoubleClick, IBM, Net Perceptions and Vignette to ensure that our products integrate with each other or to conduct co-marketing or co-selling activities. In addition, we intend to expand the distribution of our software by licensing net.Analysis for incorporation into other web applications. We intend to build upon our existing relationships and establish additional strategic technology relationships with leading online commerce software providers to enhance the value of our solution. Expand Professional Services Capabilities. We believe there are significant opportunities to expand our consulting services, particularly our strategic analytic consulting services. We intend to significantly expand our professional services capabilities to enable us to assist customers in developing and measuring e-metrics that are relevant to their businesses and in addressing key business issues associated with implementing large-scale, strategically important online businesses. In addition, we believe that further developing our professional services capabilities will allow us to develop close customer relationships that may lead to additional sales and product development opportunities. Pursue Strategic Acquisitions. We intend to pursue acquisitions of products, services and technologies that complement our existing business. Although we have no present commitments or agreements regarding any acquisitions, we believe that numerous acquisition candidates could enhance our e-customer intelligence capabilities. PRODUCTS AND SERVICES We offer a highly scalable, reliable and functional e-customer intelligence solution for high-traffic e-commerce web sites and other complex web environments. Our core product, net.Analysis, is a highly functional software application that gathers information about web site visitor activity through a variety of data collection techniques and data sources and provides powerful analytical capabilities for understanding and using that data to measurably improve online businesses. We currently offer our net.Analysis software application and a complementary application for analyzing online shopping behavior, as well as a variety of strategic analytic consulting services, implementation consulting services and other services. 43 46 The following table briefly describes our product and services offerings, their principal features and benefits, and their pricing structure.
- --------------------------------------------------------------------------------------------------- PRICING STRUCTURE/ OFFERING DESCRIPTION AND BENEFITS PLATFORMS SUPPORTED - --------------------------------------------------------------------------------------------------- NET.ANALYSIS APPLICATION - --------------------------------------------------------------------------------------------------- net.Analysis 4.5 A software application that collects Pricing varies based on the and stores web site and e-customer platform supported and increases (released October 1999) data, integrates offline customer according to the number of managed information and enables businesses to servers in the customer's analyze this information to improve environment. Available for the their ability to market, sell and following platforms: support products, services and -- Microsoft Windows NT content online -- Sun Solaris -- IBM AIX (available for net.Analysis 4.0) - --------------------------------------------------------------------------------------------------- net.Stream A high-performance data importing Included in net.Analysis 4.5 architecture that enables reporting and analysis of near real-time and historical web site data from multiple sources, such as web server log files, network packet sniffers and web server plug-ins - --------------------------------------------------------------------------------------------------- net.Instrument Advanced integration architecture for Included in net.Analysis 4.5. combining and correlating online Support for the following visitor behavior with data from third-party applications are online and offline third-party available at additional cost: applications and customer data -- DoubleClick AdServer sources -- IBM Net.Commerce -- Net Perceptions Recommendation Engine -- Vignette StoryServer - --------------------------------------------------------------------------------------------------- net.Analysis DataStore A repository for e-customer data. The Included in net.Analysis 4.5. DataStore schema stores complete web Supports the following relational site behavior and other customer data databases: as well as summarized aggregates of -- Oracle this data -- Microsoft SQL Server -- Sybase -- Informix (available for net.Analysis 4.0) - --------------------------------------------------------------------------------------------------- Reporting Capabilities net.Reporter Software that resides on individual Priced according to the number of end-users' computers to access end users. net.Analysis includes a net.Analysis and enable easy, single end-user license for in-depth, customizable analysis and net.Reporter. Also supports reporting. Features over 150 standard Microsoft Windows 95/98 reports as well as the ability to build custom reports - ---------------------------------------------------------------------------------------------------
44 47
- --------------------------------------------------------------------------------------------------- PRICING STRUCTURE/ OFFERING DESCRIPTION AND BENEFITS PLATFORMS SUPPORTED - --------------------------------------------------------------------------------------------------- HTML Reporter Allows end users to generate pre- Priced according to the number of defined reports through a browser- end users. net.Analysis includes a based interface single end-user license for HTML Reporter. ReportSite A pre-built intranet site that uses net.Analysis includes a single a simple, calendar-based interface end-user license for ReportSite to provide access to automatically published net.Analysis reports net.Dashboard A customizable extension to Priced on a project basis net.Reporter. This Java-based interface allows users to create a personalized view of high-level, near real-time e-metrics of web site activity - --------------------------------------------------------------------------------------------------- Administrator Console A browser-based interface for Included in net.Analysis 4.5 configuring and managing net.Analysis users, data files and automating report distribution - --------------------------------------------------------------------------------------------------- ADD-ON APPLICATION TO NET.ANALYSIS - --------------------------------------------------------------------------------------------------- CartSmarts 1.0 Provides online shopping analysis Priced separately from net.Analysis and reporting capabilities. Features 4.5 and increases according to the (released more than 40 pre-defined reports and number of managed web servers in the October 1999) data filters specifically for customer's environment evaluating shopping behavior as customers progress through the purchase process - --------------------------------------------------------------------------------------------------- PROFESSIONAL SERVICES - --------------------------------------------------------------------------------------------------- Strategic Analytic Consulting Services Marketed primarily to customers that Billed primarily on a time- operate complex, high-traffic web and-materials basis sites and those managing sophisticated online businesses. Features our Design for Analysis methodology that advises customers how to design web sites that facilitate analysis and reporting of their online businesses - --------------------------------------------------------------------------------------------------- Product Implementation Services A variety of consulting services, FastPath is billed on a fixed- price including FastPath product basis; other implementation services implementation and application are billed primarily on a time- integration and-materials basis - --------------------------------------------------------------------------------------------------- Training Services Instruction for customers and Billed by training course, according solution providers in the use and to the number of attendees implementation of net.Analysis and the integration of net.Analysis with other data sources and applications - ---------------------------------------------------------------------------------------------------
SOFTWARE PRODUCTS net.Analysis 4.5. Our principal software product, net.Analysis, collects and analyzes valuable information about the behavior of visitors to the user's web site, such as which web sites the 45 48 visitors came from, what behavior they demonstrated on the site, how much time they spent in various sections of the site, whether or not they made purchases, and other clickstream patterns. net.Analysis can then correlate this data with the organization's other online and offline business information to develop a comprehensive view of its online customers. With this information asset, business managers can more effectively target and tailor their web-based advertising, marketing campaigns and promotional activities to particular customer segments. By giving business managers information and analytical capabilities to evaluate and monitor the effectiveness of these initiatives, net.Analysis also allows them to improve their web site design and the return on their web site investments. We have designed net.Analysis to support the large and complex web server configurations common to high-traffic web sites. net.Analysis directly supports the most popular relational databases and enables fast data import and processing. We currently offer versions of net.Analysis for three popular operating systems: Microsoft Windows NT, Sun Solaris and IBM AIX. We introduced our first version of net.Analysis in January 1996 and released version 4.5, the latest version, in October 1999. The net.Analysis application includes the following modules: net.Stream. net.Stream is a high-performance data importing architecture for collecting continuous streams of data regarding web site activity. net.Stream enables the user to collect data from multiple sources, such as files of web server transaction logs, or log files, network packet sniffers, which analyze packets of data as they pass over the network, and web server plug-ins, which are software modules that extend the standard information logged by the web server. With net.Stream, business and technical managers have access to a mix of near real-time and historical data reports to support both tactical and strategic decision-making. At the option of the user, net.Stream can summarize and store detailed clickstream data into aggregates, which can improve the overall response time for targeted queries of the database during an analysis. net.Instrument. net.Instrument is an advanced integration application for combining and correlating online visitor behavior data with business data from other sources. net.Instrument enables the user to discover meaningful business trends by integrating and analyzing information from third-party web applications and from traditional offline databases, such as product and customer databases. Through net.Instrument, net.Analysis provides a complete view of the online customer in the context of the overall business, and can offer drill-down and data correlation reports for all of the organization's information on its e-customers. net.Instrument also establishes a platform on which users can develop new modules to take advantage of information and technology provided by their strategic partners. For example, PixelPark, one of our solution providers, has used net.Instrument to integrate net.Analysis with Intershop's commerce server, called Enfinity, to provide a broader view of online visitors and their transactional behavior as a value-added offering. net.Analysis DataStore. With net.Analysis, a company can compile a vast database of e-customer information, including both online and offline information, which can become a valuable information asset. The net.Analysis DataStore has both a transactional schema, designed for loading large amounts of data on a consistent basis, and a constellation schema, designed to facilitate rapid, ad hoc, interactive analysis. The net.Analysis DataStore contains both complete transaction data as well as summarized aggregates of data. This design facilitates both quick analysis of high-level questions and more thorough analysis of questions that require a fine level of detail. Through net.Instrument's integration capabilities, a company can also correlate web site activity data in the net.Analysis DataStore with customer information compiled in other databases. This information can include data from third-party web applications and from offline sources, such as transaction histories, customer profiles and marketing campaign data. Once information has been stored or correlated in the net.Analysis DataStore, the customer can apply all of net.Analysis' analytical tools and reporting capabilities to that information to better understand and use the data to improve business decisions. 46 49 Reporting Capabilities. net.Analysis' reporting modules include net.Reporter, HTML Reporter, ReportSite and net.Dashboard. net.Reporter is a software application that resides on the end-users' computers and serves as the principal desktop interface for net.Analysis. From net.Reporter, end users perform in-depth, ad hoc analysis of the characteristics of e-customers and their web site activity. net.Reporter includes point-and-click wizards to help create sophisticated, customized reports, filters that allow users to focus on unique aspects of e-customer intelligence, and drill-down capabilities that permit users to probe anomalies and identify trends important to their business activities. net.Reporter provides over 150 pre-defined reports, report wizards and data analysis filters. HTML Reporter allows users to generate pre-defined reports through a browser-based interface. ReportSite is a pre-built intranet site that uses a simple, calendar-based interface to provide access to automatically published net.Analysis reports. net.Dashboard is a Java-based desktop interface that enables a personalized view of near real-time web site activity data. This fully customizable extension to net.Reporter presents e-metrics for managers across the enterprise. These reporting modules enable an organization to produce a wide variety of pre-defined or customized reports with varying levels of detail to satisfy the wide-ranging web site analysis needs of individuals throughout the organization. Frequently used reports include: - Top Content Pages - Top Authors - Top Advertisers by Impressions - Top Advertisers by Clickthrough - Top Pages by Time Spent - Clickstream Path Report - Top Referring Web Sites - Visit Recency and Frequency (CartSmarts) - Purchase Recency and Frequency (CartSmarts) - Repeat Customers (CartSmarts) Administrator Console. net.Analysis' Administrator Console is a browser-based administrative interface through which our customer can automate and refine the web site analysis reporting process, from data collection to report production and distribution. Our customer's net.Analysis administrator can configure and manage net.Analysis data files, and can automate data retrieval, importing, compression and storage on an hourly, daily, weekly or monthly basis. Other data parameters can also be adjusted based on the needs of the customer's business. For example, the Administrator Console permits the administrator to adjust data collection parameters to collect all available data or to sample the data. Licensing and Pricing. We license net.Analysis according to the number of managed servers and according to the number of end users of net.Analysis' reporting capabilities. Each net.Analysis license includes the net.Analysis application and a single end-user license for net.Reporter, HTML Reporter and ReportSite. Every license also includes maintenance and support for twelve months. Pricing for net.Analysis varies according to the platform for which it is purchased. Pricing for additional end-user access to net.Reporter, HTML Reporter and ReportSite increases according to the number of end users in the customer's organization. The price of an entry-level system, including software and related professional services, ranges from approximately $50,000 to $100,000. We offer annual maintenance and support renewals for a fee based on a percentage of the then-current list price of the installed applications. We offer premium and customer support services for additional fees. ADD-ON APPLICATION TO NET.ANALYSIS CartSmarts. CartSmarts provides online shopping analysis and reporting. CartSmarts includes more than 40 pre-defined reports and filters specifically for evaluating shopping behavior as 47 50 customers progress through the purchase process. These specialized online shopping reports include the following: - Purchase Path Report, which enables businesses to understand how visitors progress through or abandon each stage of the purchase process - Shopping Cart Activity Report, which enables businesses to understand how their customers use shopping carts, why they may abandon them at specific stages of the purchase process, and which purchases they complete - Acquisition Source Report, which enables users to understand which sites refer the best potential customers PROFESSIONAL SERVICES We offer a range of professional services, including strategic analytic consulting, product implementation, application integration, training programs and technical support. We began to expand our professional services organization significantly in 1998 and intend to continue to hire additional employees for this department. We price our professional services primarily on a time- and-materials basis and to a lesser extent on a fixed-price basis. Strategic Analytic Consulting Services. We offer strategic analytic consulting services primarily to customers that operate complex, high-traffic web sites and customers that are developing or managing sophisticated online businesses. We provide advanced consulting services to assist organizations in understanding their business needs, developing e-metrics, and designing web site modifications and developing customized analyses and reports to address their particular requirements. We have also developed a formalized web site analysis methodology, Design for Analysis, that assists customers in designing or redesigning their web sites in ways that facilitate analysis and reporting of their online businesses. Our professional service organization also helps customers to plan cost-effective e-customer intelligence strategies by, for example, evaluating trade-offs between the value of storing massive quantities of data and the hardware, software and organizational costs associated with that storage. We also assist customers in interpreting their data, identifying trends and designing appropriate action plans. Product Implementation and Application Integration Services. We offer a variety of product implementation consulting services, including FastPath. FastPath services enable a customer to rapidly begin using net.Analysis and includes an assessment of the customer's needs, product installation and configuration, and introductory training. Application integration consulting covers a broad array of services, including customization of net.Analysis reports, integration with third-party web and offline applications and databases, and the development of special software for unique customer situations. On a limited basis, we have also provided for a fee ongoing data management, analysis and reporting remotely from our offices. Training Programs. Through our training programs, we help customers use our products effectively and achieve their online business goals. We provide instruction in the development, use and administration of net.Analysis to marketing, business analysis, web site design and information technology professionals and other end users. We offer courses at our training facilities as well as at customers' locations. We also work closely with our solution providers to train them in the use and extension of net.Analysis so they can independently deliver professional services relating to net.Analysis. Technical Support Services. Basic technical support services includes product maintenance and phone, e-mail and web site support. For an additional fee, we also offer premium and custom support services for customers with special support needs. 48 51 PRODUCT DEVELOPMENT Since 1996, the majority of our research and development activities have been directed towards creating new versions of our net Analysis product to extend and enhance its features, particularly its scalability, its ability to integrate with other online and offline software applications and databases, and its analytic capabilities. We intend to continue our investments in these areas as well as in certain add-on technologies and applications, such as net.Activator, a recently announced product development initiative. With net.Activator, we intend to introduce an add-on application that will permit organizations to use the information collected by net.Analysis as direct input to other software applications, such as applications for direct marketing campaigns and ad targeting. We have invested significant resources in developing an open and extensible architecture to comply with widely accepted commercial software industry standards for building large-scale Internet applications. We develop most of our software in C++ and Java, two widely accepted programming languages for application development. In addition, net.Analysis meets ABC Interactive's standards for accuracy for independent verification of online visitor information. Adherence to industry standards provides compatibility with existing applications, simplifies the modification of our software, and reduces the customer's need to purchase new software. We have focused our product development efforts in particular on developing our software architecture to comply with eXtensible Markup Language, or XML, a recently adopted standard for data representation and processing. We are also actively developing and promoting a new initiative, known as Customer Profile Exchange, or CPEX, a global standard for privacy-enabled customer data interchange. Because we expect that the XML and CPEX standards will be widely adopted in our industry, we believe that our initiatives with regard to these standards will allow us to further our technology leadership position. 49 52 CUSTOMERS We sell our products primarily to medium and large-sized companies with significant investments in complex, high-traffic commercial web sites. As of December 15, 1999, our customers included the following companies, each of which has accounted for at least $15,000 of our total revenue recognized since January 1, 1998: TECHNOLOGY & FINANCIAL SERVICES INTERNET & E-COMMERCE TELECOMMUNICATIONS -------------------- --------------------------- ----------------------- Charles Schwab Chicago Board Options BuyItNow.com 3Com Exchange Direct Hit Technologies Akamai Countrywide Home Loans eBags ASD Systems Credit Suisse First Boston edu.com ATI Canada Fidelity Investments Egreetings Network Bell Atlantic First American Bank Foofoo.com Cellular One Nomura Securities Furniture.com Creative Labs OppenheimerFunds Gomez Advisors GTE PeopleFirst Finance iCelebrate.com Instinctive Technology PricewaterhouseCoopers iWon Into Networks (formerly Sallie Mae Monster.com Arepa) SunAmerica NextPlanetOver Online Intraware VISA International ShopLink.com Lexmark SmarterKids.com Lotus Development PUBLISHING, ENTERTAINMENT & StoreRunner MapInfo MEDIA Tavolo PixelPark GmbH -------------------------- ToyTime.com Sybase Travelscape.com Symantec 365 Corporation Tele-Communications ADVO OTHER BBC News Online ------ TRADITIONAL RETAIL CBS ------------------- EarthWeb Delta Air Lines Barnes & Noble First Call General Electric Follett PlanetOut Goodyear The Gap R.R. Donnelly & Sons Olympus America Micro Warehouse Red Herring PCS Health Systems Sears Canada Universal Studios Walt Disney ZineZone
TECHNOLOGY We believe that net.Analysis excels in areas essential to complex, high-traffic online businesses: scalability and performance, analytic capabilities, open architecture and reliability. Highly Scalable Data Import Architecture. We have designed net.Analysis to meet the needs of customers with high-traffic web sites that process tens of millions to over 100 million hits per day. net.Analysis works effectively with large, complex web sites that have multiple, geographically distributed data centers operating a mix of web server applications. Our solution is designed around our net.Stream technology, a highly scalable data import architecture that collects continuous streams of data regarding web site activity. The import architecture collects data from web server log files, network packet sniffers and web server plug-ins. net.Analysis consolidates all the requests from these disparate data centers into one, chronologically ordered thread, enabling a coherent view of web activity across the enterprise. net.Analysis avoids importing unwanted data, such as activity caused by automated indexing agents from search engines. net.Analysis then transforms the imported data into meaningful information for subsequent analysis. 50 53 net.Analysis applies a number of web-specific data cleansing and transformation rules to extract a sophisticated model of users and their behavior from low-level visitor session information. net.Analysis tracks information about activities such as promotion responses, e-commerce transactions and advertising clickthroughs for subsequent analysis. These data importing and tracking techniques provide a coherent and complete view of visitor activity on our customer's web site. net.Analysis imports, manages and stores the complete history of each user visit, which can result in extremely large volumes of data, particularly in high-traffic environments. To maintain performance while analyzing these large amounts of data, net.Analysis offers end users the option to summarize detailed clickstream activity into data aggregates, while maintaining the underlying detailed transactional information. Working with data aggregates improves the overall response time for targeted queries of the database during an analysis. net.Analysis is optimized specifically for each supported database platform and uses the native database connectivity layer for high scale database access. We have also designed net.Analysis to take advantage of database-specific features and functionality to improve performance. We have designed the net.Analysis DataStore schema for high performance. net.Analysis DataStore has both a transactional schema and a constellation schema. The transactional schema is designed for loading large amounts of data on a consistent basis and the constellation schema is designed for ad hoc, interactive analysis. The schema also permits the efficient use of sophisticated database resources, such as parallelized queries, for high scaling and performance. Analytic Capabilities. We have designed net.Analysis to provide multiple analytic interfaces to meet the needs of different information consumers. The most powerful of these interfaces is net.Reporter. net.Reporter allows for the creation of custom reports as well as in-depth, ad hoc analysis. net.Reporter's flexible interface allows users to establish business rules, concentrate on particular segments of users, and compare those segments with one another by building, combining and applying reusable filters. In addition, we have designed a rich set of point-and-click wizards to simplify the process of creating sophisticated custom reports. net.Analysis is designed to analyze dynamic web sites effectively. We have included capabilities such as Key Value Analysis, which enables users to analyze web sites that employ dynamic content-serving technology. These capabilities provide insight on how visitors use online forms, search engine key words and respond to banner advertising. Standard, Open and Extensible Architecture. We have designed net.Analysis using a standards-based, open and extensible architecture that allows customers to easily manage net.Analysis and integrate it into their existing infrastructure. net.Analysis uses a common base of software code to support Microsoft Windows NT, Sun Solaris and IBM AIX. In addition, net.Analysis directly supports standard relational databases such as Oracle, Microsoft SQL Server, Sybase and Informix. We have designed the net.Analysis architecture to combine and correlate data from other databases and applications within an organization with online customer behavior. This functionality extends the power of net.Analysis in two ways. First, it allows net.Analysis to flexibly interact with an organization's existing infrastructure and enhances the value of the organization's existing customer information resources. Second, it enhances the analytic capabilities of net.Analysis by enabling end users to pursue more sophisticated questions about visitor behavior on their sites. With its open architecture, net.Analysis can be easily incorporated into complex web environments and can be used as a platform upon which customers can build additional applications, such as PixelPark's integration of net.Analysis with Intershop's commerce server. Reliability. We have designed net.Analysis to serve as a core element of the operational infrastructure of a large-scale enterprise. To that end, we have incorporated technologies that are designed to simplify system administration and oversight, such as automated scheduling facilities to handle data collection, data archival and report publishing. We have also incorporated automated monitoring and alerting features to manage these processes, as well as recovery systems to minimize 51 54 the impact of power failures, third-party application faults and system overloads. In addition, we have developed an application to allow customers to integrate net.Analysis with systems management applications. We believe the combination of these architectural components makes net.Analysis suited to serve as a business-critical component of an organization's operational infrastructure. STRATEGIC TECHNOLOGY RELATIONSHIPS To provide our customers with a complete solution, ensure that our own products are compatible with the most advanced available technology and increase the reach of our sales and marketing efforts, we have established relationships with a select group of software and service providers that we believe are leaders in their respective markets. Our relationships with these companies may include joint development efforts directed at integrating our respective products, joint participation in trade shows, seminars or user conferences, or co-marketing or co-selling programs, or reciprocal product and sales training. We believe that our association with these companies benefits our customers and helps to position us as a technology and market leader. We have strategic technology relationships with the following companies: Allaire Allaire's Spectra software enables web site developers to quickly build and deploy a broad range of interactive applications for intranets and public Internet sites. We are integrating net.Analysis with Allaire's Spectra products to enable companies to evaluate the effectiveness of their web site design and online effectiveness. Art Technology Group Art Technology Group is a developer of e-commerce and online personalization applications. We are integrating our net.Analysis application, including net.Instrument and CartSmarts, to enable business managers to capture, measure and correlate online behavior on web sites using Art Technology Group's Dynamo product suite. Annuncio Annuncio offers Annuncio Live, a software application that enables organizations to reliably automate and manage online marketing campaigns. Together, we are integrating net.Analysis with Annuncio Live to enable online marketers to combine ongoing web visitor data with data captured during Annuncio Live marketing campaigns to increase the effectiveness of these campaigns. DoubleClick DoubleClick provides online advertising and direct marketing software and services. We have integrated our software with DoubleClick's AdServer to enable users to measure and improve the effectiveness of specific marketing campaigns and advertisements. Harte-Hanks Harte-Hanks is a leading provider of direct marketing services, including database marketing solutions and response management services. Harte-Hanks resells our software and services through its sales force in North America and the United Kingdom and also provides training on net.Genesis' Design for Analysis methodology. IBM IBM's Net.Commerce is a suite of software applications that enable businesses to implement commercial web sites and effectively conduct electronic commerce on the Internet. IBM also offers WebSphere, which provides web site development tools 52 55 and management software to help companies build, manage and deploy e-business applications. We have integrated net.Analysis with Net.Commerce and are integrating it with WebSphere to provide advanced analytic capabilities for customers using these IBM products. Net Perceptions Net Perceptions provides real-time product and content recommendation software, which enables companies to better personalize their web sites and online marketing efforts based on individual visitor's preferences. We have integrated net.Analysis with Net Perceptions' Recommendation Engine to demonstrate the effectiveness of Net Perceptions' recommendations and to help business managers improve their site's ability to generate online revenue. Sun-Netscape Alliance Netscape, through its Sun-Netscape Alliance, offers business-to-business e-commerce applications, including SellerXpert. We are integrating net.Analysis with SellerXpert to provide businesses a deeper understanding of the online behavior and purchasing patterns of their business customers. Vignette Vignette's StoryServer software application enables businesses to better manage their online relationships by personalizing their web site content presentation, navigation and promotion based on visitors' preferences and actions. We have developed a Vignette integration that brings analytic capabilities to sites using StoryServer, improving content effectiveness and online relationships. SALES AND MARKETING We sell net.Analysis worldwide through our direct sales force and, to a lesser extent, through relationships with resellers and other strategic partners. As of December 15, 1999, our sales force consisted of 39 sales professionals located in Atlanta, Boston, Chicago, Cupertino, Dallas, Los Angeles, New York, Raleigh, Tampa and London. Our direct sales force focuses on selling net.Analysis to customers that maintain strategic, high-traffic commercial web sites. We utilize sales teams consisting of both sales and technical professionals who work directly with potential customers, or with our partners, to provide proposals and demonstrations designed to address the specific needs of potential customers. We intend to increase our direct sales force, both domestically and abroad, and to develop relationships with additional resellers, systems integrators, original equipment manufacturers and application service providers. We have established relationships with web solution providers in numerous domestic and international locations to augment our ability to offer our products and services. Several of our solution providers are authorized resellers of our products and have completed the training we require to provide professional consulting services, technical integration services and technical support on our behalf. We have also entered into co-marketing and co-sale arrangements with selected strategic technology partners, such as IBM and DoubleClick. We also intend to license our software to other software and service companies for incorporation into their e-commerce and other application suites, such as with Harte-Hanks. In addition, we intend to license our software to companies that may resell our solution as a subscription service offering. We focus our marketing efforts on creating awareness of our solution among business executives, marketing professionals, web administrators and other information technology profes- 53 56 sionals considering large-scale e-customer intelligence solutions. We conduct a variety of marketing programs worldwide to educate our target market. We have engaged in marketing activities such as online seminars and promotions, direct marketing, trade shows, press and industry analyst relations, and users conferences. We invest substantial effort in our web site to support our corporate image in the online business community and to generate sales leads. We make available on our web site extensive product information, including a virtual tour of common business scenarios, which shows online visitors typical applications of our product by marketing, advertising, information technology and executive-level employees. Our marketing organization works closely with our customers, direct sales organization and partners to capture, organize and prioritize customer feedback to help guide our product development organization. COMPETITION The market for e-customer intelligence solutions and web site analysis software and related services is immature, fragmented, intensely competitive, rapidly evolving and subject to rapid technological change. We expect that competition will continue to intensify. Increased competition may result in reduced market acceptance of our products, price reductions and reduced gross margins, any of which could seriously harm our business. Competitors vary in size and in the scope and breadth of the products and services they offer. Our competitors include: - other companies developing and offering stand-alone e-customer intelligence and web site analysis software, such as Accrue, Macromedia (with its recent acquisition of Andromedia) and WebTrends - web application companies whose products have some of the functionality of our products, such as Microsoft, which includes web site statistical reporting in its Site Server software - companies offering traditional offline business intelligence or decision support solutions - providers of service-based solutions - internal development groups within prospective customers' organizations Some of our current and potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we do. They have significantly greater name recognition and a larger installed base of customers. In addition, many of our competitors have well-established relationships with our current and potential customers. In the past, we have lost potential customers to competitors for various reasons and may continue to do so. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We believe that the principal competitive factors in the market for our products are: - the ability of a product to scale and support the requirements of complex, high-traffic web sites - depth of reporting and analysis capabilities - data collection capabilities and techniques - ability to integrate with the customer's web environment, and offline applications and data - ability to offer strategic professional services - quality of customer support - price 54 57 Although we believe that our solution competes favorably with respect to these factors, our market is relatively new and is developing rapidly. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, marketing, service, technical and other resources. EMPLOYEES As of December 15, 1999, we had 147 full-time employees, including 39 in sales, 36 in engineering, 34 in professional services and technical support, 20 in general and administrative, and 18 in marketing and business development. None of our employees is represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with our employees are good. FACILITIES Our headquarters are located in Cambridge, Massachusetts, where we lease approximately 25,000 square feet of office space under a lease expiring in August 2004. We expect that these facilities will meet our needs through mid-2000 and that suitable additional or substitute space will be available as needed. We also lease sales and service offices in Cupertino and London. We lease these offices under agreements with remaining terms of less than two years. LEGAL PROCEEDINGS We are not currently subject to any material legal proceedings. 55 58 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EXECUTIVES The following table sets forth information with respect to our executive officers, directors and key executives as of December 15, 1999:
NAME AGE POSITION - ---- --- -------- Executive Officers and Directors Lawrence S. Bohn..................... 48 President, Chief Executive Officer and Director John Delea........................... 38 Chief Financial Officer, Vice President, Finance and Administration, and Treasurer Roger Hodskins....................... 44 Vice President, Worldwide Sales and Service Marcie Desmond....................... 44 Vice President, Professional Services Anne Estabrook....................... 35 Vice President, Marketing David George......................... 32 Vice President, Business Development Stan Jackson......................... 46 Vice President, Engineering David Reiner......................... 47 Vice President, Product Strategy and Development Kathleen Biro(1)..................... 47 Director Ted R. Dintersmith(1)................ 47 Director Robert N. Goldman(2)................. 50 Director Rory T. O'Driscoll................... 35 Director Stephen J. Ricci(2).................. 53 Director Key Executives Matthew Cutler....................... 26 Founder and Chief E-Business Intelligence Officer Eric Richard......................... 26 Founder and Chief Technology Officer
- ------------------------------ (1) Member of the compensation committee. (2) Member of the audit committee. Lawrence S. Bohn has served as our President and Chief Executive Officer and a director since March 1998. From August 1997 to February 1998, Mr. Bohn was an independent consultant. From September 1994 to July 1997, he served as President of PC Docs, Inc., a developer of document management software for enterprise networks. From April 1986 to July 1994, Mr. Bohn served as Senior Vice President of Marketing and Business Development at Interleaf, Inc., a developer of electronic publishing solutions. He received a B.A. with honors from the University of Massachusetts at Amherst and an M.A. in structural linguistics from Clark University. John Delea has served as our Chief Financial Officer, Vice President, Finance and Administration, and Treasurer since December 1996. From September 1994 to August 1996, Mr. Delea served as Business Unit Controller at Bay Networks, now a division of Nortel Networks, where he directed the financial planning and operations of its router products group. From May 1992 to August 1994, Mr. Delea served as Assistant Treasurer and Director of Investor Relations at Wellfleet Communications (now Bay Networks). From September 1988 to April 1992, he served as a Treasury Manager at AT&T, and from July 1983 to August 1986, he served as an Audit Senior at Arthur Andersen LLP. Mr. Delea received an M.B.A. in finance from the University of Chicago Graduate School of Business and a B.A. in economics and accounting from the College of Holy Cross. 56 59 Roger Hodskins has served as our Vice President of Worldwide Sales and Service since May 1998. From April 1997 to May 1998, he served as Vice President, Business Development at Rational Software Corporation, a provider of quality engineering software. He served as Vice President of Strategic Alliances and Emerging Markets at SQA Software from February 1992 until its merger with Rational Software in April 1997. From March 1988 to January 1992, Mr. Hodskins served as Manager, Geographic Information Systems and Senior International Marketing Consultant in international sales and marketing at Wang Laboratories. He received an M.B.A. in marketing from the University of Rochester and a B.S. with honors from Purdue University. Marcie Desmond has served as our Vice President of Professional Services since June 1999. From June 1994 to June 1999, she served as Managing Partner overseeing strategic accounts at Cambridge Technology Partners, a management consulting and systems integration firm. From June 1989 to June 1994, Ms. Desmond served as a manager at the Open Software Foundation. Ms. Desmond received a B.S. in computer science from the University of Massachusetts. Anne Estabrook has served as our Vice President of Marketing since May 1998. From June 1997 to April 1998, Ms. Estabrook served as the Director of Professional Services at Firefly Network, a provider of personalization software, where she led teams in the design and implementation of personalization solutions for the web. From September 1993 to June 1997, Ms. Estabrook was a senior associate at Mercer Management Consulting, a management consulting firm. From July 1987 to June 1991, she served as a Senior Design Engineer at Digital Equipment Corporation. Ms. Estabrook received an M.B.A. from the Wharton School at the University of Pennsylvania and a B.S. and an M.S. in electrical engineering from Cornell University. David George has served as our Vice President of Business Development since January 1999. From June 1996 to December 1998, Mr. George was responsible for building our international business operations. Mr. George served as Manager of the Strategic OEM Sales Team for Europe, Middle East and Africa at FTP Software, a provider of TCP/IP solutions, from 1993 to June 1996. He received a B.S. in marketing from the University of Rhode Island and studied International Business at Ealing University in London, England. Stan Jackson has served as our Vice President of Engineering since September 1999. From May 1999 to August 1999, Mr. Jackson served as our Solutions Engineering Manager. Mr. Jackson previously worked at Dow Jones Markets, where he served as Director of Technical Planning and as Director of Symbology Systems Development from May 1994 to December 1998. From October 1992 to October 1993, Mr. Jackson served as a manager of research and development at Thomson Financial Networks. He received a B.S. from the Sloan School of Management at the Massachusetts Institute of Technology. David Reiner has served as our Vice President of Product Strategy and Development since September 1999. From April 1998 to August 1999, he served as Senior Vice President in the Data Technologies Division of Harte-Hanks, a direct marketing and database marketing company. From July 1995 to December 1997, Dr. Reiner served as Senior Vice President and Chief Scientist at Epsilon Data Management, an industry leader in database marketing. Dr. Reiner received a Ph.D. in computer science from the University of Wisconsin-Madison and an A.B. in mathematics from Cornell University. Kathleen Biro has served as our director since April 1999. Ms. Biro has also served as Vice Chairman, President and a director of Bronnercom, an Internet professional services firm, since December 1999. Ms. Biro co-founded Strategic Interactive Group, a developer of Internet marketing strategies, in April 1995 and has served as its Chief Executive Officer since that time. Before founding Strategic Interactive Group, Ms. Biro served as Senior Vice President/Marketing Director at Bronner Slosberg Humphrey, a marketing agency. Ms. Biro serves as a director of Be Free, a digital marketing services firm. Ms. Biro received an M.B.A. in marketing and finance from the Columbia University Graduate School of Business and an M.S. in educational administration and a B.S. in English education from New York University. 57 60 Ted R. Dintersmith has served as our director since September 1996. Since February 1996, Mr. Dintersmith has been a general partner at Charles River Ventures, a venture capital firm. From October 1987 to February 1996, he was a general partner of Aegis Management Corporation, a venture capital firm. Mr. Dintersmith serves as a director of Be Free and Flycast Communications. Mr. Dintersmith received a Ph.D. in engineering from Stanford University and a B.A. in physics and English from the College of William and Mary. Robert N. Goldman has served as our director since January 1995. Mr. Goldman has been chairman of the board of Object Design since January 1999, and has been its president and chief executive officer since September 1999. He also served as president and chief executive officer of Object Design from November 1995 to January 1999. From 1992 to August 1995, Mr. Goldman was chairman of Trinzic Corporation. Mr. Goldman is a member of the board of directors of Citrix Systems, Parametric Technology Corporation and Systemsoft Corporation. Mr. Goldman received a B.A. in computer science from Purdue University. Rory O'Driscoll has served as our director since June 1999. Since April 1993, Mr. O'Driscoll has served as a vice president of Bank of America Ventures, a venture capital firm. From March 1992 to April 1993, Mr. O'Driscoll served as a corporate development consultant for BankAmerica Corporation. Mr. O'Driscoll is a director of Connectinc.com. Mr. O'Driscoll holds a B.Sc. in Economics from the London School of Economics. Stephen J. Ricci has served as our director since June 1998. Mr. Ricci has been a general partner of OneLiberty Ventures, a venture capital firm, since its inception in January 1995. Before co-founding OneLiberty Ventures, Mr. Ricci was a general partner of Palmer Partners, a venture capital firm, from 1974 to 1994. Mr. Ricci received an M.B.A. from the Harvard Business School and a B.S. in mechanical engineering from Tufts University. Matthew Cutler co-founded net.Genesis in January 1994 and has served as our Chief E-Business Intelligence Officer since January 1999. Mr. Cutler currently leads our marketplace education and standards development efforts. Mr. Cutler previously served as our Director of Market Development from January 1994 to January 1999. From June 1995 to December 1998, Mr. Cutler also served as Chairman of the Webmasters' Guild, the world's first professional association of webmasters and now a part of the Association for Internet Professionals. Mr. Cutler received a B.S. in mechanical engineering with honors from Massachusetts Institute of Technology. Eric Richard co-founded net.Genesis and has served as our Chief Technology Officer since May 1994. Mr. Richard directs our technology development and product architecture. Mr. Richard is the principal author of "Build a Web Site," an early technical resource guide for web site developers. Mr. Richard received a B.S. in computer science from the Massachusetts Institute of Technology. BOARD COMPOSITION Following this offering, the board of directors will be divided into three classes. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. Immediately after the completion of this offering: - Rory T. O'Driscoll and Lawrence S. Bohn will be the Class I directors and will serve until our annual stockholders' meeting in 2000 - Stephen J. Ricci and Robert N. Goldman will be the Class II directors and will serve until our annual stockholders' meeting in 2001 - Ted R. Dintersmith and Kathleen Biro will be the Class III directors and will serve until our annual stockholders' meeting in 2002 58 61 Three of our current directors, Messrs. Dintersmith, O'Driscoll and Ricci, originally were elected as directors pursuant to provisions of a stockholders' agreement that will terminate upon the completion of this offering. Each executive officer serves at the discretion of the board of directors and holds office until his or her successor is elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors and executive officers. BOARD COMMITTEES Our board of directors established an audit committee in December 1999. The audit committee consists of Robert N. Goldman and Stephen J. Ricci. The audit committee reviews our internal accounting procedures, evaluates our audit and control functions, and reviews the results and scope of the audit and other services provided by our independent public accountants. Our board of directors established a compensation committee in December 1999. The compensation committee consists of Kathleen Biro and Ted R. Dintersmith. The compensation committee reviews and recommends to the board of directors the compensation and benefits of our officers and directors and administers and grants options under our stock plans. The compensation committee also establishes and reviews general policies relating to the compensation and benefits of our employees. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of our board of directors or our compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. DIRECTOR COMPENSATION All of our directors are reimbursed for expenses incurred in attending meetings of the board of directors and committees. In addition, our non-employee directors are eligible to receive automatic grants of stock options under our 1999 Stock Incentive Plan. Currently, we do not otherwise compensate directors for their services as members of the board of directors or any committee of the board. In connection with the election of Kathleen Biro to our board, we granted her an option on April 12, 1999 to purchase 25,000 shares of common stock at an exercise price of $0.50 per share. The option vests as to one third of the shares subject to the option on April 12, 2000 and as to an additional 8.33% of such shares each quarter thereafter until fully vested. Each non-employee director will receive an option to purchase 25,000 shares of our common on the effective date of this offering. These options will vest in annual installments over three years from the date of grant. In addition, each non-employee director will receive an option to purchase 5,000 shares of our common stock on the date of each annual meeting of stockholders commencing with the 2000 annual meeting of stockholders. These options will be fully vested upon grant. In addition, individuals who become directors after this offering and are not our employees will receive an option to purchase 25,000 shares of our common stock on the date of his or her initial election to our board of directors. These options will vest in annual installments over three years from the date of grant. EXECUTIVE COMPENSATION Compensation Earned The following table summarizes the compensation earned during 1998 by our named executive officers, who consist of each person who served in the capacity of chief executive officer of our 59 62 company at any time during 1998 and five other current and former executive officers who earned more than $100,000 in salary and bonus during that year. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------------------ AWARDS ANNUAL ------------------------ COMPENSATION RESTRICTED SECURITIES ALL OTHER --------------------- STOCK UNDERLYING COMPEN- NAME AND PRESENT PRINCIPAL POSITION(S) SALARY($) BONUS($) AWARDS($) OPTIONS(#) SATION($) - -------------------------------------- --------- -------- ---------- ---------- --------- Lawrence S. Bohn..................... $132,878 $51,750 $ 0 810,000 $36,000 President and Chief Executive Officer John Delea........................... 116,655 50,000 -- 320,000 -- Chief Financial Officer, Vice President, Finance and Administration, and Treasurer Roger Hodskins....................... 87,369 83,333 -- 280,000 -- Vice President, Worldwide Sales and Service David George......................... 87,284 41,661 -- 120,000 -- Vice President, Business Development Louis Gennaro........................ 39,115 -- -- -- -- Former Chief Executive Officer Kathy Kessel......................... 101,042 39,917 -- 280,000 37,500 Former Vice President, Marketing Christopher Paul..................... 105,547 15,000 -- 280,000 -- Former Vice President, Engineering
In 1998, in addition to the compensation stated in the foregoing table, we also provided each of our full-time employees with term life insurance in an amount equal to their annual salary. Because we pay a single premium for the entire group of employees, we are unable to calculate the dollar amount of the premium attributable to any particular employee. We paid Mr. Bohn a $36,000 tax bonus in accordance with the terms of his employment agreement, which is described in more detail below under "-- Employment Agreement." Under the employment agreement, we also paid Mr. Bohn a signing bonus of $51,750, which Mr. Bohn used to purchase, on a restricted basis, 1,035,000 shares of our common stock at a price of $0.05 per share, which our board of directors determined was the fair market value of the common stock on the date of purchase. Under the terms of a stock restriction and repurchase agreement signed by Mr. Bohn in connection with this purchase, we have the right to repurchase these shares of restricted stock if Mr. Bohn's employment is terminated. Our right to repurchase these shares of restricted stock expires in 48 equal monthly installments. Upon the closing of this offering, our right to repurchase these shares of restricted stock will expire. As December 31, 1998, the value of these shares of restricted stock was $124,200, based on a price of $0.12 per share, which our board of directors determined was the fair market value of the common stock on that date. We paid Kathy Kessel $37,500 as severance in connection with the termination of her employment at the end of 1998. 60 63 Option Grants The following table provides information regarding stock options granted to the named executive officers during 1998. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------------ PERCENT OF POTENTIAL REALIZABLE TOTAL VALUE AT ASSUMED NUMBER OF OPTIONS ANNUAL RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION FOR UNDERLYING EMPLOYEES EXERCISE OPTION TERM OPTIONS IN PRICE PER EXPIRATION ----------------------- NAME GRANTED(#) FISCAL YEAR SHARE($/SH) DATE 5%($) 10%($) - ---- ---------- ----------- ----------- ---------- --------- ---------- Lawrence S. Bohn....... 810,000 22.8% $0.12 07/15/08 $61,129 $154,912 John Delea............. 320,000 9.0 0.12 07/15/08 24,150 61,200 Roger Hodskins......... 140,000 3.9 0.05 05/28/08 4,402 11,156 140,000 3.9 0.12 07/15/08 10,565 26,775 David George........... 65,000 1.8 0.05 04/02/08 2,044 5,180 55,000 1.6 0.12 07/15/08 4,151 10,519 Louis Gennaro.......... -- -- -- -- -- -- Kathy Kessel........... 140,000 3.9 0.05 05/28/08 4,402 11,156 140,000 3.9 0.12 07/15/08 10,565 26,775 Christopher Paul....... 140,000 3.9 0.05 04/02/08 4,402 11,156 140,000 3.9 0.12 07/15/08 10,565 26,775
All options described in the foregoing table vest as to 25% of the shares subject to the option on the first anniversary of the date of grant and as to an additional 6.25% of such shares each quarter thereafter until fully vested, except that the option granted to Mr. Bohn vests in 48 equal monthly installments, beginning March 23, 1998. In 1998 and 1999, we accelerated this vesting schedule for some of the named executive officers and entered into stock restriction and repurchase agreements with them containing identical vesting schedules. See "Transactions with Related Parties -- Acceleration of Stock Options Vesting for Executive Officers." When we entered into these agreements, we also provided that vesting would accelerate in the event of a change of control, by 24 months in the case of Messrs. Bohn and Hodskins and by twelve months in the case of Messrs. George and Paul. The percentage of total options is based on an aggregate of 3,546,400 options that we granted during 1998 to our employees, including the named executive officers. We granted these options with an exercise price equal to the fair market value of our common stock on the date of grant, as determined in good faith by our board of directors. All of the options have a term of 10 years, subject to earlier termination in the event of a termination of employment. The exercise price for all options may be paid in cash, shares of common stock, or a combination of cash and shares. The potential realizable values are based on the assumption that our common stock will appreciate at the annual rate shown, compounded annually, from the date of grant until the expiration of the ten-year term. These numbers are calculated based on SEC requirements and do not reflect our projections or estimates of future stock price growth. Actual gains, if any, on stock option exercises will depend on the future performance of the common stock. This table does not take into account any appreciation in the price of our common stock from the date of grant to the current date. The values shown are net of the option exercise price, but do not reflect deductions for taxes or other expenses associated with the exercise. 61 64 Option Exercises and Holdings The following table provides information regarding exercises of stock options during 1998 and exercisable and unexercisable options held on December 31, 1998 by each of the named executive officers. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($) ACQUIRED ON VALUE ------------------------------ --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ----------- ------------ -------------- ----------- ------------- Lawrence S. Bohn..... -- -- -- 810,000 -- -- John Delea........... -- -- 160,000 160,000 -- -- Roger Hodskins....... 140,000 $ 0 -- 140,000 -- -- David George......... -- -- 17,500 142,500 $1,225 $6,125 Louis Gennaro........ 63,200 0 -- -- -- -- Kathy Kessel......... -- -- 35,000 -- -- -- Christopher Paul..... -- -- -- 280,000 -- 9,800
The value of unexercised in-the-money options is based on a price of $0.12 per share, the fair market value of our stock on December 31, 1998 as determined by our board of directors, minus the per share exercise price, multiplied by the number of shares underlying the option. After December 31, 1998, we entered into arrangements with some of our executive officers to accelerate the vesting of their options upon the conditions described in "Transactions with Related Parties -- Acceleration of Stock Option Vesting for Executive Officers." EMPLOYEE BENEFIT PLANS 1995 Stock Option Plan In 1995, our board adopted and our stockholders approved the 1995 stock option plan and reserved 1,316,809 shares of common stock for issuance under the plan. In July 1998, we amended the plan to increase the number of shares authorized for issuance under the plan to 4,000,000. In September 1999, we amended the plan to increase the number of shares authorized for issuance under the plan to 5,000,000. On December 15, 1999, options to purchase a total of 2,266,736 shares of common stock were outstanding under the 1995 plan. These options had a weighted average exercise price of $1.11 per share. In connection with the adoption of the 1999 stock incentive plan described below, the board terminated further issuances of options under the 1995 plan. The 1995 plan authorizes the grant of options to purchase common stock intended to qualify as incentive stock options, as defined in Section 422 of the Internal Revenue Code, and nonstatutory stock options. The exercise price of incentive options granted under the 1995 plan must be at least equal to the fair market value of our common stock on the date of grant. The terms of these options may not exceed ten years. The exercise price of incentive options granted to an optionee who owns stock possessing more than 10% of the voting power of our outstanding capital stock must be at least equal to 110% of the fair market value of the common stock on the date of grant. This type of optionee must exercise his or her option within five years from the date of grant. The 1995 plan provides that, upon a change of control of our company: - all outstanding options will be exchanged for similar options of the corporation surviving any change of control - the vesting of all outstanding options will be accelerated by twelve months 62 65 For these purposes, a "change of control" means the occurrence of any of the following: - any person becomes a beneficial owner, directly or indirectly, of 50% or more of the combined voting power of our outstanding shares - any merger or consolidation of net.Genesis with another company, other than a merger or consolidation in which our voting shares outstanding immediately before the merger or consolidation represent more than 50% of the combined voting power of the voting shares of the surviving entity - the liquidation, sale or disposition of all or substantially all of our assets The 1995 plan is administered by the compensation committee of our board of directors. 1999 Stock Incentive Plan In December 1999, our board of directors adopted and our stockholders approved our 1999 stock incentive plan. The 1999 plan initially authorizes the issuance of up to 3,500,000 shares of our common stock and authorizes an additional 500,000 shares of our common stock on each of the first three anniversaries of the date of adoption of the plan. On December 15, 1999, no options had been granted under the 1999 plan. The 1999 plan authorizes the grant of options to purchase common stock intended to qualify as incentive stock options, as defined in Section 422 of the Internal Revenue Code, and nonstatutory stock options. The 1999 plan also provides for awards of stock appreciation rights, performance shares, restricted stock and other stock-based awards. Our officers, directors, employees, consultants and advisors are eligible to receive awards under the 1999 plan. Under present law, incentive stock options may only be granted to employees. No participant may receive awards for over 1,000,000 shares of common stock in any calendar year. Incentive options may be granted under the 1999 plan to our employees and employees of our affiliates within the meaning of the Internal Revenue Code, including our officers and directors as well as officers and directors of our affiliates who are also employees. The exercise price of incentive options granted under the 1999 plan must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive options granted to an optionee who owns stock possessing more than 10% of the voting power of our outstanding capital stock must be at least equal to 110% of the fair market value of the common stock on the date of grant. This type of optionee must exercise his or her option within five years from the date of grant. Under the terms of the 1999 plan, we may grant nonstatutory options to our officers and other employees, our directors, and other individuals providing services to us. There are no limits on the exercise price of nonstatutory options granted under the 1999 plan. Under the terms of the 1999 plan, non-employee directors will also receive certain automatic option grants as described in "Management -- Director Compensation." The 1999 plan provides that, upon a change of control of our company: - all outstanding options will be exchanged for similar options of the corporation surviving any change of control - the vesting of all outstanding options will be accelerated by twelve months For these purposes, a "change of control" has the same meaning as under the 1995 plan. The 1999 plan is administered by the compensation committee of the board of directors. The compensation committee selects the individuals to whom awards will be granted and determines the exercise price and other terms of each award, subject to the provisions of the 1999 plan. 63 66 1999 Employee Stock Purchase Plan In December 1999, our board of directors adopted and our stockholders approved our 1999 employee stock purchase plan. The stock purchase plan initially authorizes the issuance of up to 300,000 shares of our common stock and authorizes an additional 70,000 shares of our common stock on each of the first three anniversaries of the date of adoption of the plan. All of our employees who have completed three months of employment and whose customary employment is more than 20 hours per week and for more than five months in any calendar year are eligible to participate in the stock purchase plan. Employees who own stock and hold outstanding options to purchase stock representing five percent or more of the total combined voting power or value of all classes of our stock are not eligible to participate in the stock purchase plan. At the commencement of each designated payroll deduction period, or offering period, an eligible employee may authorize us to deduct between 1% to 10%, in increments of 1%, of his or her base pay. On the last business day of the offering period, we will deem the employee to have exercised the option, at the exercise option price, to the extent of accumulated payroll deductions. The purchase price will be 85% of the closing market price of our common stock on either the first or last business day of the offering period, whichever is lower. No employee is allowed to buy shares of common stock worth more than $25,000, based on the fair market value of the common stock on the first day of the offering period, in any calendar year under the plan. The stock purchase plan is administered by the compensation committee of the board of directors. 401(k) Plan We have adopted an employee savings and retirement plan qualified under Section 401 of the Internal Revenue Code and covering all of our employees. Employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and have the amount of the reduction contributed to the 401(k) plan. We may make matching or additional contributions to the 401(k) plan in amounts to be determined annually by our board of directors. EMPLOYMENT AGREEMENT On May 28, 1998, we hired Lawrence S. Bohn to serve as our President and Chief Executive Officer and we entered into an employment agreement and a stock restriction and repurchase agreement with him. Under the employment agreement, we agreed to employ Mr. Bohn as our President and Chief Executive Officer at an annual salary of $150,000, which our board may increase annually. We also agreed to pay Mr. Bohn a signing bonus of $51,750 upon the commencement of his employment and a 1999 tax bonus of $36,000 on April 1, 1999. The agreement does not specify a term of employment; rather, Mr. Bohn remains an employee-at-will. Under the agreement, Mr. Bohn is entitled to participate in any bonus, group health, medical reimbursement or life insurance programs that we may offer. Under the employment agreement, we must pay Mr. Bohn severance payments in an amount equal to the salary and bonus paid to him over the immediately preceding 12 months if his employment is terminated: - by us without good cause, which means dishonesty, any misappropriation of our assets, gross failure to perform his duties, the commission of any felony or any crime involving moral turpitude, or any breach of his obligations under his confidentiality, assignment of inventions and non-competition agreement with us - upon a change of control of net.Genesis 64 67 - as a result of any attempt by us to force Mr. Bohn to relocate involuntarily his place of employment by more than 100 miles from Cambridge, Massachusetts - as a result of any action by us that has the effect of significantly diminishing his level of responsibility as President and Chief Executive Officer We also agreed to use our best efforts to cause Mr. Bohn to be elected to our board of directors. The employment agreement further provides that if Mr. Bohn's employment is terminated for any reason, he will be deemed to have resigned as a director and from all other positions with net.Genesis. While Mr. Bohn serves as our Chief Executive Officer, he is entitled to approve the appointment of any Chairman of the Board. LIABILITY LIMITATIONS AND INDEMNIFICATION Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law permits a corporation to provide that its directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: - any breach of their duty of loyalty to the corporation or its stockholders - acts or omissions that are not in good faith or that involve intentional misconduct or a knowing violation of law - unlawful payments of dividends or unlawful stock repurchases or redemptions - any transaction from which the director derived an improper personal benefit The limitations do not apply to liabilities arising under the federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission. Our certificate of incorporation and by-laws provide that we will indemnify our directors and officers, and may indemnify other employees and agents, to the maximum extent permitted by law. We believe that indemnification under our by-laws covers at least negligence and gross negligence on the part of indemnified parties. Our by-laws also permit us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of actions in his or her capacity as an officer, director, employee or agent, regardless of whether the by-laws would permit indemnification. We have obtained an insurance policy that insures our directors and officers against losses, above a deductible amount, from specified types of claims. We believe that these provisions and policies are desirable to help us attract and retain qualified persons as directors and executive officers. The limited liability and indemnification provisions in our certificate of incorporation and by-laws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty and may reduce the likelihood of derivative litigation against our directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. A stockholder's investment in us may be adversely affected to the extent we pay the costs of settlement or damage awards against our directors and officers under these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons under our certificate of incorporation or by-laws, we have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 65 68 TRANSACTIONS WITH RELATED PARTIES SALES OF PREFERRED STOCK A number of our directors, executive officers and stockholders beneficially owning more than 5% of our common stock have participated in transactions in which they purchased shares of our preferred stock. We believe that we sold these shares at their fair market value and that the terms of these transactions were no less favorable than we could have obtained from unaffiliated third parties. The following table summarizes these transactions:
CLASS OF NUMBER DATE OF TRANSACTION PREFERRED STOCK PRICE OF SHARES - ------------------- --------------- ----- --------- September 18, 1996 Series B $5.15 776,717 September 12, 1997 Series C $0.50 2,928,316 June 25, 1998 Series D $1.20 5,899,999 June 10, 1999 Series F $3.32 6,626,508
On the closing of this offering, these shares of preferred stock will automatically convert into shares of common stock. Listed below are the directors, executive officers and 5% stockholders who participated in the transactions described above.
PREFERRED STOCK ------------------------------------------- AGGREGATE STOCKHOLDER SERIES B SERIES C SERIES D SERIES F CONSIDERATION - ----------- -------- --------- --------- -------- ------------- Charles River Partnership VII.......... 383,514 1,005,520 1,500,000 261,050 $5,144,543 Affiliates of Bessemer Venture Partners............................... 344,187 902,400 1,266,667 261,044 $4,610,430 Affiliates of OneLiberty Ventures...... -- -- 2,625,000 261,044 $4,016,666 Sean O'Sullivan Revocable Living Trust................................ 4,855 274,914 20,834 -- $ 187,461 Christopher Paul....................... -- -- 83,333 -- $ 100,000
Ted R. Dintersmith, a general partner of Charles River Partnership VII, has served as one of our directors since September 1996. Stephen J. Ricci, a general partner of OneLiberty Fund IV, has served as one of our directors since June 1998. Sean M. O'Sullivan, the trustee of the Sean O'Sullivan Revocable Living Trust, served as one of our directors from July 1995 to April 1999. Christopher Paul served as our Vice President of Engineering from March 1998 to September 1999. In connection with our sales of preferred stock in the foregoing transactions, we granted rights to the holders of preferred stock to require us to register their shares under the Securities Act and to include their shares in registration statements we file for our own benefit under the Securities Act. For more information about these registration rights, please see "Description of Capital Stock -- Registration Rights." SALE OF COMMON STOCK TO LAWRENCE S. BOHN On May 28, 1998, in connection with the employment of Lawrence S. Bohn as our President and Chief Executive Officer, we issued and sold to Mr. Bohn 1,035,000 shares of our common stock for $0.05 a share, which our Board of Directors determined to be the fair market value of our common stock at the time. On the same date, we entered into a stock restriction and repurchase agreement with Mr. Bohn providing that if he ceases to be employed by us prior to the full vesting of his shares, we may repurchase the unvested shares for $0.001 per share. This option to repurchase lapses in 48 equal monthly installments, calculated from March 23, 1998. The stock restriction and repurchase agreement will terminate upon the closing of this offering. LOAN TO LAWRENCE S. BOHN On May 4, 1999, Mr. Bohn exercised an option to purchase 810,000 shares of our common stock at an exercise price of $0.12 per share. This option was accelerated as described below. We loaned 66 69 Mr. Bohn $96,390 towards this purchase. The full recourse loan is evidenced by a promissory note from Mr. Bohn to us. The loan is secured by the 810,000 shares of common stock that Mr. Bohn purchased. ACCELERATION OF STOCK OPTION VESTING FOR EXECUTIVE OFFICERS We have made arrangements with our executive officers to accelerate the vesting of their options in full if they enter into stock restriction and repurchase agreements with us. Under the stock restriction and repurchase agreements, if an executive officer ceases to be employed by us before any of the shares purchased would otherwise have vested under the option agreement, we have the right to repurchase those shares at the same price for which the officer purchased them. The following table provides information regarding the executive officers who have entered into these arrangements with us, the date of the transaction, the exercise price and number of options that were accelerated, the number of shares purchased (including shares that were already vested and therefore not subject to any stock restriction and repurchase agreement), and the extent to which acceleration of vesting of the shares purchased will occur upon a change in control of our company.
NUMBER OF NUMBER OF ACCELERATION DATE OF EXERCISE OPTIONS SHARES UPON CHANGE NAME AND PRINCIPAL POSITION TRANSACTION PRICE ACCELERATED PURCHASED OF CONTROL - --------------------------- ----------- -------- ----------- --------- ------------ Lawrence S. Bohn......................... 05/04/99 $0.12 573,754 810,000 24 months President and Chief Executive Officer Roger Hodskins........................... 06/19/98 $0.05 140,000 140,000 24 months Vice President, Worldwide Sales and 09/01/99 $0.12 105,000 140,000 24 months Service Anne Estabrook........................... 05/30/99 $0.05 22,500 30,000 12 months Vice President, Marketing 05/30/99 $0.12 130,000 130,000 12 months David George............................. 05/30/99 $0.05 54,408 105,000 12 months Vice President, Business Development 05/30/99 $0.12 30,938 55,000 12 months Matthew Cutler........................... 09/17/99 $0.12 135,000 180,000 12 months Chief E-Business Intelligence Officer Eric Richard............................. 09/17/99 $0.12 123,750 165,000 12 months Chief Technology Officer Christopher Paul......................... 06/02/99 $0.05 96,250 105,000 12 months Former Vice President, Engineering 06/02/99 $0.12 140,000 140,000 12 months
On June 22, 1999, John Delea, our Chief Financial Officer, exercised an option to purchase 200,000 shares of common stock. Because the shares were vested under the terms of the option, he was not required to enter into a stock restriction and repurchase agreement with us. Mr. Delea has options to purchase an additional 150,000 shares of common stock, which he may exercise at any time, provided that he enters into an appropriate stock restriction and repurchase agreement with us. In September 1999, Christopher Paul's employment with us terminated, and in December 1999 we repurchased from him 166,250 shares of common stock pursuant to his stock restriction and repurchase agreements. TERMS OF TRANSACTIONS We believe that all of the transactions described above were made on terms no less favorable to us than we would have obtained from unaffiliated third parties. We have adopted a policy under which all future transactions between us and any of our directors, executive officers or 5% stockholders must be on terms no less favorable to us than we would obtain from unaffiliated third parties and must be approved by a majority of the disinterested members of the board of directors. 67 70 PRINCIPAL STOCKHOLDERS The following table provides information about the beneficial ownership of our common stock as of December 15, 1999, by: - each person or entity known to own beneficially more than five percent of our common stock - each of the named executive officers - each of our directors - all of our executive officers and directors as a group In accordance with SEC rules, beneficial ownership includes any shares for which a person or entity has sole or shared voting power or investment power and any shares of which the person or entity has the right to acquire beneficial ownership within 60 days after December 15, 1999 through the exercise of any option or otherwise. Except as noted below, we believe that the persons named in the table have sole voting and investment power with respect to the shares of common stock set forth opposite their names. Percentage of beneficial ownership is based on 21,338,368 shares of common stock outstanding as of December 15, 1999, including shares into which our outstanding preferred stock will convert upon completion of this offering, and shares of common stock that will be outstanding after completion of this offering. All shares included in the "Right to Acquire" column represent shares subject to outstanding stock options exercisable within 60 days after December 15, 1999. The address of our executive officers and directors is in care of net.Genesis Corp., 150 CambridgePark Drive, Cambridge, Massachusetts 02140.
PERCENTAGE OF SHARES NUMBER OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED ----------------------------------- -------------------- OUTSTANDING RIGHT TO TOTAL BEFORE AFTER SHARES ACQUIRE NUMBER OFFERING OFFERING ----------- -------- ---------- -------- -------- Ted R. Dintersmith(1)...................... 3,150,084 -- 3,150,084 14.8% Charles River Partnership VII.............. 3,150,084 -- 3,150,084 14.8 1000 Winter Street Waltham, MA 02154 Stephen J. Ricci(2)........................ 2,886,044 -- 2,886,044 13.5 Affiliates of OneLiberty Ventures(3)....... 2,886,044 -- 2,886,044 13.5 150 CambridgePark Drive 10th Floor Cambridge, MA 02140 Affiliates of Bessemer Venture Partners(4).............................. 2,774,298 -- 2,774,298 13.0 1400 Old Country Road Suite 407 Westbury, NY 11590 Lawrence S. Bohn(5)........................ 1,845,000 -- 1,845,000 8.6 Rory O'Driscoll(6)......................... 1,807,228 -- 1,807,228 8.5 Bank of America Ventures................... 1,807,228 -- 1,807,228 8.5 950 Tower Lane Suite 700 Foster City, CA 94404 John Delea................................. 200,000 150,000 350,000 1.6 Roger Hodskins(7).......................... 280,000 -- 280,000 1.3 David George(8)............................ 160,000 40,000 200,000 * Christopher Paul........................... 197,083 -- 197,083 * Robert N. Goldman.......................... 60,855 18,446 79,301 *
68 71
PERCENTAGE OF SHARES NUMBER OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED ----------------------------------- -------------------- OUTSTANDING RIGHT TO TOTAL BEFORE AFTER SHARES ACQUIRE NUMBER OFFERING OFFERING ----------- -------- ---------- -------- -------- Kathy Kessel............................... 35,000 -- 35,000 * Louis Gennaro.............................. 63,200 -- 63,200 * Kathleen Biro.............................. -- -- -- * All current executive officers and directors as a group (13 persons)........ 10,549,211 208,446 10,757,657 49.9%
- ------------------------------ * Less than one percent. (1) Represents shares beneficially held by Charles River Partnership VII, of which Mr. Dintersmith is a general partner. Mr. Dintersmith disclaims beneficial ownership of all of these shares, except to the extent of his pecuniary interest in those shares, if any. (2) Represents shares beneficially held by affiliates of OneLiberty Ventures, of which Mr. Ricci is a general partner. Mr. Ricci disclaims beneficial ownership of all of these shares, except to the extent of his pecuniary interest in those shares, if any. (3) Represents 2,748,613 shares beneficially held by OneLiberty Fund, IV and 137,431 shares beneficially held by OneLiberty Advisors IV, L.P. (4) Includes 1,093,096 shares beneficially held by Bessec Ventures IV L.P., 1,093,095 shares beneficially held by Bessemer Venture Partners IV L.P., 57,041 shares beneficially held by BVP IV Special Situations L.P. and 45,703 shares beneficially held by BVP Special Situations L.P. Also includes 485,363 shares beneficially held by affiliates of Bessemer Venture Partners for whom Robert Buescher, a manager of the general partner of Bessemer Venture Partners IV L.P., holds a power of attorney. (5) Includes 100,000 shares held by the Justin Bohn Trust and 100,000 shares held by the Ariel Bohn Trust. Of the outstanding shares held by Mr. Bohn, 960,952 shares do not vest until after 60 days after December 15, 1999 and are subject to our right to repurchase them if Mr. Bohn's employment is terminated. (6) Represents shares beneficially held by Bank of America Ventures, of which Mr. O'Driscoll is a vice president. Mr. O'Driscoll disclaims beneficial ownership of all of these shares. (7) Of the outstanding shares held by Mr. Hodskins, 166,250 shares do not vest until after 60 days after December 15, 1999 and are subject to our right to repurchase them if Mr. Hodskins' employment is terminated. (8) Of the outstanding shares held by Mr. George, 55,588 shares do not vest until after 60 days after December 15, 1999 and are subject to our right to repurchase them if Mr. George's employment is terminated. 69 72 DESCRIPTION OF CAPITAL STOCK GENERAL Upon completion of this offering, we will be authorized to issue 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value. The following is a summary description of our capital stock. COMMON STOCK As of December 15, 1999, there were 21,338,368 shares of common stock outstanding, assuming the conversion of all outstanding shares of preferred stock into common stock upon completion of this offering. The shares were held of record by 152 stockholders. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of common stock are entitled to receive their proportionate share of dividends, if any, declared from time to time by the board of directors out of funds legally available for that purpose. See "Dividend Policy." In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to their proportionate share of all assets remaining after payment of liabilities, after taking into consideration the prior distribution rights of any preferred stock then outstanding. Common stock has no preemptive or conversion rights or other subscription rights. No redemption or sinking fund provisions apply to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock being offered by us will be fully paid and nonassessable upon the completion of this offering. PREFERRED STOCK Immediately prior to this offering, our certificate of incorporation provided for six series of preferred stock. Upon the completion of this offering, each outstanding share of preferred stock will automatically convert into one share of common stock. Upon the completion of this offering, the board of directors will be authorized, without stockholder approval, to issue from time to time up to 5,000,000 shares of preferred stock in one or more series, each series to have whatever rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, that the board of directors may determine. The rights of the holders of common stock will be affected by, and may be adversely affected by, the rights of holders of any preferred stock that we may issue in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for others to acquire, or of discouraging others from attempting to acquire, a majority of our outstanding voting stock. We have no current plans to issue any shares of preferred stock. WARRANTS We have outstanding warrants to purchase 279,739 shares at an exercise price of $1.84 per share. These warrants will expire three years after completion of this offering. We also have outstanding a warrant to purchase 114,458 shares at an exercise price of $3.32. This warrant will expire upon the effective date of this offering. We expect the holder of this warrant to exercise the warrant before that date. REGISTRATION RIGHTS After the completion of this offering, the holders of approximately 16,345,998 shares of common stock and warrants to purchase 279,739 shares of common stock, or their permitted transferees, will be entitled to certain rights with respect to registration of their shares, or "registrable securities," under the Securities Act. 70 73 At any time after 180 days following the effective date of the registration statement for this offering, the holders of at least 50% of the registrable securities then outstanding can require us to file a registration statement covering their registrable securities if the reasonably anticipated aggregate offering price to the public would exceed $7.5 million. In addition, two years after this offering, holders of registrable securities may require us to register their shares for public resale on Form S-3 or any successor form if we are able to use that form and the reasonably anticipated aggregate offering price to the public would exceed $1.0 million. Furthermore, if we choose to register any of our shares of common stock or other securities for any public offering, the holders of registrable securities are entitled to include their registrable securities in the registration, subject to the right of the managing underwriter of the offering to reduce the number of shares to be registered in view of market conditions. This incidental registration right has been waived with respect to this offering. We will pay all of the expenses of any registration, other than underwriting discounts and commissions and extraordinary expenses attributable to any one security holder. If any person with registration rights holds less than 1% of our outstanding capital stock, the person's registration rights terminate when the person becomes entitled to sell all of its shares in any 90-day period under Rule 144 of the Securities Act. If our stockholders with registration rights cause a large number of securities to be registered and sold in the public market, those sales could cause the market price of our common stock to fall. If we were to initiate a registration and include registrable securities because of the exercise of registration rights, the inclusion of registrable securities could adversely affect our ability to raise capital. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BY-LAWS Provisions of Delaware law and our certificate of incorporation and by-laws could make it more difficult to acquire us by means of a tender offer, a proxy contest, open market purchases, removal of incumbent directors and otherwise. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because negotiation of these proposals could result in an improvement of their terms. We must comply with Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to an interested stockholder. An interested stockholder includes a person who, together with affiliates and associates, owns, or did own within three years before the determination of interested stockholder status, 15% or more of the corporation's voting stock. The existence of this provision generally will have an anti-takeover effect for transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders. Upon the completion of this offering, our certificate of incorporation and by-laws will require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, upon the completion of this offering, special meetings of our stockholders may be called only by the board of directors or some of our officers. Our certificate of incorporation and by-laws also provide that, effective upon the completion of this offering, our board of directors will be divided into three classes, with each class serving staggered three-year terms. These provisions 71 74 may have the effect of deterring hostile takeovers or delaying changes in our control or management. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is BankBoston, N.A. LISTING We have applied to list our common stock on the Nasdaq National Market under the symbol NTGX. 72 75 SHARES ELIGIBLE FOR FUTURE SALE Before this offering, there has been no market for our common stock. We cannot predict the effect, if any, that sales of shares of common stock to the public or the availability of shares for sale to the public will have on the market price of the common stock prevailing from time to time. Nevertheless, if a significant number of shares of common stock are sold in the public market, or if people believe that such sales may occur, the prevailing market price of our common stock could decline and could impair our future ability to raise capital through the sale of our equity securities. Giving effect to this offering and the exercise of a warrant, upon completion of this offering we will have outstanding shares of common stock, assuming no exercise of any other outstanding options or warrants after December 15, 1999. Of these shares, the shares sold in this offering will be freely tradable without restriction under the Securities Act except for any shares purchased by affiliates of net.Genesis, as that term is defined in Rule 144 under the Securities Act. The remaining 21,452,826 shares of common stock were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act and as a result are restricted securities. A total of shares are subject to lock-up agreements with the underwriters that provide that the holders of those shares may not dispose of or hedge any common stock or securities convertible into or exchangeable for shares of common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without notice, Hambrecht & Quist LLC may, in its sole discretion, release some or all of the securities from these lock-up agreements. In addition, holders of stock options and warrants could exercise these options and warrants and sell the shares issued upon exercise as described below. The following table describes the number of outstanding shares that will become eligible for sale in the public market on several relevant dates.
NUMBER OF SHARES ELIGIBLE FOR FUTURE RELEVANT DATES SALE COMMENT - -------------- --------------- ------- On effective date...................... Shares eligible for sale under Rule 144(k) 90 days after effective date........... Additional shares eligible for sale under Rules 144 and 701 180 days after effective date.......... All shares subject to lock-up agreements released; additional shares eligible for sale under Rules 144 and 701 More than 181 days after effective date................................. Additional shares becoming eligible for sale under Rule 144 more than 180 days after the effective date
RULE 144 In general, under Rule 144, an affiliate of net.Genesis, or any person or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, generally including the holding period of any prior owner other than an affiliate from whom the holder acquired the shares for value, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of: - one percent of the then-outstanding shares of common stock (approximately shares immediately after this offering) - the average weekly trading volume during the four calendar weeks before the date on which the seller files a notice of the proposed sale with the SEC 73 76 Sales under Rule 144 must also comply with manner of sale provisions and notice requirements, and information about us must be publicly available. All holders of Rule 144 shares are required to wait until 90 days after the date of this prospectus before selling those shares. RULE 144(k) Under Rule 144(k), a person who has not been an affiliate of net.Genesis at any time during the three months before a sale, and who has beneficially owned the shares proposed to be sold for at least two years, generally including the holding period of any prior owner other than an affiliate from whom the holder acquired the shares for value, is entitled to sell those shares without complying with the volume limitation, manner of sale, notice filing or public information requirements of Rule 144. Therefore, unless otherwise restricted, shares eligible for sale under Rule 144(k) may be sold immediately upon the completion of this offering. RULE 701 Any of our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provision of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. A total of of the Rule 701 shares are subject to lock-up agreements. We are unable to estimate the number of shares that will be sold under Rules 144, 144(k) and 701 because that number will depend on the market price for the common stock, the personal circumstances of the sellers and other factors. Upon the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering, among other things, shares of common stock covered by outstanding options under our stock plans. Based on the number of shares covered by outstanding options as of December 15, 1999 and currently reserved for issuance under the stock plans, the registration statement would cover approximately 6,066,736 shares. The registration statement will become effective upon filing. Accordingly, shares registered under the registration statement on Form S-8 will be available for sale in the open market immediately, after complying with Rule 144 volume limitations applicable to affiliates, and with applicable 180-day lock-up agreements. REGISTRATION RIGHTS After the completion of this offering, holders of approximately 16,345,998 shares of common stock and warrants to purchase 279,739 shares of common stock will be entitled to specific rights to register those shares for sale in the public market. See "Description of Capital Stock -- Registration Rights." Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of the registration. 74 77 UNDERWRITING Subject to the terms and conditions of the underwriting agreement, the underwriters named below, through their representatives, Hambrecht & Quist LLC, Deutsche Bank Securities Inc. and U.S. Bancorp Piper Jaffray Inc., have severally agreed to purchase from us the following numbers of shares of common stock:
NUMBER UNDERWRITER OF SHARES - ----------- --------- Hambrecht & Quist LLC....................................... Deutsche Bank Securities Inc................................ U.S. Bancorp Piper Jaffray Inc.............................. ------- Total.................................................. =======
The underwriting agreement provides that the obligations of the underwriters are conditioned on 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 shares of common stock offered in this prospectus if any shares are purchased. The underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to dealers at the public offering price less a concession not in excess of $ per share. The underwriters may allow and the dealers may reallow a concession not in excess of $ per share to other dealers. After the public offering of the shares, the underwriters may change the offering price and other selling terms. The representatives of the underwriters have informed us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the shares of common stock offered by this prospectus. 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 public offering price, less the underwriting discount set forth on the cover page of this prospectus. To the extent that the underwriters exercise this option, each underwriter will have a firm commitment to purchase a number of shares that approximately reflects the same percentage of total shares the underwriter purchased in the above table. We will be obligated 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 common stock offered in this prospectus. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by net.Genesis. The underwriting discount was determined based on an arms' length negotiation between the representatives of the underwriters and net.Genesis. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional shares.
PAID BY NET.GENESIS ---------------------------- NO EXERCISE FULL EXERCISE ----------- ------------- Per share.......................................... $ $ Total.............................................. $ $
We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $1,000,000. 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, 75 78 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. We have agreed to indemnify the underwriters against liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of those liabilities. Hambrecht & Quist LLC and its affiliates beneficially own an aggregate of 466,357 shares of our common stock. Hambrecht & Quist LLC also holds a warrant to purchase 114,458 shares of common stock that will expire upon the effective date of this offering. We expect Hambrecht & Quist LLC to exercise this warrant before that date. All of our stockholders, including all of our executive officers and directors, have agreed that they will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common stock, options or warrants to acquire shares of common stock or securities exchangeable for or convertible into shares of common stock owned by them during the 180-day period following the date of this prospectus. We have agreed that we will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common stock, options or warrants to acquire shares of common stock or securities exchangeable for or convertible into shares of common stock during the 180-day period following the date of this prospectus, except that we may issue shares upon the exercise of options granted prior to the date of this prospectus and may grant additional options under our stock plans, provided that, without the prior written consent of Hambrecht & Quist LLC, any additional options shall not be exercisable during the 180-day period. At our request, the underwriters have reserved up to shares of common stock to be sold in the offering and offered for sale, at the public offering price, to our directors, officers, employees, business associates such as customers and suppliers and persons related to, or affiliated with the foregoing persons. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered to the general public on the same basis as other shares offered by this prospectus. 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 the 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. A penalty bid means an arrangement that permits 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 syndicate covering transactions. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. Stabilizing, if commenced, may be discontinued at any time. Before this offering, there was no public market for the common stock. The initial public offering price for the common stock will be determined by negotiations between ourselves and the representatives. Among the factors to be considered in determining the initial public offering price will be prevailing market and economic conditions, our revenues and earnings, market valuations of other companies engaged in activities similar to ours, estimates of our business potential and prospects, the present state of our business operations, our management and other factors deemed relevant. 76 79 LEGAL MATTERS The validity of the shares offered in this prospectus will be passed upon for us by Foley, Hoag & Eliot LLP, Boston, Massachusetts. Legal matters will be passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP. EXPERTS The financial statements as of December 31, 1997 and 1998, and for each of the three years in the period ended December 31, 1998, included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-1 with the SEC for our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for the copies of the actual contract, agreement or other document. When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. We intend to send our stockholders annual reports containing audited financial statements and to make available quarterly reports containing unaudited financial statements for the first three quarters of each fiscal year. 77 80 net.GENESIS CORP. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................... F-2 Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 (unaudited) and pro forma September 30, 1999 (unaudited)............................................ F-3 Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999 (unaudited)................... F-4 Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998 and for the nine months ended September 30, 1999 (unaudited)...... F-5 Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999 (unaudited)................... F-6 Notes to Financial Statements............................... F-7
F-1 81 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of net.Genesis Corp. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of net.Genesis Corp. at December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts July 16, 1999, except as to the information in Note 13, for which the date is December 20, 1999 F-2 82 net.GENESIS CORP. BALANCE SHEETS
DECEMBER 31, PRO FORMA -------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1998 1999 1999 ----------- ------------ ------------- ------------- (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 253,333 $ 2,260,820 $ 15,936,471 $ 15,936,471 Restricted cash........................................... -- 55,000 403,500 403,500 Short-term investments and marketable securities.......... 962,291 -- 542,069 542,069 Accounts receivable, net of allowances for doubtful accounts of $101,600, $143,800 and $180,000 (unaudited) at December 31, 1997 and 1998 and September 30, 1999, respectively............................................ 113,634 706,317 1,855,785 1,855,785 Prepaid expenses and other current assets................. 34,501 46,870 67,000 67,000 ----------- ------------ ------------ ------------ Total current assets.................................... 1,363,759 3,069,007 18,804,825 18,804,825 Fixed assets, net........................................... 278,337 797,153 2,342,910 2,342,910 Other assets................................................ -- -- 2,410 2,410 ----------- ------------ ------------ ------------ Total assets............................................ $ 1,642,096 $ 3,866,160 $ 21,150,145 $ 21,150,145 =========== ============ ============ ============ LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of capital lease obligations.............. -- -- 116,803 116,803 Current portion of long-term debt......................... 108,997 9,083 942,254 942,254 Accounts payable.......................................... 13,045 90,523 257,729 257,729 Accrued expenses.......................................... 321,195 956,312 1,462,131 1,462,131 Deferred revenue.......................................... 54,995 325,282 1,239,262 1,239,262 ----------- ------------ ------------ ------------ Total current liabilities............................... 498,232 1,381,200 4,018,179 4,018,179 Long-term portion of capital lease obligations.............. -- -- 308,536 308,536 Long-term debt.............................................. -- -- 1,864,815 1,864,815 ----------- ------------ ------------ ------------ Total liabilities....................................... 498,232 1,381,200 6,191,530 6,191,530 ----------- ------------ ------------ ------------ Redeemable convertible preferred stock...................... 5,855,780 13,566,336 35,963,834 -- ----------- ------------ ------------ ------------ Commitments and contingencies (Note 10) Stockholders' equity (deficit): Convertible preferred stock, Series A-1, $.001 par value; 200,000 shares authorized, issued and outstanding at December 31, 1997 and 1998 and September 30, 1999 (unaudited); none issued and outstanding pro forma (unaudited)............................................. 49,006 49,006 49,006 -- Convertible preferred stock, Series A-2, $.001 par value; 101,430 shares authorized, issued and outstanding at December 31, 1997 and 1998 and September 30, 1999 (unaudited); none issued and outstanding pro forma (unaudited)............................................. 137,349 137,349 137,349 -- Convertible preferred stock, Series A-3, $.001 par value; 624,000 shares authorized, issued and outstanding at December 31, 1997 and 1998 and September 30, 1999 (unaudited); none issued and outstanding pro forma (unaudited)............................................. 1,530,502 1,530,502 1,530,502 -- Common stock, $.001 par value; 24,000,000 shares authorized; 739,061, 2,006,386, 4,264,919 and 21,421,889 issued and outstanding at December 31, 1997 and 1998, September 30, 1999 (unaudited) and pro forma (unaudited), respectively............................... 739 2,006 4,265 21,422 Additional paid-in capital.................................. 52,453 114,552 4,447,103 42,110,637 Deferred compensation....................................... (3,817,983) (3,817,983) Note receivable from stockholder............................ (96,390) (96,390) Accumulated deficit......................................... (6,481,965) (12,914,791) (23,801,140) (23,801,140) Accumulated other comprehensive income...................... -- -- 542,069 542,069 ----------- ------------ ------------ ------------ Total stockholders' equity (deficit).................... (4,711,916) (11,081,376) (21,005,219) 14,958,615 ----------- ------------ ------------ ------------ Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit).............. $ 1,642,096 $ 3,866,160 $ 21,150,145 $ 21,150,145 =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-3 83 net.GENESIS CORP. STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- -------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ------------ (UNAUDITED) Revenue: Product revenue................ $ 481,075 $ 844,983 $ 936,796 $ 536,550 $ 2,271,709 Service revenue.............. 101,800 163,721 631,296 429,800 1,602,253 ----------- ----------- ----------- ----------- ------------ Total revenue............. 582,875 1,008,704 1,568,092 966,350 3,873,962 ----------- ----------- ----------- ----------- ------------ Cost of revenue: Cost of product revenue...... 104,856 90,924 231,843 75,528 99,037 Cost of service revenue...... 118,800 548,867 760,868 336,221 1,840,859 ----------- ----------- ----------- ----------- ------------ Total cost of revenue..... 223,656 639,791 992,711 411,749 1,939,896 ----------- ----------- ----------- ----------- ------------ Gross profit................... 359,219 368,913 575,381 554,601 1,934,066 ----------- ----------- ----------- ----------- ------------ Operating expenses: Sales and marketing.......... 1,562,951 1,271,105 3,045,347 1,845,367 6,067,670 Research and development..... 1,191,942 1,409,959 2,266,022 1,527,428 3,026,120 General and administrative... 381,060 738,383 1,147,571 755,331 2,047,174 Stock-based compensation..... 9,678 -- -- -- 271,889 ----------- ----------- ----------- ----------- ------------ Total operating expenses................ 3,145,631 3,419,447 6,458,940 4,128,126 11,412,853 ----------- ----------- ----------- ----------- ------------ Loss from operations........... (2,786,412) (3,050,534) (5,883,559) (3,573,525) (9,478,787) Other income (loss): Interest income.............. 82,611 56,925 117,339 80,551 268,666 Interest expense............. (23,351) (17,962) (10,754) (10,380) (357,768) Loss on disposal of fixed assets.................... -- (101,420) -- -- (20,000) Gain on sale of product lines..................... 111,775 -- -- -- -- Other income................. -- 2,678 4,138 2,986 2,394 ----------- ----------- ----------- ----------- ------------ Net loss....................... $(2,615,377) $(3,110,313) $(5,772,836) $(3,500,368) $ (9,585,495) ----------- ----------- ----------- ----------- ------------ Dividends and accretion of redeemable preferred stock... (118,622) (336,973) (659,990) (410,971) (1,300,854) Net loss available to common stockholders................. $(2,733,999) $(3,447,286) $(6,432,826) $(3,911,339) $(10,886,349) ----------- ----------- ----------- ----------- ------------ Basic and diluted net loss available to common stockholders per share....... $ (16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11) =========== =========== =========== =========== ============ Shares used in computing basic and diluted net loss available to common stockholders per share....... 170,511 566,906 792,808 720,605 1,530,892 Unaudited pro forma basic and diluted net loss per common share........................ $ (.68) $ (.65) Shares used in computing unaudited pro forma basic and diluted net loss per common share........................ 8,440,154 14,804,195
The accompanying notes are an integral part of these financial statements. F-4 84 net.GENESIS CORP. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
SERIES A-1 SERIES A-2 SERIES A-3 CONVERTIBLE CONVERTIBLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK ----------------- ------------------ -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- ------- ------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1995................. 200,000 $49,006 101,430 $137,349 624,000 $1,530,502 Issuance of common stock..................... Forfeiture of common stock................... Exercise of stock options.................... Accrual of cumulative dividends on Series B preferred stock and accretion to redemption value....................................... Net loss..................................... ------- ------- ------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1996................. 200,000 49,006 101,430 137,349 624,000 1,530,502 Forfeiture of common stock................... Exercise of stock options.................... Accrual of cumulative dividends on Series B and Series C preferred stock and accretion to redemption value......................... Net loss..................................... ------- ------- ------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1997................. 200,000 49,006 101,430 137,349 624,000 1,530,502 Issuance of common stock..................... Exercise of stock options.................... Accrual of cumulative dividends on Series B, Series C and Series D preferred stock and accretion to redemption value............... Net loss..................................... ------- ------- ------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1998................. 200,000 49,006 101,430 137,349 624,000 1,530,502 Exercise of stock options (unaudited)........ Deferred compensation related to grants of stock options (unaudited)................... Amortization of deferred compensation (unaudited)................................. Accrual of cumulative dividends on Series B, Series C, Series D, and Series F preferred stock and accretion to redemption value (unaudited)................................. Unrealized gain on short-term investments and marketable securities (unaudited)........... Net loss (unaudited)......................... Comprehensive loss........................... ------- ------- ------- -------- ------- ---------- BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED).... 200,000 $49,006 101,430 $137,349 624,000 $1,530,502 ======= ======= ======= ======== ======= ========== NOTE COMMON STOCK ADDITIONAL RECEIVABLE --------------------- PAID-IN DEFERRED FROM SHARES PAR VALUE CAPITAL COMPENSATION STOCKHOLDER --------- --------- ---------- ------------ ----------- BALANCE AT DECEMBER 31, 1995................. 814,992 $ 815 $ 36,597 Issuance of common stock..................... 6,913 7 9,671 Forfeiture of common stock................... (25,500) (26) 26 Exercise of stock options.................... 5,700 6 2,799 Accrual of cumulative dividends on Series B preferred stock and accretion to redemption value....................................... Net loss..................................... --------- ------ ---------- ----------- -------- BALANCE AT DECEMBER 31, 1996................. 802,105 802 49,093 Forfeiture of common stock................... (65,399) (65) 65 Exercise of stock options.................... 2,355 2 3,295 Accrual of cumulative dividends on Series B and Series C preferred stock and accretion to redemption value......................... Net loss..................................... --------- ------ ---------- ----------- -------- BALANCE AT DECEMBER 31, 1997................. 739,061 739 52,453 Issuance of common stock..................... 1,035,000 1,035 50,715 Exercise of stock options.................... 232,325 232 11,384 Accrual of cumulative dividends on Series B, Series C and Series D preferred stock and accretion to redemption value............... Net loss..................................... --------- ------ ---------- ----------- -------- BALANCE AT DECEMBER 31, 1998................. 2,006,386 2,006 114,552 Exercise of stock options (unaudited)........ 2,258,533 2,259 242,679 (96,390) Deferred compensation related to grants of stock options (unaudited)................... 4,089,872 (4,089,872) Amortization of deferred compensation (unaudited)................................. 271,889 Accrual of cumulative dividends on Series B, Series C, Series D, and Series F preferred stock and accretion to redemption value (unaudited)................................. Unrealized gain on short-term investments and marketable securities (unaudited)........... Net loss (unaudited)......................... Comprehensive loss........................... --------- ------ ---------- ----------- -------- BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED).... 4,264,919 $4,265 $4,447,103 $(3,817,983) $(96,390) ========= ====== ========== =========== ======== ACCUMULATED OTHER TOTAL COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS' INCOME DEFICIT INCOME EQUITY (DEFICIT) (LOSS) ------------ ------------- ---------------- ------------- BALANCE AT DECEMBER 31, 1995................. $ (300,680) $ 1,453,589 Issuance of common stock..................... 9,678 Forfeiture of common stock................... Exercise of stock options.................... 2,805 Accrual of cumulative dividends on Series B preferred stock and accretion to redemption value....................................... (118,622) (118,622) Net loss..................................... (2,615,377) (2,615,377) ------------ -------- ------------ ----------- BALANCE AT DECEMBER 31, 1996................. (3,034,679) (1,267,927) Forfeiture of common stock................... Exercise of stock options.................... 3,297 Accrual of cumulative dividends on Series B and Series C preferred stock and accretion to redemption value......................... (336,973) (336,973) Net loss..................................... (3,110,313) (3,110,313) ------------ -------- ------------ ----------- BALANCE AT DECEMBER 31, 1997................. (6,481,965) (4,711,916) Issuance of common stock..................... 51,750 Exercise of stock options.................... 11,616 Accrual of cumulative dividends on Series B, Series C and Series D preferred stock and accretion to redemption value............... (659,990) (659,990) Net loss..................................... (5,772,836) (5,772,836) ------------ -------- ------------ ----------- BALANCE AT DECEMBER 31, 1998................. (12,914,791) (11,081,376) Exercise of stock options (unaudited)........ 148,548 Deferred compensation related to grants of stock options (unaudited)................... Amortization of deferred compensation (unaudited)................................. 271,889 Accrual of cumulative dividends on Series B, Series C, Series D, and Series F preferred stock and accretion to redemption value (unaudited)................................. (1,300,854) (1,300,854) Unrealized gain on short-term investments and marketable securities (unaudited)........... $542,069 542,069 $ 542,069 Net loss (unaudited)......................... (9,585,495) (9,585,495) (9,585,495) ----------- Comprehensive loss........................... $(9,043,426) ------------ -------- ------------ =========== BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED).... $(23,801,140) $542,069 $(21,005,219) ============ ======== ============
The accompanying notes are an integral part of these financial statements. F-5 85 NET.GENESIS CORP. STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................. $(2,615,377) $(3,110,313) $(5,772,836) $(3,500,368) $(9,585,495) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........... 84,376 194,646 256,739 161,005 422,493 Loss on disposal of fixed assets........ -- 101,420 -- -- 20,000 Non-cash interest expense............... -- -- -- -- 62,471 Stock-based compensation expense........ 9,678 -- -- -- 271,889 Increase (decrease) resulting from changes in operating assets and liabilities: Accounts receivable................... (39,214) (39,896) (592,683) (300,605) (1,149,468) Prepaid expenses and other assets..... (206,920) 179,036 (12,369) (63,018) (22,540) Deferred revenue...................... 32,083 22,912 270,287 196,131 913,980 Accounts payable...................... 138,227 (150,559) 77,478 166,919 167,206 Accrued expenses...................... 198,539 83,467 635,117 395,396 505,819 ----------- ----------- ----------- ----------- ----------- Net cash used in operating activities....................... (2,398,608) (2,719,287) (5,138,267) (2,944,540) (8,393,645) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets............... (492,570) (111,180) (775,555) (504,265) (1,988,250) Purchases of short-term investments..... (4,209,178) (949,073) -- -- -- Proceeds from sales of short-term investments........................... 2,188,494 2,007,466 962,291 962,291 -- Proceeds from sale of fixed assets...... -- 12,790 -- -- -- Restricted cash......................... -- -- (55,000) (55,000) (348,500) ----------- ----------- ----------- ----------- ----------- Net cash (used in) provided by investing activities............. (2,513,254) 960,003 131,736 403,026 (2,336,750) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale and leaseback of fixed assets.......................... -- -- -- -- 425,339 Principal payments of capital lease obligations........................... (3,907) -- -- -- -- Proceeds from issuance of debt.......... 242,052 -- -- -- 3,000,000 Repayment of debt....................... -- (133,055) (99,914) (81,749) (9,083) Issuance of common stock................ -- -- 51,750 51,750 -- Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs........................ 3,963,045 1,437,140 7,050,566 7,050,566 20,841,242 Proceeds from exercise of stock options............................... 2,805 3,297 11,616 11,089 148,548 ----------- ----------- ----------- ----------- ----------- Net cash provided by financing activities....................... 4,203,995 1,307,382 7,014,018 7,031,656 24,406,046 ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents............................. (707,867) (451,902) 2,007,487 4,490,142 13,675,651 Cash and cash equivalents, beginning of period.................................. 1,413,102 705,235 253,333 253,333 2,260,820 ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents, end of period.................................. $ 705,235 $ 253,333 $ 2,260,820 $ 4,743,475 $15,936,471 =========== =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Dividends and accretion of preferred stock................................. $ 118,622 $ 336,973 $ 659,990 $ 410,971 $ 1,300,854 Interest paid........................... $ 23,351 $ 18,691 $ 10,755 $ 10,381 $ 286,994 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Additions to capital lease obligations for sale and leaseback of fixed assets................................ -- -- -- -- $ 425,339 Convertible preferred stock warrants issued and recorded as debt discount.............................. -- -- -- -- 255,402
The accompanying notes are an integral part of these financial statements. F-6 86 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF THE BUSINESS AND BASIS OF FINANCIAL STATEMENTS net.Genesis offers e-customer intelligence solutions that enable companies to understand and improve their online businesses. The Company's flagship software product, net.Analysis, combines information about web site visitor behavior with an organization's other online and offline customer data to improve its ability to market, sell and support products, services and content online. The Company's solution enables customers to better tailor and target their marketing initiatives, increase the e-commerce effectiveness of their web sites, provide more relevant and cost-effective content, improve web site design, better allocate advertising and partnership resources, and improve web site infrastructure planning. The Company operates in one business segment and its principal markets are the domestic and international business markets. In addition, the Company provides consulting, training, maintenance and support services to facilitate the installation and use of its software. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies followed in the preparation of the financial statements are as follows: Interim Financial Information The financial statements of the Company as of September 30, 1999 and for the nine months ended September 30, 1998 and 1999 are unaudited. All adjustments (consisting only of normal recurring adjustments) have been made which, in the opinion of management, are necessary for a fair presentation. Results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999 or for any other future period. Pro Forma Balance Sheet (Unaudited) Upon the closing of the Company's initial public offering, all of the outstanding shares of Series A, B, C, D, and F convertible preferred stock will automatically convert on a 1-for-1 basis to approximately 17,156,970 shares of the Company's common stock assuming an offering price of greater than $6.64 per share. The unaudited pro forma presentation of the balance sheet has been prepared assuming the conversion of the convertible preferred stock into common stock as of September 30, 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Cash Equivalents, Short-term Investments and Marketable Securities The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company invests its excess cash primarily in a money market account which is managed by a financial institution with a strong credit rating. Accordingly, these investments are subject to minimal credit and market risk and are classified as available-for-sale. At F-7 87 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1997 and 1998, and September 30, 1999 (unaudited) the Company's cash equivalents consisted of certificates of deposit and money market funds totaling approximately $121,000, $1,860,000 and $15,936,471, respectively. The carrying amount in the financial statements approximates fair value because of the short maturity and holding period of these instruments. At December 31, 1997, all of the Company's short-term investments and marketable securities consist of certificates of deposit and U.S. Government obligations, with maturities less than one year, and are classified as available-for-sale. Short-term investments at December 31, 1997 are recorded at cost plus accrued interest, which approximates market. Gross unrealized gains and losses as of December 31, 1997 and realized gains and losses on sales of securities for the years ended December 31, 1997 and 1998 were not significant. (Unaudited) At September 30, 1999, all of the Company's short-term investments and marketable securities consist of common stock recorded at fair value and classified as available for sale. Restricted Cash Restricted cash represents a deposit held at a major financial institution as collateral for letters of credit that secure the Company's payroll liability, office lease and leases of certain of the Company's fixed assets. Revenue Recognition SOP No. 97-2, as amended, was adopted by the Company in the fiscal year beginning January 1, 1998. The Company generates several types of revenue, including the following: License Fees The Company's standard end user license agreement for the Company's products provides for an initial fee to use the product in perpetuity up to a maximum number of users. The Company also enters into other license agreement types, typically with major end user customers, which allow for the use of the Company's products, usually restricted by the number of employees, the number of users, number of servers or the license term. Fees from licenses are recognized as revenue when a contract has been executed and the product has been delivered, provided fees are fixed or determinable and collection is probable. Revenue under arrangements where multiple products or services are sold together under one contract is allocated to each element based on their relative fair values, with these fair values being determined using the price charged when that element is sold separately. License fees from software sold together with services are generally recognized upon delivery of the software provided that the above criteria have been met and the services are not essential to the functionality of any other element of the transaction. In instances where the aforementioned criteria have not been met, both the license and consulting fees are recognized under the percentage of completion method of contract accounting, based upon the proportion of hours expended to total estimated hours at completion. Losses, if any, on fixed price contracts are recognized when the loss is determined. Service and Support Agreements The Company provides consulting, installation and training services to its customers. Revenue from such services is generally recognized over the period during which the applicable service is to be performed or on a services-performed basis. Support agreements generally call for the Company F-8 88 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) to provide technical support and software updates to customers. Revenue for support agreements is recognized ratably over the term of the support agreement and is included in services revenue in the accompanying statements of operations. Fair Value of Financial Instruments The carrying amounts of the Company's financial instruments, which include cash equivalents, short-term investments and marketable securities, accounts receivable, capital lease obligations, debt and redeemable convertible preferred stock, approximate their fair values at December 31, 1998. Concentrations of Credit Risk, Significant Customers and Revenue by Geographic Region Financial instruments which potentially expose the Company to concentrations of credit risk include accounts receivable. The Company performs ongoing evaluations of customers' financial condition and does not generally require collateral. The Company maintains reserves for potential credit losses, which in the aggregate, have not exceeded management's expectations. At December 31, 1998, accounts receivable from one customer accounted for approximately 13% of total accounts receivable. At December 31, 1997, no receivable accounted for more than 10% of total accounts receivable. During the year ended December 31, 1998, revenue from each of two customers accounted for approximately 14% of total revenue. During the year ended December 31, 1997, no customer accounted for more than 10% of total revenue. During the year ended December 31, 1996, revenue from one customer accounted for approximately 15% of total revenue. The Company markets its products and related services to customers in many industries, principally in the United States, Europe and Australia. Revenue by geographic region is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ 1996 1997 1998 -------- ---------- ---------- United States................................... $497,698 $ 813,577 $1,194,639 Europe.......................................... 78,469 176,299 338,162 Australia....................................... 6,708 18,828 35,291 -------- ---------- ---------- Total........................................... $582,875 $1,008,704 $1,568,092 ======== ========== ==========
Fixed Assets Fixed assets are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Capital leases and leasehold improvements are amortized over the lease life or the estimated useful life of the asset. Upon retirement or sale, the costs of the assets disposed and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the determination of income. Maintenance and repair costs are charged to expense as incurred. Estimated useful lives generally range from three to five years. Research and Development and Software Development Costs Costs incurred in the research and development of the Company's products are expensed as incurred. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise F-9 89 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Marketed." No software development costs were capitalized during 1996, 1997 or 1998 since costs incurred subsequent to the establishment of technological feasibility were not significant. Advertising Expense The Company recognizes advertising expense as incurred. Advertising expense was approximately $60,000, $93,000 and $49,000 for the years ended December 31, 1996, 1997, and 1998, respectively. Accounting for Stock-Based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," through disclosure only (Note 8). Net Loss per Share and Unaudited Pro Forma Net Loss per Share Basic and diluted net loss available to common stockholders per share is computed by dividing loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding shares of common stock subject to repurchase. Diluted net loss available to common stockholders per share does not differ from basic net loss per share since potential common shares from conversion of preferred stock and exercise of stock options and warrants are anti-dilutive for all periods presented. Unaudited pro forma basic and diluted net loss available to common stockholders per share have been calculated assuming the conversion of all outstanding shares of preferred stock into common shares, as if the shares had converted immediately upon their issuance. Recently Enacted Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133, as recently amended, is effective for fiscal years beginning after June 15, 2000. Because the Company does not currently hold any derivative instruments and does not currently engage in hedging activities, the Company expects that adoption of SFAS No. 133 will not have a material impact on its financial position or operating results. 3. ACCOUNTS RECEIVABLE Provisions for doubtful accounts charged to the statement of operations were $128,000, $3,992 and $42,215 in 1996, 1997 and 1998, respectively, and write-offs against the allowances were $15,625, $14,774 and $0 in 1996, 1997 and 1998, respectively. F-10 90 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. FIXED ASSETS Fixed assets consist of the following:
ESTIMATED DECEMBER 31, USEFUL LIFE ---------------------- SEPTEMBER 30, IN YEARS 1997 1998 1999 ----------- -------- ---------- ------------- (UNAUDITED) Furniture and fixtures.............. 5 $ 32,642 $ 67,747 $ 247,818 Computer equipment and software..... 3 488,240 1,220,707 2,876,232 Leasehold improvements.............. 5 10,730 18,713 151,367 -------- ---------- ---------- 531,612 1,307,167 3,275,417 Less -- accumulated depreciation.... 253,275 510,014 932,507 -------- ---------- ---------- $278,337 $ 797,153 $2,342,910 ======== ========== ==========
5. CAPITAL LEASE AND BORROWINGS In January 1999, the Company entered into an agreement with a leasing company to establish a line of credit that enabled the Company to finance up to $1,000,000 in purchases of property and equipment under capital leases (the "lease line"). Each borrowing under the lease line is payable in equal monthly installments over a period of 36 months and bears interest at a rate of 9% per annum. In connection with this agreement, the Company granted warrants to purchase 35,307 shares of the Company's Series E preferred stock at an exercise price equal to $1.84 per share. These warrants are exercisable immediately and expire five years from the grant date, or three years from the effective date of an initial public offering, whichever is earlier. There is $425,339 outstanding on the lease line at September 30, 1999 (unaudited). The future minimum lease payments as of September 30, 1999 are $478,824 (unaudited). (Unaudited) During 1999, the Company sold and immediately leased back certain equipment under the lease line. Total computer equipment of $425,339 was purchased under the lease line. Amortization of property and equipment under capital leases totaled $59,075 during the nine months ended September 30, 1999 and is included in depreciation expense. Interest expense relating to capital lease obligations totaled $13,890 for the nine months ended September 30, 1999. In January 1999, the Company entered into a subordinated debt agreement providing for borrowings of up to $4,000,000. The subordinated debt is payable in 36 monthly payments and bears interest at a rate of 13.5%. At September 30, 1999, the Company had $3,000,000 outstanding under the agreement (unaudited). In connection with the subordinated debt, the Company granted warrants to purchase 244,432 shares of the Company's Series E redeemable convertible preferred stock at an exercise price equal to $1.84 per share. These warrants are exercisable immediately and expire five years from the grant date, or three years from the effective date of an initial public offering, whichever is earlier. The value ascribed by management to the value of these warrants and the warrants issued with respect to the lease line was $255,402. The warrant value was recorded as a debt discount and is being amortized to interest expense over the term of the loans. The subordinated debt and the lease line are secured by substantially all assets of the Company. Under these agreements, the Company is required to comply with certain covenants. The Company is in compliance with these covenants for all periods presented. F-11 91 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In February 1996, the Company entered into a Credit Agreement for a working capital line of credit and for an equipment term loan providing for eligible borrowings of up to $300,000 and $250,000, respectively, at prime lending rates plus 1% and 1 1/2%, respectively (8.75% and 9.25% at December 31, 1998, respectively). Eligible borrowings under both the line and the term loan are based on accounts receivable and other assets and determined according to a formula defined in the Credit Agreement. The line of credit terminated on February 19, 1997 and all outstanding principal and interest were paid on that date. Borrowings under the equipment term loan are payable in monthly principal installments of $9,083 plus interest, beginning July 1996 through December 1998. The borrowings under the equipment term loan are secured by all of the Company's assets and are subject to compliance tests and restrictions. At December 31, 1998, the Company had $9,083 outstanding under the equipment term loan. 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE PREFERRED STOCK In June 1998, the Company decreased the number of authorized shares of Series C Redeemable Convertible Preferred Stock from 6,400,000 shares to 3,000,000 in connection with the issuance of the Series D Redeemable Convertible Preferred Stock. In December 1998, the Company authorized 858,333 shares of the newly designated Series E Redeemable Convertible Preferred Stock. In June 1999, as payment for certain services associated with the issuance of the Series F Preferred Stock, the Company issued warrants to purchase 114,458 shares of Series F preferred stock with an exercise price of $3.32 per share. The warrants are exercisable immediately and expire five years from the date of grant or, if earlier, at the effective date of the Company's initial public offering. The Series A Convertible Preferred Stock ("Series A Preferred Stock") is comprised of three subseries (the "Series A-1 Preferred Stock," "Series A-2 Preferred Stock," and "Series A-3 Preferred Stock"). The Series B, Series C, Series D, and Series F Preferred Stock is redeemable on or after June 30, 2004 over a 3 year period at the option of the holders at redemption prices of $5.15, $.50, $1.20, and $3.32 per share, respectively, plus any accrued but unpaid dividends. Required redemption amounts for Series B, Series C, Series D and Series F Preferred Stock, excluding any cumulative and unpaid dividends are as follows:
SERIES B SERIES C SERIES D SERIES F REDEMPTION REDEMPTION REDEMPTION REDEMPTION YEAR AMOUNT AMOUNT AMOUNT AMOUNT - ---- ---------- ---------- ---------- ---------- 2004.............................. $1,333,333 $488,053 $2,360,000 $7,333,333 2005.............................. $1,333,333 $488,053 $2,360,000 $7,333,333 2006.............................. $1,333,333 $488,053 $2,360,000 $7,333,333
F-12 92 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, ------------------------- SEPTEMBER 30, 1997 1998 1999 ---------- ----------- ------------- (UNAUDITED) Redeemable convertible preferred stock consists of the following: Redeemable convertible preferred stock, Series F, $.001 par value; 6,805,000 shares authorized; 6,626,508 shares issued and outstanding at September 30, 1999 (unaudited); at issuance cost plus accumulated accretion and dividends................. $ -- $ -- $21,483,327 Redeemable convertible preferred stock, Series E, $.001 par value; 858,333 shares authorized at December 31, 1998; 279,739 shares authorized at September 30, 1999; none issued and outstanding at December 31, 1998 and September 30, 1999 (unaudited).................................... -- -- -- Series E redeemable convertible preferred stock warrants....................................... 255,402 Redeemable convertible preferred stock, Series D, $.001 par value; 5,900,000 shares authorized; 5,899,999 issued and outstanding at December 31, 1998 and September 30, 1999 (unaudited); at issuance cost plus accumulated accretion and dividends...................................... -- 7,327,800 7,699,501 Redeemable convertible preferred stock, Series C, $.001 par value; 3,000,000 shares authorized; 2,928,316 shares issued and outstanding at December 31, 1997 and 1998 and September 30, 1999 (unaudited); at issuance cost plus accumulated accretion and dividends............ 1,494,115 1,596,871 1,673,938 Redeemable convertible preferred stock, Series B, $.001 par value; 776,718 shares authorized; 776,717 issued and outstanding at December 31, 1997 and 1998 and September 30, 1999 (unaudited); at issuance cost plus accumulated accretion and dividends........................ 4,361,665 4,641,665 4,851,666 ---------- ----------- ----------- Total redeemable convertible preferred stock................................... $5,855,780 $13,566,336 $35,963,834 ========== =========== ===========
Conversion Each share of the Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock is convertible at any time at the option of the holder into shares of common stock at a ratio of one share of common stock for each share of Preferred Stock, subject to certain anti-dilution adjustments. In addition, the conversion ratio is subject to adjustment, as defined in the agreement, in the event that the Company issues common stock or preferred stock at a per share price less than the original purchase prices for all series of Preferred Stock. The Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock will automatically convert to common stock immediately prior to the closing of a public offering of the Company's common stock resulting in gross proceeds of at least $20,000,000 based on an offering price per share of not less than $6.64. F-13 93 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Dividends Dividends on the Series A Preferred Stock are payable when and if declared by the Board of Directors. Through December 31, 1998, no dividends have been declared or paid by the Company. The holders of Series B, Series C, Series D, Series E and Series F Preferred Stock are entitled to receive cumulative dividends at an annual rate of 7% of the original purchase price. Dividends are payable whether or not declared. Cumulative and unpaid dividends on Series B, Series C and Series D Preferred Stock were $641,665, $132,712 and $247,800 at December 31, 1998, respectively. Liquidation Preference In the event of any liquidation, dissolution or winding up of the affairs of the Company, the holders of the Series B, Series C, Series D, Series E and Series F Preferred Stock are entitled to receive on a pro rata basis, prior and in preference to the holders of other preferred or common stock, $5.15 per share, $.50 per share, $1.20 per share, $1.84 per share and $3.32 per share, respectively, plus all accrued and unpaid dividends. The holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred Stock will be entitled to receive in preference to the holders of the common stock an amount equal to $.25, $1.38 and $2.50, respectively, plus any accrued but unpaid dividends. Voting Rights Each holder of the Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which such holder's shares are convertible at the record date for such vote. Holders of the Series B, Series C, Series D, Series E and Series F Preferred Stock are also entitled to vote together as a separate class to approve or reject certain transactions, including mergers and certain changes to equity. 7. COMMON STOCK Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders are entitled to receive dividends, if any, as may be declared by the Board of Directors, subject to any preferential dividend rights of the preferred stockholders. In October 1997, the Board of Directors authorized a 1:5 reverse stock split of the Company's common stock. All common share and per share amounts included in the accompanying financial statements and notes thereto have been adjusted to reflect the reverse stock split. In June 1998, the Company increased the number of authorized shares of common stock from 11,697,872 to 17,500,000 shares. In June 1999, the Company increased the number of authorized shares of common stock from 17,500,000 to 24,000,000 shares. The Company has reserved 18,955,783 (unaudited) shares of common stock for the conversion of the Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock and for the exercise of outstanding options at September 30, 1999. F-14 94 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Stock Restriction Agreements The Company has entered into stock restriction agreements with certain common stockholders. The agreements provide that in the event that any individual who is a party to such agreement is no longer employed by the Company, the Company may repurchase all shares that are not vested at the time the individual ceases to be employed by the Company. These shares generally vest over four years, as defined in the agreements. At December 31, 1998 and September 30, 1999, approximately 959,378 and 2,033,291 (unaudited) shares of common stock, respectively, are subject to repurchase. 8. 1995 STOCK OPTION PLAN The 1995 Incentive Stock Option Plan (the "Plan") provides for the grant of incentive stock options and nonqualified stock options. The Board of Directors is responsible for administration of the Plan. The Board of Directors determines the term of each option, option exercise price, number of shares for which each option is granted and the rate at which each option is exercisable. Options generally vest ratably over four years. Options granted under the Plan generally expire ten years from the date of the grant. Nonqualified stock options may be granted to any officer, employee, director or consultant at an exercise price per share as determined by the Company's Board of Directors. In July 1998, the Company increased the number of options available for grant under the Plan from 500,000 to 4,000,000. In September 1999, the Company increased the number of options available for grant under the Plan from 4,000,000 to 5,000,000 (unaudited). Transactions under the 1995 Stock Option Plan for the years ended December 31, 1996, 1997, and 1998 are summarized as follows:
WEIGHTED AVERAGE EXERCISE SHARES PRICE ---------- -------- Outstanding -- December 31, 1995............................ 53,408 $1.30 Granted..................................................... 222,740 1.40 Exercised................................................. (5,700) .49 Canceled.................................................. (6,488) 1.40 ---------- Outstanding -- December 31, 1996............................ 263,960 1.40 Granted................................................... 1,562,144 .29 Exercised................................................. (2,355) 1.40 Canceled.................................................. (638,551) 1.18 ---------- Outstanding -- December 31, 1997............................ 1,185,198 .06 Granted................................................... 3,546,400 .11 Exercised................................................. (232,325) .05 Canceled.................................................. (1,392,911) .06 ---------- Outstanding -- December 31, 1998............................ 3,106,362 .11
As of December 31, 1996, 1997 and 1998, 13,558, 55,265 and 427,518 options were exercisable, respectively, under the Plan. The weighted average fair value of options granted during 1996, 1997 F-15 95 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) and 1998 was $.40, $.08 and $.03, respectively. All options were granted at exercise prices equal to the fair market value of the Company's common stock at the date of grant. During 1997, the Company's Board of Directors determined that, because certain stock options held by employees of the Company had an exercise price significantly higher than the fair value of the Company's common stock, such stock options were not providing the incentive intended. Accordingly, in September 1997, options to purchase 468,220 shares of common stock with an exercise price of $1.40 per share were canceled and reissued at a price of $.05 per share. The exercise price of the repriced options equaled the fair market value of the Company's common stock on the date of repricing. The following table summarizes information about stock options outstanding at December 31, 1998:
WEIGHTED AVERAGE NUMBER OF REMAINING NUMBER OF OPTIONS CONTRACTUAL LIFE OPTIONS EXERCISE PRICE OUTSTANDING (YEARS) EXERCISABLE - -------------- ----------- ---------------- ----------- $0.05......................................... 584,862 9.06 97,668 $0.11......................................... 2,520,400 9.55 328,750 $1.40......................................... 1,100 7.41 1,100 --------- ------- 3,106,362 427,518 ========= ======= (Unaudited)
During the nine months ended September 30, 1999, the Company issued options to certain employees under the Plan with exercise prices below the amount subsequently determined to be the fair market value of the common stock at the date of grant for financial reporting purposes. In accordance with the requirements of APB 25, the Company has recorded deferred compensation for the differences between the exercise price of the options and the deemed fair market value of the Company's stock at the date of grant. This deferred compensation is amortized to expense over the vesting periods, generally four years. As discussed in Note 2, the Company has adopted SFAS 123 through disclosure only. Had compensation cost for the Company's option plan been determined based on the fair value of the options at the grant dates, as prescribed in SFAS 123, the Company's net loss and basic and diluted net loss per share on a pro forma basis would have been as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1996 1997 1998 ----------- ----------- ----------- Net loss As reported................................. $(2,615,377) $(3,110,313) $(5,772,836) Pro forma................................. (2,635,936) (3,144,083) (5,822,306) Basic and diluted net loss available to common stockholders per share As reported............................... $ (16.03) $ (6.08) $ (8.11) Pro forma................................. (16.15) (6.14) (8.18)
F-16 96 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The fair value of each option grant is estimated on the date of grant using the minimum value method with the following assumptions used for grants during the applicable period:
YEAR ENDED DECEMBER 31, ----------------------------- 1996 1997 1998 ------- ------- ------- Expected dividend yield................................ 0 0 0 Risk-free interest rate................................ 5 - 7% 5 - 7% 5 - 7% Weighted average expected life......................... 5 years 5 years 5 years
Because the determination of the fair value of all options granted after the Company becomes a public entity will include an expected volatility factor in addition to the factors noted above, and because additional option grants are expected to be made and options vest over several years, the above pro forma disclosures are not representative of the pro forma effects on reported net income or loss for future years. 9. INCOME TAXES Deferred tax assets consist of the following:
DECEMBER 31, ----------------------------------------- 1996 1997 1998 ----------- ----------- ----------- Net operating loss carryforwards............ $ 1,119,000 $ 2,013,000 $ 4,401,000 Research and development credit carryforwards............................... 161,000 173,000 270,000 Other temporary differences................. 86,000 150,000 295,000 ----------- ----------- ----------- Gross deferred tax assets................. 1,366,000 2,336,000 4,966,000 Deferred tax asset valuation allowance...... (1,366,000) (2,336,000) (4,966,000) ----------- ----------- ----------- $ -- $ -- $ -- =========== =========== ===========
The Company has provided a full valuation allowance for the deferred tax assets since it is more likely than not that these future benefits will not be realized. If the Company achieves future profitability, a significant portion of these deferred tax assets could be available to offset future income taxes. At December 31, 1998, the Company has federal and state net operating loss and research and development tax credit carryforwards of approximately $10,688,000 and $315,000, respectively, available to reduce future federal and state income taxes payable. These net operating loss carryforwards and credits expire through 2018. Certain substantial changes in the Company's ownership occurred during 1997 and 1996. As a result, under the provisions of Section 382 of the Internal Revenue Code, the amount of net operating loss carryforwards available annually to offset future taxable income is limited. The amount of this annual limitation is determined based upon the Company's value prior to the ownership changes taking place. Subsequent significant ownership changes could further affect the limitation in future years. F-17 97 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES The Company leases its facilities, certain computer equipment and furniture and fixtures under noncancelable operating leases. Future lease obligations as of December 31, 1998 are as follows:
OPERATING YEAR ENDING DECEMBER 31, LEASES - ------------------------ ---------- 1999........................................................ $ 346,645 2000........................................................ 344,266 2001........................................................ 334,764 ---------- Total minimum lease payments.............................. $1,025,675 ==========
Rental expense under operating leases for the years ended December 31, 1996, 1997 and 1998 was $80,838, $200,966 and $268,681, respectively. The Company is from time to time subject to legal proceedings and claims which arise in the normal course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material adverse affect on the Company's financial position or results of operations. Royalty Agreements The Company maintains several agreements under which the Company has obtained the right to use technology related to certain software developed by others. In exchange, the Company is required to pay royalties as a fixed percentage of software sales as stipulated in the royalty agreements. Royalty expense of approximately $35,500, $34,500 and $149,500 was incurred for the years ended December 31, 1996, 1997 and 1998, respectively. F-18 98 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 11. NET LOSS PER COMMON SHARE The following is a calculation of net loss per share:
YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- -------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ------------ (UNAUDITED) Historical: Net loss................................. $(2,615,377) $(3,110,313) $(5,772,836) $(3,500,368) $ (9,585,495) Dividends and accretion of redeemable preferred stock...................... (118,622) (336,973) (659,990) (410,971) (1,300,854) ----------- ----------- ----------- ----------- ------------ Net loss available to common stockholders......................... (2,733,999) (3,447,286) (6,432,826) (3,911,339) (10,886,349) ----------- ----------- ----------- ----------- ------------ Weighted average shares.............. 803,185 765,488 1,473,680 1,295,380 2,913,828 Weighted average unvested common shares subject to repurchase....... (632,674) (198,582) (680,872) (574,775) (1,382,936) ----------- ----------- ----------- ----------- ------------ Total weighted average shares.......... 170,511 566,906 792,808 720,605 1,530,892 ----------- ----------- ----------- ----------- ------------ Net loss available to common stockholders per share: Basic and diluted.................... $ (16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11) =========== =========== =========== =========== ============ Pro Forma: Net loss............................... $(5,772,836) $ (9,585,495) ----------- ------------ Weighted average common shares, basic and diluted.......................... 792,808 1,530,892 Conversion of convertible preferred stock................................ 7,647,346 13,273,303 ----------- ------------ Total weighted average shares............ 8,440,154 14,804,195 =========== ============ Pro forma net loss per share: Basic and diluted...................... $ (0.68) $ (0.65) =========== ============
Options to purchase shares of the Company's common stock totaling 263,960, 1,185,198 and 3,106,362 at December 31, 1996, 1997, and 1998 were outstanding but were not included in the computations of diluted earnings per share as the inclusion of these shares would have been anti-dilutive. 12. 401(K) PLAN In January 1997, the Company adopted an employee savings and retirement plan which covers all employees and is qualified under Section 401 of the Internal Revenue Code. Employees may elect to make voluntary contributions to the 401(k) plan, based on a percentage of their pretax earnings, up to the statutorily prescribed annual limit. The Company may make matching or additional contributions to the 401(k) plan in amounts determined annually by the Board of Directors. Through December 31, 1998 the Company has made no contributions to the 401(k) plan. 13. SUBSEQUENT EVENTS 1999 Stock Incentive Plan In December 1999, the Company adopted its 1999 stock incentive plan and reserved 3,500,000 shares of common stock for issuance under the plan. As of December 15, 1999, no options had been granted under the 1999 plan. The 1999 plan authorizes the grant of incentive options and nonqualified options and also provides for awards of stock appreciation rights, performance shares, restricted stock and other stock-based awards. F-19 99 net.GENESIS CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Incentive options may be granted under the 1999 plan to key employees of the Company and its affiliates within the meaning of the internal Revenue Code, including officers and directors as well as officers and directors of the Company's affiliates who are also employees. The exercise price of incentive options granted under the 1999 plan must be at least equal to the fair market value of the common stock on the date of grant. The exercise price of incentive options granted to an optionee who owns stock possessing more than 10% of the voting power of our outstanding capital stock must be at least equal to 110% of the fair market value of the common stock on the date of grant, and such optionee must exercise his or her option within five years from the date of the grant of such option. Additionally, the Company may grant nonqualified options to its officers and other employees, directors, and other individuals providing services to the Company. There are no limits on the exercise price of nonqualified options granted under the 1999 plan. The 1999 plan is administered by the compensation committee of the board of directors. The compensation committee selects the individuals to whom options will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 1999 plan. 1999 Employee Stock Purchase Plan In December 1999, the Company adopted its 1999 employee stock purchase plan and reserved 300,000 shares of common stock for issuance under the plan. Under the terms of the stock purchase plan, all employees who have completed three months of employment and whose customary employment is more than 20 hours per week and more than five months in the calendar year are eligible to participate in the stock purchase plan. Employees who own stock and hold outstanding options to purchase stock representing five percent or more of the total combined voting power or value of all classes of the Company's stock are not eligible to participate in the stock purchase plan. At the commencement of each designated payroll deduction period, or offering period, an eligible employee may authorize the Company to deduct between 1% to 10%, in increments of 1%, of his or her base pay. On the last business day of the offering period, the Company will deem the employee to have exercised the option, at the exercise option price, to the extent of accumulated payroll deductions. The purchase price will be 85% of the closing market price of the common stock on either (a) the first business day of the offering period or (b) the last business day of the offering period, whichever is lower. F-20 100 Back Cover: Graphic depiction entitled "Our Solution is Comprised of Software and Professional Services." The graphic presents boxes depicting the professional services included in the net.Analysis solutions, including Strategic Analytic Consulting Services, Product Implementation and Application Integration Services and Training and Support" with arrows linking the various elements to indicate their interrelationships. At the right side of the graphic appears the following text: "net.Genesis Professional Services enable customers to plan, implement and evaluate cost- effective e-customer intelligence strategies." Below the graphic appears the following text: "net.Genesis has three primary distribution channels: Solutions Providers, net.Genesis Direct Sales and Strategic Technology Relationships." At the bottom of the artwork are graphic depictions of customer web sites. 101 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES [LOGO] COMMON STOCK ---------------- PROSPECTUS ---------------- HAMBRECHT & QUIST DEUTSCHE BANC ALEX. BROWN ------------------------ U.S. BANCORP PIPER JAFFRAY ------------------------ , 2000 ------------------------ YOU SHOULD RELY ONLY ON 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 OUR 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 102 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses payable by us in connection with the sale of the common stock being registered, other than the underwriting discounts and commissions. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee. SEC registration fee........................................ $ 18,480 NASD filing fee............................................. 7,500 Nasdaq National Market listing fee.......................... 95,000 Accounting fees and expenses................................ 300,000 Legal fees and expenses..................................... 400,000 Blue Sky fees and expenses.................................. 15,000 Transfer agent fees......................................... 15,000 Printing and engraving expenses............................. 100,000 Miscellaneous............................................... 49,020 ---------- Total............................................. $1,000,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a Delaware corporation to indemnify its present and former directors and officers under certain conditions. Article Seventh of our certificate of incorporation provides that we shall indemnify each person who at any time is, or shall have been, one of our directors or officers and was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was one of our directors or officers, or is or was serving at our request as a director, officer, trustee of, or in similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any such action, suit or proceeding, to the maximum extent permitted by the Delaware General Corporation Law, as currently in effect or amended in the future. No amendment to or repeal of the provisions of Article Seventh of our certificate of incorporation shall deprive a director or officer of the benefit of those Articles with respect to any act or failure occurring prior to such amendment or repeal. Section 102(b)(7) of the Delaware General Corporation Law authorizes a Delaware corporation to adopt a charter provision eliminating or limiting the personal liability of directors to the corporation or its stockholders for breach of fiduciary duty as directors, provided that the provision may not eliminate or limit the liability of directors for: - any breach of the director's duty of loyalty to the corporation or its stockholders - any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law - any payment of a dividend or approval of a stock purchase that is illegal under Section 174 of the Delaware General Corporation Law - any transaction from which the director derived an improper personal benefit Article Ninth of our certificate of incorporation provides that, to the maximum extent permitted by the Delaware General Corporation Law, none of our directors shall be personally II-1 103 liable to us or to any of our stockholders for monetary damages arising out of that director's breach of fiduciary duty as one of our directors. No amendment to or repeal of the provisions of Article Ninth shall apply to or have any effect on the liability or the alleged liability of any of our directors with respect to any act or failure to act of that director occurring before the amendment or repeal. A principal effect of Article Ninth is to limit or eliminate the potential liability of our directors for monetary damages arising from breaches of their duty of care, unless the breach involves one of the four exceptions described above. Section 145 of the Delaware General Corporation Law also authorizes a Delaware corporation to obtain insurance on behalf of its directors and officers against liabilities incurred by them in those capacities. We have procured a directors' and officers' liability and company reimbursement liability insurance policy that insures (a) our directors and officers against losses, above a deductible amount, arising from specified types of claims made against them by reason of enumerated acts done or attempted by our directors or officers and (b) us against losses, above a deductible amount, arising from any of the specified types of claims, but only if we are required or permitted to indemnify our directors or officers for those losses under statutory or common law or under provisions of our certificate of incorporation or by-laws. The preceding discussion gives effect to amendments of our certificate of incorporation and by-laws that will become effective upon completion of the offering contemplated by this Registration Statement. Please also see section 7 of the underwriting agreement relating to the offering, to be filed as Exhibit 1.1 to this Registration Statement, for indemnification arrangements between us and the underwriters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since December 15, 1996, we have issued and sold unregistered securities as described below. From December 15, 1996 through the date of this registration statement, we issued options to purchase a total of 6,716,894 shares of our common stock to our employees and options to purchase 109,500 shares of our common stock to our directors and consultants. From December 15, 1996 through the date of this registration statement, we issued and sold an aggregate of 2,580,738 shares of common stock to our employees, directors and consultants upon exercise of options previously granted to them, at per share prices ranging from $0.05 to $1.40. We realized aggregate proceeds of $268,004 from these sales. On May 28, 1998, we issued and sold 1,035,000 shares of common stock to our President and Chief Executive Officer, Lawrence S. Bohn, for proceeds of $51,750, or $0.05 per share. On September 12, 1997, we sold 2,928,316 shares of series C convertible preferred stock to 36 accredited investors for proceeds of $1,464,158, or $.50 per share. In June and August 1998, we sold a total of 5,899,999 shares of series D convertible preferred stock to 30 accredited investors for proceeds of $7,080,000, or $1.20 per share. In January 1999, we issued to Comdisco, Inc., an accredited investor, two warrants to purchase shares of Series E convertible preferred stock at an aggregate exercise price of $515,000. At the time of issuance, the price and number of shares subject to the warrant were determined by formula. In June 1999, the warrant was determined to be exercisable for 279,739 shares of Series E convertible preferred stock at an exercise price of $1.84 per share. In June 1999, we sold 6,626,508 shares of series F convertible preferred stock to 41 accredited investors for proceeds of $22,000,007, or $3.32 per share. Hambrecht & Quist LLC acted as our placement agent for this offering. In consideration for their services, we paid Hambrecht & Quist II-2 104 LLC $1,158,756 and issued to them a warrant to purchase up to 114,458 shares of our series F convertible preferred stock at an exercise price of $3.32 per share. Each of the sales described above was completed without registration under the Securities Act in reliance upon one or more of the following exemptions: - Section 4(2) of the Securities Act or Rule 506 of Regulation D promulgated under the Securities Act for transactions not involving a public offering or - Rule 701 promulgated under the Securities Act with respect to certain of the options and shares of common stock issued to our employees, directors and consultants None of the sales of the securities we issued have involved the use of an underwriter, and except for the Series F offering described above, no commissions were paid in connection with the sale of any of the securities we issued. ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES. (a) EXHIBITS *1.1 Underwriting Agreement 3.1 Certificate of Incorporation of net.Genesis Corp. 3.2 Certificate of Amendment to the Certificate of Incorporation of net.Genesis Corp. dated December 21, 1999 3.3 Proposed form of Amended and Restated Certificate of Incorporation of net.Genesis Corp. (to become effective as of the closing of the offering) 3.4 By-Laws of net.Genesis Corp. 3.5 Proposed form of Amended and Restated By-Laws of net.Genesis Corp. (to become effective as of the closing of the offering) *4.1 Specimen certificate for common stock of net.Genesis Corp. *5.1 Opinion of Foley, Hoag & Eliot LLP 10.1 net.Genesis Corp. 1995 Incentive Stock Option Plan, as amended 10.2 net.Genesis Corp. 1999 Stock Incentive Plan 10.3 net.Genesis Corp. 1999 Employee Stock Purchase Plan 10.4 Lease dated October 23, 1996 between net.Genesis Corp. and Athenaeum Realty Nominee Trust 10.5 Sublease dated October 15, 1999 between net.Genesis Corp. and WL-Boston, Inc. 10.6 Lease commencing August 15, 1999 between BRE/CambridgePark Office II, LLC and net.Genesis Corp. 10.7 Subordinated Loan and Security Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.8 Master Lease Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.9 Warrant Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.10 Warrant Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.11 Third Amended and Restated Registration Rights Agreement, dated June 10, 1999 among net.Genesis Corp. and the persons and entities listed therein 10.12 Employment Agreement with Lawrence S. Bohn 10.13 Promissory Note dated May 4, 1999 from Lawrence S. Bohn to net.Genesis Corp. 10.14 Warrant Agreement dated June 10, 1999 between net.Genesis Corp. and Hambrecht & Quist LLC +10.15 Software License Agreement dated as of October 5, 1999 between net.Genesis Corp. and MicroStrategy Incorporated 23.1 Consent of PricewaterhouseCoopers LLP
II-3 105 *23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1) 24.1 Power of Attorney (contained on page II-5 of this Registration Statement) 27.1 Financial Data Schedule
- ------------------------------ * To be filed by amendment. + Filed under application for confidential treatment of certain portions pursuant to Rule 406. (b) FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are not applicable or the required information is shown in our financial statements and related notes. ITEM 17. UNDERTAKINGS. We undertake to provide to the underwriters at the closing specified in the underwriting agreement, certificates in denominations and registered in names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC that indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against those liabilities (other than our payment of expenses incurred or paid by one of our directors, officers or controlling persons of the registrant in the successful defense of any action, suit or proceeding) is asserted by our directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether that indemnification by us is against public policy as expressed in the Securities Act and we will be governed by the final adjudication of such issue. We undertake that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus we filed pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 106 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, net.Genesis Corp. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Massachusetts, as of December 21, 1999. NET.GENESIS CORP. BY: /s/ LAWRENCE S. BOHN ------------------------------------ Lawrence S. Bohn President and Chief Executive Officer POWER OF ATTORNEY The undersigned officers and directors of net.Genesis Corp. hereby severally constitute and appoint Lawrence S. Bohn and John Delea and each of them singly, our true and lawful attorneys-in-fact with full power of substitution, to sign for us and in our names in the capacities indicated below, any and all pre- and post-effective amendments to this Registration Statement, any subsequent registration statement for the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and any and all pre-and post-effective amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, and generally to do all things in our names and on our behalf in our capacities as officers and directors to enable net.Genesis Corp. to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys-in-fact, or any of them, to said Registration Statement and any and all amendments thereto or to any subsequent Registration Statements for the same offering filed pursuant to said Rule 462(b) under the Securities Act of 1933. In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the indicated capacities as of December 21, 1999.
SIGNATURE TITLE --------- ----- /s/ LAWRENCE S. BOHN President, Chief Executive Officer and Director - --------------------------------------------------- (Principal Executive Officer) Lawrence S. Bohn /s/ JOHN DELEA Chief Financial Officer, Vice President, Finance - --------------------------------------------------- and Administration, Treasurer and Secretary John Delea (Principal Accounting and Financial Officer) /s/ KATHLEEN BIRO Director - --------------------------------------------------- Kathleen Biro /s/ TED R. DINTERSMITH Director - --------------------------------------------------- Ted R. Dintersmith /s/ ROBERT N. GOLDMAN Director - --------------------------------------------------- Robert N. Goldman
II-5 107
SIGNATURE TITLE --------- ----- /s/ RORY O'DRISCOLL Director - --------------------------------------------------- Rory O'Driscoll /s/ STEPHEN J. RICCI Director - --------------------------------------------------- Stephen J. Ricci
II-6 108 EXHIBIT INDEX
EXHIBIT NUMBER - ------- EXHIBIT DESCRIPTION *1.1 Underwriting Agreement 3.1 Certificate of Incorporation of net.Genesis Corp. 3.2 Certificate of Amendment to the Certificate of Incorporation of net.Genesis Corp. dated December 21, 1999 3.3 Proposed form of Amended and Restated Certificate of Incorporation of net.Genesis Corp. (to become effective as of the closing of the offering) 3.4 By-Laws of net.Genesis Corp. 3.5 Proposed form of Amended and Restated By-Laws of net.Genesis Corp. (to become effective as of the closing of the offering) *4.1 Specimen certificate for common stock of net.Genesis Corp. *5.1 Opinion of Foley, Hoag & Eliot LLP 10.1 net.Genesis Corp. 1995 Incentive Stock Option Plan, as amended 10.2 net.Genesis Corp. 1999 Stock Incentive Plan 10.3 net.Genesis Corp. 1999 Employee Stock Purchase Plan 10.4 Lease dated October 23, 1996 between net.Genesis Corp. and Athenaeum Realty Nominee Trust 10.5 Sublease dated October 15, 1999 between net.Genesis Corp. and WL-Boston, Inc. 10.6 Lease commencing August 15, 1999 between BRE/CambridgePark Office II, LLC and net.Genesis Corp. 10.7 Subordinated Loan and Security Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.8 Master Lease Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.9 Warrant Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.10 Warrant Agreement dated January 6, 1999 between net.Genesis Corp. and Comdisco, Inc. 10.11 Third Amended and Restated Registration Rights Agreement, dated June 10, 1999 among net.Genesis Corp. and the persons and entities listed therein 10.12 Employment Agreement with Lawrence S. Bohn 10.13 Promissory Note dated May 4, 1999 from Lawrence S. Bohn to net.Genesis Corp. 10.14 Warrant Agreement dated June 10, 1999 between net.Genesis Corp. and Hambrecht & Quist LLC +10.15 Software License Agreement dated as of October 5, 1999 between net.Genesis Corp. and MicroStrategy Incorporated 23.1 Consent of PricewaterhouseCoopers LLP *23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1) 24.1 Power of Attorney (contained on page II-5 of this Registration Statement) 27.1 Financial Data Schedule
- ------------------------------ * To be filed by amendment. + Filed under application for confidential treatment of certain portions pursuant to Rule 406. EX-3.1 2 CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NET.GENESIS CORP. (Originally incorporated under the name net.Genesis Corp.) net.Genesis Corp. (the "Corporation"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the Corporation is net.Genesis Corp. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 6, 1994. A Certificate of Correction was filed with the Secretary of the State of the State of Delaware on June 1, 1994. Certificates of Amendment were filed with the Secretary of State of the State of Delaware on May 25, 1995, July 19, 1995 and November 14, 1995. A Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on September 17, 1996. A Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on September 10, 1997. Certificates of Amendment were filed with the Secretary of State of the State of Delaware on October 30, 1997 and May 27, 1998. A Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State on June 24, 1998. A Fourth Amended and Restated Certificate of Incorporation was filed with the Secretary of State on December 30, 1998. 2. This Fifth Amended and Restated Certificate of Incorporation restates and further amends the Fourth Amended and Restated Certificate of Incorporation of the Corporation. 3. This Fifth Amended and Restated Certificate of Incorporation has been duly proposed by the directors and adopted by the stockholders in the manner and by the vote prescribed by Sections 228 and 242 and has been duly adopted pursuant to Section 245 of the General Corporation Law of Delaware. 4. The text of the Fourth Amended and Restated Certificate of Incorporation is therefore further amended and restated in its entirety hereby to read as herein set forth: FIRST: The name of the Corporation is net.Genesis Corp. 2 SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of capital stock that the Corporation shall have the authority to issue is 41,686,887 shares, $.001 par value, which shall consist of Common Stock and four classes of Preferred Stock as follows: Common Stock, $.001 par value ("Common Stock") - 24,000,000 shares Series A Convertible Preferred Stock, $.001 par value ("Series A Preferred Stock") - 925,430 shares Series B Convertible Preferred Stock, $0.001 par value ("Series B Preferred Stock") - 776,718 shares Series C Convertible Preferred Stock, $0.001 par value ("Series C Preferred Stock") - 3,000,000 shares Series D Convertible Preferred Stock, $0.001 par value ("Series D Preferred Stock") - 5,900,000 shares Series E Convertible Preferred Stock, $0.001 par value ("Series E Preferred Stock") - 279,739 shares Series F Convertible Preferred Stock, $0.001 par value ("Series F Preferred Stock") - 6,805,000 shares The Series A Preferred Stock shall consist of three subseries as follows: Series A-1 Convertible Preferred Stock ("Series A-1 Preferred Stock") - 200,000 shares Series A-2 Convertible Preferred Stock ("Series A-2 Preferred Stock") - 101,430 shares Series A-3 Convertible Preferred Stock ("Series A-3 Preferred Stock") - 624,000 shares -2- 3 The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock are collectively referred to herein as the "Preferred Stock." Effective as of October 31, 1997, the shares of Common Stock of the Corporation, (the "Old Common Stock"), and the shares of Preferred Stock of the Corporation (the "Old Preferred Stock") issued and outstanding or held in the treasury of the Corporation immediately prior to such time, were combined, reclassified and changed into fully paid and nonassessable shares of Common Stock, par value $0.001 per share (the "New Common Stock") or Preferred Stock, par value $.001 per share (the "New Preferred Stock"), respectively, in the ratio of 0.2 share of New Common Stock or New Preferred Stock to one share of Old Common Stock or Old Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed upon the various classes and series of stock of the Corporation are as follows: A. PREFERRED STOCK. 1. Voting Rights. (a) Except as otherwise expressly provided in the Fifth Amended and Restated Certificate of Incorporation of the Corporation, or as required by law, the holders of shares of Preferred Stock shall vote together with the Common Stock and all other classes and series of stock of the Corporation entitled to vote together with the Common Stock as a single class on all actions to be taken by the shareholders of the Corporation. Each share of Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the largest number of whole shares of Common Stock into which such shares of Preferred Stock could be converted, pursuant to the provisions of paragraph 5 hereof, at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited. (b) Special Series B Preferred Stock Voting Rights. The consent of the holders of at least sixty (60%) percent (or such greater number as may then be required by law) of all of the shares of Series B Preferred Stock at the time outstanding, given in person or by proxy, by a vote at a meeting called for the purpose or by consent in lieu thereof, at which the holders of shares of Series B Preferred Stock shall vote together as a separate class, shall be necessary (i) for authorizing, effecting or validating any amendment to the Fifth Amended and Restated Certificate of Incorporation or by-laws of the Corporation which (x) creates any new class of shares having rights, preferences or privileges senior to or on a parity with the Series B Preferred Stock, (y) alters or changes the rights, preferences or privileges of the Series B Preferred Stock in a material and adverse manner or (z) increases the authorized number of shares of Series B Preferred Stock, or (ii) for any action by the Corporation to (aa) increase the size of the Board of Directors beyond seven directors, (bb) authorize the payment of any dividends on the -3- 4 Common Stock or (cc) authorize or approve the sale of all or substantially all of the Company's assets (whether now owned or hereafter acquired) to any person, firm or entity, or any merger or consolidation of this Corporation to or with any other corporation or other entity (other than a merger in which the Corporation is the surviving corporation and not more than forty (40%) percent of the voting stock of the Corporation outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of such voting stock immediately prior to such merger), except for a sale or other disposition of assets or a merger in which the net consideration per share received in cash or in fair market value, as determined in good faith by the Board of Directors, of shares of stock tradable without restriction within 120 days after the effective date of such transaction, by the holders of the Series B Preferred Stock is not less than two (2) times the Original Purchase Price of the Series B Preferred Stock, as defined in paragraph 4(d) hereof (subject to equitable adjustment in the event of any stock dividend, stock split, reclassification of shares or similar event affecting or relating to the Series B Preferred Stock or the Common Stock issued upon the conversion thereof) (a "Qualified Merger"). (c) Special Series C Preferred Stock Voting Rights. The consent of the holders of at least sixty (60%) percent (or such greater number as may then be required by law) of all of the shares of Series C Preferred Stock at the time outstanding, given in person or by proxy, by a vote at a meeting called for the purpose or by consent in lieu thereof, at which the holders of shares of Series C Preferred Stock shall vote together as a separate class, shall be necessary (i) for authorizing, effecting or validating any amendment to the Fifth Amended and Restated Certificate of Incorporation or by-laws of the Corporation which (x) creates any new class of shares having rights, preferences or privileges senior to or on a parity with the Series C Preferred Stock, (y) alters or changes the rights, preferences or privileges of the Series C Preferred Stock in a material and adverse manner or (z) increases the authorized number of shares of Series C Preferred Stock, or (ii) for any action by the Corporation to (aa) increase the size of the Board of Directors beyond seven directors, (bb) authorize the payment of any dividends on the Common Stock or (cc) authorize or approve the sale of all or substantially all of the Company's assets (whether now owned or hereafter acquired) to any person, firm or entity, or any merger or consolidation of this Corporation to or with any other corporation or other entity (other than a merger in which the Corporation is the surviving corporation and not more than forty (40%) percent of the voting stock of the Corporation outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of such voting stock immediately prior to such merger), except for a sale or other disposition of assets or a merger in which the net consideration per share received in cash or in fair market value, as determined in good faith by the Board of Directors, of shares of stock tradable without restriction within 120 days after the effective date of such transaction, by the holders of the Series C Preferred Stock is not less than three (3) times the Original Purchase Price of the Series C Preferred Stock, as defined in paragraph 4(d) hereof (subject to equitable adjustment in the event of any stock dividend, stock split, reclassification of shares or similar event affecting or relating to the Series C Preferred Stock or the Common Stock issued upon the conversion thereof). -4- 5 (d) Special Series D Preferred Stock Voting Rights. The consent of the holders of at least sixty (60%) percent (or such greater number as may then be required by law) of all of the shares of Series D Preferred Stock at the time outstanding, given in person or by proxy, by a vote at a meeting called for the purpose or by consent in lieu thereof, at which the holders of shares of Series D Preferred Stock shall vote together as a separate class, shall be necessary (i) for authorizing, effecting or validating any amendment to the Fifth Amended and Restated Certificate of Incorporation or by-laws of the Corporation which (x) creates any new class of shares having rights, preferences or privileges senior to or on a parity with the Series D Preferred Stock, (y) alters or changes the rights, preferences or privileges of the Series D Preferred Stock in a material and adverse manner or (z) increases the authorized number of shares of Series D Preferred Stock, or (ii) for any action by the Corporation to (aa) increase the size of the Board of Directors beyond seven directors, (bb) authorize the payment of any dividends on the Common Stock, (cc) repurchase any shares of Common Stock except from employees or consultants upon termination of employment or (dd) authorize or approve the sale of all or substantially all of the Company's assets (whether now owned or hereafter acquired) to any person, firm or entity, or any merger or consolidation of this Corporation to or with any other corporation or other entity (other than a merger in which the Corporation is the surviving corporation and not more than forty (40%) percent of the voting stock of the Corporation outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of such voting stock immediately prior to such merger), except for a sale or other disposition of assets or a merger in which the net consideration per share received in cash or in fair market value, as determined in good faith by the Board of Directors, of shares of stock tradable without restriction within 120 days after the effective date of such transaction, by the holders of the Series D Preferred Stock is not less than three (3) times the Original Purchase Price of the Series D Preferred Stock, as defined in paragraph 4(d) hereof (subject to equitable adjustment in the event of any stock dividend, stock split, reclassification of shares or similar event affecting or relating to the Series D Preferred Stock or the Common Stock issued upon the conversion thereof). (e) Special Series F Preferred Stock Voting Rights. The consent of the holders of at least sixty (60%) percent (or such greater number as may then be required by law) of all of the shares of Series F Preferred Stock at the time outstanding, given in person or by proxy, by a vote at a meeting called for the purpose or by consent in lieu thereof, at which the holders of shares of Series F Preferred Stock shall vote together as a separate class, shall be necessary (i) for authorizing, effecting or validating any amendment to the Fifth Amended and Restated Certificate of Incorporation or by-laws of the Corporation which (x) creates any new class of shares having rights, preferences or privileges senior to or on a parity with the Series F Preferred Stock, (y) alters or changes the rights, preferences or privileges of the Series F Preferred Stock in a material and adverse manner or (z) changes the authorized number of shares of Series F Preferred Stock, or (ii) for any action by the Corporation to (aa) increase the size of the Board of Directors beyond seven directors, (bb) authorize the payment of any dividends on the Common Stock, (cc) repurchase any shares of Common Stock except from employees or -5- 6 consultants upon termination of employment (dd) repurchase any shares of Preferred Stock except pursuant to Section 6 of the Fifth Amended and Restated Certificate of Incorporation or (ee) authorize or approve any reorganization or recapitalization of this Corporation, the sale of all or substantially all of the Company's assets (whether now owned or hereafter acquired) to any person, firm or entity, or any merger or consolidation of this Corporation to or with any other corporation or other entity (other than a merger in which the Corporation is the surviving corporation and not more than forty (40%) percent of the voting stock of the Corporation outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of such voting stock immediately prior to such merger), except for a sale or other disposition of assets or a merger in which the net consideration per share received in cash or in fair market value, as determined in good faith by the Board of Directors, of shares of stock tradable without restriction within 120 days after the effective date of such transaction, by the holders of the Series F Preferred Stock is not less than three (3) times the Original Purchase Price of the Series F Preferred Stock, as defined in paragraph 4(d) hereof (subject to equitable adjustment in the event of any stock dividend, stock split, reclassification of shares or similar event affecting or relating to the Series F Preferred Stock or the Common Stock issued upon the conversion thereof). (f) Amendment to Series E Preferred Stock Generally. The consent of the holders of at least fifty-one (51%) percent (or such greater number as may then be required by law) of all of the shares of the Series E Preferred Stock at the time outstanding, given in person or by proxy, by a vote at a meeting called for the purpose, or by consent in lieu thereof, at which the holders of shares of Series E Preferred Stock shall vote together as a separate class, shall be necessary for authorizing, effecting or validating any amendment to the charter or by-laws of the Corporation which (A) alters or changes the rights, preferences or privileges of the Series E Preferred Stock generally and in a material and adverse manner or (B) increases the authorized number of shares of Series E Preferred Stock. (g) Amendment to Series A Preferred Stock Generally. The consent of the holders of at least fifty-one (51%) percent (or such greater number as may then be required by law) of all of the shares of the Series A Preferred Stock at the time outstanding, given in person or by proxy, by a vote at a meeting called for the purpose, or by consent in lieu thereof, at which the holders of shares of Series A Preferred Stock shall vote together as a separate class, shall be necessary for authorizing, effecting or validating any amendment to the charter or by-laws of the Corporation which (A) alters or changes the rights, preferences or privileges of the Series A Preferred Stock generally and in a material and adverse manner or (B) increases the authorized number of shares of Series A Preferred Stock generally but not the authorized number of shares of a specific series or subseries of Series A Preferred Stock or (C) creates any new class of shares having rights, preferences or privileges senior to or on a parity with the Series A Preferred Stock generally. -6- 7 (h) Amendment to a Specific Series or Subseries of Series A Preferred Stock. The consent of the holders of at least fifty-one (51%) percent (or such greater number as may then be required by law) of all of the shares of a series or subseries of Series A Preferred Stock at the time outstanding, given in person or by proxy, by a vote at a meeting called for the purpose, or by consent in lieu thereof, at which the holders of shares of such series or subseries of Series A Preferred Stock shall vote together as a separate class, shall be necessary for authorizing, effecting or validating any amendment to the charter or by-laws of the Corporation which (A) alters or changes the rights, preferences or privileges of that specific series or subseries of the Series A Preferred Stock or (B) increases the authorized number of shares of such series or subseries of Series A Preferred Stock or (C) creates any new class of shares having rights, preferences or privileges senior to or on a parity with such series or subseries of Series A Preferred Stock. Where one of the foregoing actions affects the rights and preferences of the Series A Preferred Stock generally, the provisions of subparagraph (g) shall apply instead of the provisions of this subparagraph (h). 2. No Impairment of Rights. The Corporation will not, by amendment of the Fifth Amended and Restated Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Preferred Stock set forth herein, and will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Corporation (i) will not increase the par value of any shares of stock receivable on the conversion of the Preferred Stock above the amount payable therefor on such conversion, and (ii) will take all such action as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and non-assessable shares of stock on the conversion of all Preferred Stock under the terms hereof from time to time outstanding. 3. Dividend Rights. No cash dividends shall be declared or set aside for any shares of Preferred Stock except as follows: (a) From and after the date of the original issuance of the shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock (with respect to each Series, its "Original Issuance Date"), the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock (for purposes of this paragraph 3, collectively, the "Dividend Stock") shall be entitled to receive, out of funds legally available therefor, cumulative dividends at the rate of 7% per annum, of the Original Purchase Price (with respect to each Series of Dividend Stock, its "Accruing Dividend"). Each respective Accruing Dividend shall accrue, from each respective Original Issuance Date, from day to day, whether or not earned or declared, and shall be cumulative so that, if such dividends in respect of any previous or current dividend period, at the aforesaid rate, shall not have been paid or declared and a sum sufficient for -7- 8 the payment thereof set apart, the deficiency shall first be paid before any dividend or other distribution (other than litigation) shall be paid on or declared and set apart for any other class or series of capital stock of the Corporation (other than stock dividend payable in Common Stock or other securities of the Corporation); provided, however, that the Corporation shall be under no obligation to pay any such Accruing Dividend except (i) until and when so declared by the Board of Directors, or (ii) upon any redemption of any Dividend Stock in accordance with the provisions of paragraph 6 below; (b) In the event the Board of Directors of the Corporation shall declare a dividend (other than a dividend payable in additional shares of Common Stock) payable upon the then outstanding shares of the Common Stock of the Corporation, the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of the Preferred Stock, payable at the same time as the dividend paid on the Common Stock, in an amount equal to the amount of dividends, per share of Preferred Stock, as would have been payable on the largest number of whole shares of Common Stock into which each share of Preferred Stock held by each holder thereof if such Preferred Stock had been converted to Common Stock pursuant to the provisions of paragraph 5 hereof as of the record date for the determination of holders of Common Stock entitled to receive such dividends; and (c) In the event the Board of Directors of the Corporation shall declare a dividend payable upon any class or series of capital stock of the Corporation other than Common Stock (other than a dividend payable in additional shares of such class or series of capital stock), the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of Dividend Stock, payable at the same time as such dividend on such other class or series of capital stock in an amount equal to (i) in the case of any series or class convertible into Common Stock, that dividend, per share of Dividend Stock, as would equal the dividend payable on such other class or series determined as if all such shares of such class or series had been converted to Common Stock and all shares of Dividend Stock have been converted to Common Stock on the record date for the determination of holders entitled to receive such dividend or (ii) if such class or series of capital stock is not convertible into Common Stock, at a rate per share of Dividend Stock determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by the Original Purchase Price. 4. Liquidation Rights. (a) In the event of a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, before any payment shall be made or any assets distributed to the holders of Common Stock, the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock or any other class or series of stock which ranks on liquidations with respect to the right to receive payments upon liquidation junior to the Series F Preferred Stock, the holders of record of shares of the Series F Preferred Stock shall be entitled to -8- 9 receive, out of the assets of the Corporation legally available therefor, an amount equal to the Original Purchase Price per outstanding share of Series F Preferred Stock, plus an amount equal to any declared and unpaid dividends thereon, up to and including the date of payment (other than the Accruing Dividend (unless actually declared by the Board)). Such total amount to be paid to the holders of the Series F Preferred Stock is referred to as the "Series F Liquidation Amount". For the purposes hereof, the Common Stock, the Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock shall rank on liquidation junior to the Series F Preferred Stock with respect to the right to receive payments upon liquidation. If the funds available upon liquidation are insufficient to satisfy in full the Series F Liquidation Amount, the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of the Series F Preferred Stock based on the respective percentages to which they are entitled of the total Series F Liquidation Amount. (b) After payment in full of the Series F Liquidation Amount, before any payment shall be made or any assets distributed to the holders of Common Stock, the Series A Preferred Stock, Series B Preferred Stock or any other class or series of stock which ranks on liquidations with respect to the right to receive payments upon liquidation junior to the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, the holders of record of shares of the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock shall be entitled to receive, out of the assets of the Corporation legally available therefor, an amount equal to the Original Purchase Price per outstanding share of Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, plus an amount equal to any declared and unpaid dividends thereon, up to and including the date of payment (other than the Accruing Dividend (unless actually declared by the Board)). The aggregate of such amounts to be paid to the holders of the Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock is referred to as the "Preferred Liquidation Amount". For the purposes hereof, the Common Stock, the Series A Preferred Stock and Series B Preferred Stock shall rank on liquidation junior to the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock with respect to the right to receive payments upon liquidation. If the funds available upon liquidation after full satisfaction of the Series F Liquidation Amount are insufficient to satisfy in full the Preferred Liquidation Amount, the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock based on the respective percentages to which they are entitled of the total Preferred Liquidation Amount. (c) After payment in full of the Series F Liquidation Amount and the Preferred Liquidation Amount, before any payment shall be made or any assets distributed to the holders of Common Stock, the Series A Preferred Stock or any other class or series of stock which ranks on liquidations with respect to the right to receive payments upon liquidation junior to the Series B Preferred Stock, the holders of record of shares of Series B Preferred Stock shall be entitled to receive, out of the assets of the -9- 10 Corporation legally available therefor, an amount equal to the Original Purchase Price per outstanding share of Series B Preferred Stock, plus an amount equal to any declared and unpaid dividends thereon, up to and including the date of payment (other than the Accruing Dividend (unless actually declared by the Board)). The aggregate of such amounts to be paid to the holders of the Series B Preferred Stock is referred to as the "Series B Liquidation Amount". For the purposes hereof, the Common Stock and the Series A Preferred Stock shall rank on liquidation junior to the Series B Preferred Stock with respect to the right to receive payments upon liquidation. If the funds available upon liquidation after full satisfaction of the Series F Liquidation Amount and the Preferred Liquidation Amount are insufficient to satisfy in full the Series B Liquidation Amount, the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of the Series B Preferred Stock based on the number of shares held by each. (d) After payment in full of the Series F Liquidation Amount, the Preferred Liquidation Amount and the Series B Liquidation Amount, before any payment shall be made or any assets distributed to the holders of Common Stock or any other class or series of stock which ranks on liquidation with respect to the right to receive payments upon liquidation junior to the Series A Preferred Stock, the holders of record of shares of each subseries of Series A Preferred Stock shall be entitled to receive, out of the assets of the Corporation legally available therefor, an amount equal to the applicable Original Purchase Price for such subseries of Series A Preferred Stock, per outstanding share of Series A Preferred Stock, plus an amount equal to any declared and unpaid dividends thereon, up to and including the date of payment. The aggregate of such amounts to be paid to the holders of the Series A Preferred Stock is referred to as the "Series A Liquidation Amount". For the purposes hereof, the Common Stock shall rank on liquidation junior to the Series A Preferred Stock with respect to the right to receive payments upon liquidation. If the funds available upon liquidation, after full satisfaction of the the Series F Liquidation Amount, the Preferred Liquidation Amount and the Series B Liquidation Amount, are insufficient to satisfy in full the Series A Liquidation Amount, the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of each subseries of the Series A Preferred Stock in proportion to the product of (x) the applicable Original Purchase Price of each subseries and (y) the number of shares of such subseries then outstanding, and the amount so distributed to each subseries shall be allocated ratably among holders of stock of such subseries ratably in proportion to the number of shares of stock of such subseries then outstanding. (e) For purposes hereof, the Original Purchase Prices for the Preferred Stock are as follows: Series A-1 Preferred Stock $ 0.25 Series A-2 Preferred Stock $ 1.3805 Series A-3 Preferred Stock $ 2.50 Series B Preferred Stock $ 5.15 -10- 11 Series C Preferred Stock $ 0.50 Series D Preferred Stock $ 1.20 Series E Preferred Stock $ 1.841 Series F Preferred Stock $ 3.32 The amounts above reflect the five-for-one reverse stock split effective October 31, 1997. (f) Upon any such liquidation, dissolution or winding up of the Corporation, upon completion of the distributions required by subsections (a) through (d) of this Section 4, all of the remaining assets of this corporation available for distribution to stockholders shall be distributed among the holders of Series F Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each (assuming full conversion of all such Series F Preferred Stock into Common Stock). (g) Notwithstanding anything to the contrary in this Section 4, if the amount which each holder of Series F Preferred Stock would be entitled to receive in connection with a liquidation, dissolution or winding up of the corporation pursuant to its right to participate with the Common Stock as set forth in subsection (f) of this Section 4 (and determined as if such holder were not entitled to receive the Series F Liquidation Amount pursuant to subsection (a)) equals or exceeds $5.81 per share of Series F Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), then the holders of shares of Series F Preferred Stock shall not be entitled to the payment of the Series F Liquidation Amount pursuant to subsection (a) of this Section 4. (h) The reorganization, merger or consolidation of the Corporation into or with another corporation (other than a reorganization or merger in which the Corporation is the surviving corporation and which will not result in more than forty percent (40%) of the capital stock of the Corporation outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of such capital stock immediately prior to such merger), or sale, conveyance or transfer of all or substantially all of the assets of the Corporation, or of more than eighty percent (80%) of the outstanding shares of capital stock of the corporation (except for a Qualified Merger, as defined in Section 1(e)) shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this paragraph 4, unless the holders of (i) at least sixty (60%) percent of the then outstanding shares of Preferred Stock, voting as a single class, and (ii) 60% of the holders of the Series F Preferred Stock, voting as a separate class, elect otherwise by giving notice to the Corporation at the earlier of twenty (20) days after delivery of notice or five (5) days before the effective date of such event. If no such notice is given, such event shall be deemed to be a liquidation, dissolution or winding up for purposes of this paragraph 4(h) and the provisions of paragraph 5(n) shall not apply. The amount deemed distributed in connection with a transaction referred to in this paragraph 4(h) shall be the cash or the value of the property, rights or other securities distributable by the acquiring person, firm or other entity as part of such transaction. Wherever a distribution provided for in this paragraph 4 is payable in property other than -11- 12 in cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Corporation's Board of Directors. 5. Conversion Rights. The holders of the Preferred Stock shall have the following conversion rights: (a) Conversion. (i) General. Subject to and in compliance with the provisions of this paragraph 5, any shares of the Preferred Stock may, at the option of the holder, be converted at any time or from time to time into fully-paid and non-assessable shares (calculated as to each conversion to the nearest smaller whole share) of Common Stock (except that upon any liquidation of the Corporation, the right of conversion of the Preferred Stock, and upon redemption of shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, the right of conversion of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, as the case may be, shall terminate at the close of business on the last business day next preceding the date fixed for payment of the amount distributable on such shares). The number of shares of Common Stock to which a holder of Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the Applicable Conversion Rate (determined as provided in paragraph 5(c)) by the number of shares of Preferred Stock being converted. (ii) Conversion Upon Qualified Public Offering. All outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or a transfer agent designated by the Corporation into the number of shares of Common Stock into which such Preferred Stock is convertible pursuant to paragraph 5(a) hereof, immediately prior to the closing of the first underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation in which Common Stock is sold at a public offering price per share of not less than $6.64 and in which the aggregate net proceeds are at least $20,000,000 (a "Qualified Public Offering"). Notice of any such Qualified Public Offering must be delivered to each holder of Preferred Stock at least thirty (30) days in advance of the proposed closing date for such Qualified Public Offering. As soon as practicable following the automatic conversion of the Preferred Stock as a result of a Qualified Public Offering the Corporation will give each holder written notice of such conversion. (iii) Conversion of Series A Preferred Stock. All outstanding shares of each subseries of Series A Preferred Stock shall be automatically converted into -12- 13 the number of shares of Common Stock into which such subseries of Series A Preferred Stock is then convertible pursuant to paragraph 5(a) hereof without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent for the Common Stock if there are at any time outstanding, with respect to the Series A-1 Preferred Stock, from and after such time that less than 100,000 shares of Series A-1 Preferred Stock are issued and outstanding, with respect to the Series A-2 Preferred Stock, from and after such time that less than 50,513 shares of Series A-2 Preferred Stock are issued and outstanding, and with respect to the Series A-3 Preferred Stock, from and after such time that less than 200,000 shares of Series A-3 Preferred Stock are issued and outstanding. The numbers of the shares set forth above reflect the one-for-five reverse stock split of October 30, 1997 and shall be adjusted for stock dividends, combinations, splits, etc. Notice hereof shall be given by the Corporation to the holders of Series A Preferred Stock within thirty (30) days of such vote or consent. The effective date of conversion hereunder shall be the date specified in the vote causing conversion, or if no such date is specified, the date the vote is taken. (iv) Voluntary Conversion. All outstanding shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, upon the vote or written consent of the holders of at least sixty-six and two-thirds (66 2/3%) percent of the then outstanding shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, each voting as a separate class only with respect to the conversion of said class of Shares (each share of such Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock being entitled to a single vote), shall be automatically converted into the number of shares of Common Stock into which such Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock is convertible pursuant to paragraph 5(a) hereof without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent for the Common Stock. Notice hereof shall be given by the Company to the holders of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock within thirty (30) days of such vote or consent. The effective date of conversion hereunder shall be the date specified in the vote causing conversion, or it no such date is specified, the date the vote is taken. (b) Conversion Procedures. Upon the occurrence of the conversion specified in paragraph 5(a) hereof, each holder of such Preferred Stock shall surrender the certificates representing such shares at the office of the Corporation or of its transfer agent designated by the Corporation. Thereupon, there shall be issued and delivered to such holder a certificate or certificates for the number of shares of Common Stock into which -13- 14 the shares of the Preferred Stock surrendered were convertible on the date on which such conversion occurred. The Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of the Preferred Stock being converted are either delivered to the Corporation or any such transfer agent or the holder notifies the Corporation or any such transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation (with surety if requested) from any loss incurred by it in connection therewith. (c) Applicable Conversion Rate. The conversion rate in effect at any time (the "Applicable Conversion Rate") for any series or subseries of Preferred Stock shall be the quotient obtained by dividing the Original Purchase Price for such series or subseries by the Applicable Conversion Value for such series or subseries, calculated as provided in paragraph 5(d). (d) Applicable Conversion Value. The Applicable Conversion Value in effect from time to time shall be the Original Purchase Price, as adjusted from time to time in accordance with paragraph 5(e) or 5(f) hereof. (e) Adjustments to the Applicable Conversion Value for Series A Preferred Stock. (i) Issues of Stock. If the Corporation shall, prior to October 3, 1996, issue any shares of its Common Stock (other than Excluded Stock, as defined in this paragraph 5(e), and other than Common Stock issued as a dividend or other distribution payable in respect of Common Stock, or any Preferred Stock) for a consideration per share which is less than the Applicable Conversion Value of a series or subseries of Series A Preferred Stock in effect immediately prior to such issue, the Applicable Conversion Value for such series or subseries of Series A Preferred Stock shall be reduced to the price per share at which such additional shares of stock are issued. No such adjustment shall be made in an amount less than $.001, but any such amount shall be carried forward and shall be given effect in connection with the next subsequent adjustment. For purposes of this clause, the following provisions shall be applicable: (A) Convertible Securities, Options and Rights. If the Corporation shall issue any stock, warrant, security, obligation, option or other right which directly or indirectly may be converted, exchanged for or satisfied in shares of Common Stock, other than Excluded Stock, the maximum total number of shares of Common Stock issuable upon such conversion, exchange or other exercise of such securities or rights thereof thereupon shall be deemed to have been issued and to be outstanding, and the consideration received by the Corporation therefor shall be deemed to include the sum of the consideration received for the issue of such securities or rights and the minimum additional consideration payable -14- 15 upon such conversion, exchange or other exercise of such securities or rights. No further adjustment shall be made for the actual issuance of Common Stock upon such conversion, exchange or other exercise of any such securities or rights. If the provisions of any such securities or rights with respect to purchase price of shares purchasable shall change or expire, any adjustment previously made hereunder therefor shall be readjusted to such as would have obtained on the basis of securities or rights as modified by such change or expiration. (B) Consideration. In case the Corporation shall issue shares of its Common Stock for a consideration wholly or partly other than cash, the amount of consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation. (C) Record Dates. For purposes of this paragraph 5(e), in case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (x) to receive a dividend or other distribution payable in Common Stock, or (y) to subscribe for or purchase Common Stock, that such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (D) Treasury Stock. The number of shares of Common Stock outstanding at any given time shall include shares owned or held by, or for the account of the Corporation, and the disposition of any such shares so owned or held shall not be considered an issue of Common Stock. (ii) Excluded Stock. The term "Excluded Stock" shall mean (x) shares of Common Stock issued by the Corporation upon conversion of any shares of Preferred Stock and (y) shares of Common Stock which may be issued by the Corporation from time to time to employees of or consultants to the Corporation pursuant to option or restricted stock plans or grants duly adopted or approved by the Corporation's Board of Directors. (iii) Common Stock. The term "Common Stock," as used in this paragraph 5(e) shall include any class of capital stock of the Corporation, now or hereafter authorized, other than the Preferred Stock, the right of which to share in distributions either of earnings or assets of the Corporation is without limit as to any amount or percentage. (f) Adjustments to the Applicable Conversion Value for Series B Preferred Stock. -15- 16 (i) General. (A) Sale or Issuance of Common Stock. If the Corporation shall, while there are any shares of Series B Preferred Stock outstanding, issue or sell shares of its Common Stock without consideration or at a price per share less than the Applicable Conversion Value for the Series B Convertible Preferred Stock (the "Series B Preferred Stock Applicable Conversion Value") in effect immediately prior to such issuance or sale, then upon each such issuance or sale, except as hereinafter provided, such Series B Preferred Stock Applicable Conversion Value shall be lowered so as to be equal to an amount determined by multiplying the Series B Preferred Stock Applicable Conversion Value by a fraction: (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus (2) the number of shares of Common Stock which the net aggregate consideration, if any, received by the Corporation for the total number of such additional shares of Common Stock so issued would purchase at the Series B Preferred Stock Applicable Conversion Value in effect immediately prior to such issuance, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus (2) the number of such additional shares of Common Stock so issued; provided, however, in no event will any adjustment be made to the extent it would result in any shares of Common Stock being issued for an amount which is less than the par value of such shares and that no adjustment shall be made in the Series B Preferred Stock Applicable Conversion Value arising from the sale and issuance of (i) the Series C Preferred Stock, if (I) holders of Series A Preferred Stock and Common Stock purchase at least 4,000,000 shares of Series C Preferred Stock (prior to the one-for-five reverse stock split effective in October 31, 1997) or (II) holders of at least sixty (60%) percent of the outstanding shares of Series B Preferred Stock consent to the waiver of the Series B anti-dilution rights set forth in this paragraph 5, (ii) the Series D Preferred Stock, (iii) the Series E Preferred Stock or warrants to purchase the Series E Preferred Stock or (iv) the Series F Preferred Stock. (B) Sale or Issuance of Warrants, Options or Purchase Rights with Respect to Common Stock. For the purposes of this paragraph 5(f)(i), the issuance of any warrants, options, subscriptions or purchase rights with respect to shares of Common Stock and the issuance of any -16- 17 securities convertible into or exchangeable for shares of Common Stock (or the issuance of any warrants, options or any rights with respect to such convertible or exchangeable securities) shall be deemed an issuance at such time of such Common Stock if the Net Consideration Per Share (as hereinafter determined) which may be received by the Corporation for any such Common Stock shall be less than the Series B Preferred Stock Applicable Conversion Value at the time of such issuance. Any obligation, agreement or undertaking to issue warrants, options, subscriptions or purchase rights or convertible or exchangeable securities at any time in the future shall be deemed to be an issuance at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Series B Preferred Stock Applicable Conversion Value shall be made under this paragraph 5(f)(i) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants, options, subscriptions or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any adjustment shall previously have been made upon the issuance of any such warrants, options or subscriptions or purchase rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) as above provided. No adjustment of the Series B Preferred Stock Applicable Conversion Value shall be made upon the sale or issuance of (i) the Series C Preferred Stock, if (I) holders of Series A Preferred Stock and Common Stock purchase at least 4,000,000 shares of Series C Preferred Stock prior to the one-for-five reverse stock split effective October 31, 1997) or (II) holders of at least sixty (60%) percent of the outstanding shares of Series B Preferred Stock consent to the waiver of the Series B anti-dilution rights set forth in this paragraph 5, (ii) the Series D Preferred Stock, (iii) the Series E Preferred Stock or warrants to purchase the Series E Preferred Stock or (iv) the Series F Preferred Stock. Any adjustment of the Series B Preferred Stock Applicable Conversion Value with respect to this paragraph which relates to warrants, options, subscriptions or purchase rights with respect to shares of Common Stock shall be disregarded if, as, and when such warrants, options, subscriptions or purchase rights expire or are canceled without being exercised, so that the Series B Preferred Stock Applicable Conversion Value effective immediately upon such cancellation or expiration shall be equal to the Series B Preferred Stock Applicable Conversion Value in effect immediately prior to the time of the issuance of the expired or canceled warrants, options, subscriptions or purchase rights, with such additional adjustments as would have been made to that Series B Preferred Stock Applicable Conversion Value had the expired or canceled warrants, options, subscriptions or purchase rights not been issued. -17- 18 For purposes of this paragraph 5(f)(i)(B), the "Net Consideration Per Share" which may be received by the Corporation shall be determined as follows: (x) The "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Corporation for the issuance of such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities, plus the minimum amount of consideration, if any, payable to the Corporation upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities were exercised, exchanged or converted. (y) The "Net Consideration Per Share" which may be received by the Corporation shall be determined in each instance as of the date of issuance of warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities without giving effect to any possible future price adjustments or rate adjustments which may be applicable with respect to such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities. (C) Consideration: Non-Cash Property. For purposes of this paragraph 5(f)(i), if a part or all of the consideration received by the Corporation in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this paragraph 5(f)(i) consists of property other than cash, the Board of Directors of the Corporation shall in its good faith discretion value such property, whereupon such value shall be given to such consideration and shall be recorded on the books of the Corporation with respect to receipt of such property. This paragraph 5(f)(i) shall not apply and no adjustment in the Series B Preferred Stock Applicable Conversion Value shall be made hereunder under any of the circumstances which would constitute an Extraordinary Common Stock Event (as hereinafter defined in paragraph 5(j). (D) Exceptions. Notwithstanding the foregoing, the following provisions shall apply with respect to the adjustment of the Series B Preferred Stock Applicable Conversion Value pursuant to paragraph 5(f)(i)(A): -18- 19 In the event any entity holding shares of Series B Preferred Stock does not participate in a Financing (as defined below) by purchasing its full Basic Amount (as defined below), then paragraph 5(f)(i)(A) shall not apply to any shares of Series B Preferred Stock held by such holder (the "Applicable Shares," as defined below) and all such Applicable Shares of Series B Preferred Stock held by such holder shall, simultaneous with and effective immediately prior to such Financing, automatically be converted into an equal number of shares of a new series of Series B Preferred Stock, such new series to be designated Series B-1, Series B-2, Series B-3 and so on depending upon the order in which such series is created. All new series of Series B Preferred Stock shall be identical in all respects to the Series B Preferred Stock (including the right to any previously effective adjustment to the Series B Preferred Stock Applicable Conversion Value), except that none of the provisions of paragraph 5(f)(i)(A) shall thereafter apply to such new series. Each holder of Applicable Shares of Series B Preferred Stock that have been converted into a new series pursuant to this paragraph 5(f)(i)(D) shall immediately upon written notice from the Corporation surrender to the Corporation at its principal office all certificates for such Series B Preferred Stock, and the Corporation shall thereupon deliver to such holder a certificate for such shares of such new series of Series B Preferred Stock. For the purposes of this paragraph 5(f)(i)(D), a holder's "Basic Amount" of a Financing shall be its pro-rata share of such Financing, subject to proportional reduction by the Board of Directors of the Corporation if the Corporation elects to add additional investors in such Financing, such pro rata share to be determined based on the number of shares of Series B Preferred Stock held by each holder of Series B Preferred Stock to the number of shares of Series B Preferred Stock held by all holders of Series B Preferred Stock, and a "Financing" shall mean any transaction, designated as a "Financing" by the Board of Directors of the Corporation, pursuant to which the Corporation shall issue any shares of Common Stock, or other securities convertible into, exchangeable or exercisable for shares of Common Stock, for cash or cash equivalent consideration; however a Financing does not include the issuance of any shares of Common Stock or other securities of the Corporation, or options to purchase shares of Common Stock or other securities of the Corporation, issued pursuant to any stock option or stock purchase plans to the Corporation's employees, officers, directors or consultants. "Applicable Shares" shall mean that percentage of shares of Series B Preferred Stock held by such holders prior to the Financing which is equal to the percentage, if any, of the Basic Amount -19- 20 which such holder does not purchase in the Financing. As an example only: If a holder of Series B Preferred Stock purchases only 75% of its Basic Amount of a Financing, and thereby does not purchase 25% of such Basic Amount, then the Applicable Shares of Series B Preferred Stock held by such holder which will be converted to a new series of Series B Preferred Stock, will be 25% of the number of such shares of Series B Preferred Stock held by such holder immediately prior to such Financing. (ii) Certain Issues of Common Stock Excepted. Anything in paragraph 5(f)(i) to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Series B Preferred Stock Applicable Conversion Value as set forth in paragraph 5(f)(i), in the case of (x) the issuance of any shares of Common Stock upon conversion of any shares of Preferred Stock, (y) the issuance of, or grant of options to purchase shares of Common Stock to employees, consultants, directors or other contributors as determined by the Board of Directors pursuant to the Corporation's 1995 Incentive Stock Option Plan, as amended from time to time, or the issuance of shares of Common Stock upon the exercise of any such options to officers, directors, employees of or consultants to the Corporation, or (z) the issuance of 1,035,000 shares of Common Stock to Larry Bohn in connection with his employment as President and Chief Executive Officer of the Company. (g) Adjustments to the Applicable Conversion Value for Series C Preferred Stock. (i) General. (A) Sale or Issuance of Common Stock. If the Corporation shall, while there are any shares of Series C Preferred Stock outstanding, issue or sell shares of its Common Stock without consideration or at a price per share less than the Applicable Conversion Value for the Series C Convertible Preferred Stock (the "Series C Preferred Stock Applicable Conversion Value") in effect immediately prior to such issuance or sale, then upon each such issuance or sale, except as hereinafter provided, such Series C Preferred Stock Applicable Conversion Value shall be lowered so as to be equal to an amount determined by multiplying the Series C Preferred Stock Applicable Conversion Value by a fraction: (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus (2) the number of shares of Common Stock which the net aggregate consideration, if any, received by the Corporation for the total number of such additional shares of Common Stock so issued -20- 21 would purchase at the Series C Preferred Stock Applicable Conversion Value in effect immediately prior to such issuance, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus (2) the number of such additional shares of Common Stock so issued; provided, however, in no event will any adjustment be made to the extent it would result in any shares of Common Stock being issued for an amount which is less than the par value of such shares. (B) Sale or Issuance of Warrants, Options or Purchase Rights with Respect to Common Stock. For the purposes of this paragraph 5(g)(i), the issuance of any warrants, options, subscriptions or purchase rights with respect to shares of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock (or the issuance of any warrants, options or any rights with respect to such convertible or exchangeable securities) shall be deemed an issuance at such time of such Common Stock if the Net Consideration Per Share (as hereinafter determined) which may be received by the Corporation for any such Common Stock shall be less than the Series C Preferred Stock Applicable Conversion Value at the time of such issuance. Any obligation, agreement or undertaking to issue warrants, options, subscriptions or purchase rights or convertible or exchangeable securities at any time in the future shall be deemed to be an issuance at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Series C Preferred Stock Applicable Conversion Value shall be made under this paragraph 5(g)(i) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants, options, subscriptions or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any adjustment shall previously have been made upon the issuance of any such warrants, options or subscriptions or purchase rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) as above provided. Any adjustment of the Series C Preferred Stock Applicable Conversion Value with respect to this paragraph which relates to warrants, options, subscriptions or purchase rights with respect to shares of Common Stock shall be disregarded if, as, and when such warrants, options, subscriptions or purchase rights expire or are canceled without being exercised, so that the Series C Preferred Stock Applicable Conversion Value effective immediately upon such cancellation or expiration shall be equal to the Series C Preferred Stock Applicable Conversion Value in effect immediately prior to the time of the issuance of the expired or canceled warrants, options, subscriptions or -21- 22 purchase rights, with such additional adjustments as would have been made to that Series C Preferred Stock Applicable Conversion Value had the expired or canceled warrants, options, subscriptions or purchase rights not been issued. For purposes of this paragraph 5(g)(i)(B), the "Net Consideration Per Share" which may be received by the Corporation shall be determined as follows: (x) The "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Corporation for the issuance of such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities, plus the minimum amount of consideration, if any, payable to the Corporation upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities were exercised, exchanged or converted. (y) The "Net Consideration Per Share" which may be received by the Corporation shall be determined in each instance as of the date of issuance of warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities without giving effect to any possible future price adjustments or rate adjustments which may be applicable with respect to such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities. (C) Consideration: Non-Cash Property. For purposes of this paragraph 5(g)(i), if a part or all of the consideration received by the Corporation in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this paragraph 5(g)(i) consists of property other than cash, the Board of Directors of the Corporation shall in its good faith discretion value such property, whereupon such value shall be given to such consideration and shall be recorded on the books of the Corporation with respect to receipt of such property. This paragraph 5(g)(i) shall not apply and no adjustment in the Series C Preferred Stock Applicable Conversion Value shall be made hereunder under any of the circumstances which would constitute an Extraordinary Common Stock Event (as hereinafter defined in paragraph 5(j). -22- 23 (D) Exceptions. Notwithstanding the foregoing, the following provisions shall apply with respect to the adjustment of the Series C Preferred Stock Applicable Conversion Value pursuant to paragraph 5(g)(i)(A): In the event any entity holding shares of Series C Preferred Stock does not participate in a Financing (as defined below) by purchasing its full Basic Amount (as defined below), then paragraph 5(g)(i)(A) shall not apply to any shares of Series C Preferred Stock held by such holder (the "Applicable Shares," as defined below) and all such Applicable Shares of Series C Preferred Stock held by such holder shall, simultaneous with and effective immediately prior to such financing, automatically be converted into an equal number of shares of a new series of Series C Preferred Stock, such new series to be designated Series C-1, Series C-2, Series C-3 and so on depending upon the order in which such series is created. All new series of Series C Preferred Stock shall be identical in all respects to the Series C Preferred Stock (including the right to any previously effective adjustment to the Series C Preferred Stock Applicable Conversion Value), except that none of the provisions of paragraph 5(g)(i)(A) shall thereafter apply to such new series. Each holder of Applicable Shares of Series C Preferred Stock that have been converted into a new series pursuant to this paragraph 5(g)(i)(D) shall immediately upon written notice from the Corporation surrender to the Corporation at its principal office all certificates for such Series C Preferred Stock, and the Corporation shall thereupon deliver to such holder a certificate for such shares of such new series of Series C Preferred Stock. For the purposes of this paragraph 5(g)(i)(D), a holder's "Basic Amount" of a Financing shall be its pro-rata share of such Financing, subject to proportional reduction by the Board of Directors of the Corporation if the Corporation elects to add additional investors in such Financing, such pro rata share to be determined based on the number of shares of Series C Preferred Stock held by each holder of Series C Preferred Stock to the number of shares of Series C Preferred Stock held by all holders of Series C Preferred Stock, and a "Financing" shall mean any transaction, designated as a "Financing" by the Board of Directors of the Corporation, pursuant to which the Corporation shall issue any shares of Common Stock, or other securities convertible into, exchangeable or exercisable for shares of Common Stock, for cash or cash equivalent consideration; however a Financing does not include the issuance of any shares of Common Stock or other securities of the Corporation, or options to purchase shares of Common Stock or other securities of the Corporation, issued -23- 24 pursuant to any stock option or stock purchase plans to the Corporation's employees, officers, directors or consultants. "Applicable Shares" shall mean that percentage of shares of Series C Preferred Stock held by such holders prior to the Financing which is equal to the percentage, if any, of the Basic Amount which such holder does not purchase in the Financing. As an example only: If a holder of Series C Preferred Stock purchases only 75% of its Basic Amount of a Financing, and thereby does not purchase 25% of such Basic Amount, then the Applicable Shares of Series C Preferred Stock held by such holder which will be converted to a new series of Series C Preferred Stock, will be 25% of the number of such shares of Series C Preferred Stock held by such holder immediately prior to such Financing. (ii) Certain Issues of Common Stock Excepted. Anything in paragraph 5(g)(i) to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Series C Preferred Stock Applicable Conversion Value as set forth in paragraph 5(g)(i), in the case of (x) the issuance of any shares of Common Stock upon conversion of any shares of Preferred Stock, (y) the issuance of, or grant of options to purchase shares of Common Stock to employees, consultants, directors or other contributors as determined by the Board of Directors pursuant to the Corporation's 1995 Incentive Stock Option Plan, as amended from time to time, or the issuance of shares of Common Stock upon the exercise of any such options to officers, directors, employees of or consultants to the Corporation, or (z) the issuance of 1,035,000 shares of Common Stock to Larry Bohn in connection with his employment as President and Chief Executive Officer of the Company. (h) Adjustments to the Applicable Conversion Value for Series D Preferred Stock. (i) General. (A) Sale or Issuance of Common Stock. If the Corporation shall, while there are any shares of Series D Preferred Stock outstanding, issue or sell shares of its Common Stock without consideration or at a price per share less than the Applicable Conversion Value for the Series D Convertible Preferred Stock (the "Series D Preferred Stock Applicable Conversion Value") in effect immediately prior to such issuance or sale, then upon each such issuance or sale, except as hereinafter provided, such Series D Preferred Stock Applicable Conversion Value shall be lowered so as to be equal to an amount determined by multiplying the Series D Preferred Stock Applicable Conversion Value by a fraction: -24- 25 (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus (2) the number of shares of Common Stock which the net aggregate consideration, if any, received by the Corporation for the total number of such additional shares of Common Stock so issued would purchase at the Series D Preferred Stock Applicable Conversion Value in effect immediately prior to such issuance, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus (2) the number of such additional shares of Common Stock so issued; provided, however, in no event will any adjustment be made to the extent it would result in any shares of Common Stock being issued for an amount which is less than the par value of such shares. (B) Sale or Issuance of Warrants, Options or Purchase Rights with Respect to Common Stock. For the purposes of this paragraph 5(h)(i), the issuance of any warrants, options, subscriptions or purchase rights with respect to shares of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock (or the issuance of any warrants, options or any rights with respect to such convertible or exchangeable securities) shall be deemed an issuance at such time of such Common Stock if the Net Consideration Per Share (as hereinafter determined) which may be received by the Corporation for any such Common Stock shall be less than the Series D Preferred Stock Applicable Conversion Value at the time of such issuance. Any obligation, agreement or undertaking to issue warrants, options, subscriptions or purchase rights or convertible or exchangeable securities at any time in the future shall be deemed to be an issuance at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Series D Preferred Stock Applicable Conversion Value shall be made under this paragraph 5(h)(i) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants, options, subscriptions or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any adjustment shall previously have been made upon the issuance of any such warrants, options or subscriptions or purchase rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) as above provided. Any adjustment of the Series D Preferred Stock Applicable Conversion Value with respect to this paragraph which relates to warrants, options, subscriptions or purchase rights with respect to shares of Common Stock shall be disregarded if, as, -25- 26 and when such warrants, options, subscriptions or purchase rights expire or are canceled without being exercised, so that the Series D Preferred Stock Applicable Conversion Value effective immediately upon such cancellation or expiration shall be equal to the Series D Preferred Stock Applicable Conversion Value in effect immediately prior to the time of the issuance of the expired or canceled warrants, options, subscriptions or purchase rights, with such additional adjustments as would have been made to that Series D Preferred Stock Applicable Conversion Value had the expired or canceled warrants, options, subscriptions or purchase rights not been issued. For purposes of this paragraph 5(h)(i)(B), the "Net Consideration Per Share" which may be received by the Corporation shall be determined as follows: (x) The "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Corporation for the issuance of such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities, plus the minimum amount of consideration, if any, payable to the Corporation upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities were exercised, exchanged or converted. (y) The "Net Consideration Per Share" which may be received by the Corporation shall be determined in each instance as of the date of issuance of warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities without giving effect to any possible future price adjustments or rate adjustments which may be applicable with respect to such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities. (C) Consideration: Non-Cash Property. For purposes of this paragraph 5(h)(i), if a part or all of the consideration received by the Corporation in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this paragraph 5(h)(i) consists of property other than cash, the Board of Directors of the Corporation shall in its good faith discretion value such property, whereupon such value shall be given to such consideration and shall be recorded on the books of the Corporation with respect to receipt of such property. -26- 27 This paragraph 5(h)(i) shall not apply and no adjustment in the Series D Preferred Stock Applicable Conversion Value shall be made hereunder under any of the circumstances which would constitute an Extraordinary Common Stock Event (as hereinafter defined in paragraph 5(j). (D) Exceptions. Notwithstanding the foregoing, the following provisions shall apply with respect to the adjustment of the Series D Preferred Stock Applicable Conversion Value pursuant to paragraph 5(h)(i)(A): In the event any entity holding shares of Series D Preferred Stock does not participate in a Financing (as defined below) by purchasing its full Basic Amount (as defined below), then paragraph 5(h)(i)(A) shall not apply to any shares of Series D Preferred Stock held by such holder (the "Applicable Shares," as defined below) and all such Applicable Shares of Series D Preferred Stock held by such holder shall, simultaneous with and effective immediately prior to such financing, automatically be converted into an equal number of shares of a new series of Series D Preferred Stock, such new series to be designated Series D-1, Series D-2, Series D-3 and so on depending upon the order in which such series is created. All new series of Series D Preferred Stock shall be identical in all respects to the Series D Preferred Stock (including the right to any previously effective adjustment to the Series D Preferred Stock Applicable Conversion Value), except that none of the provisions of paragraph 5(h)(i)(A) shall thereafter apply to such new series. Each holder of Applicable Shares of Series D Preferred Stock that have been converted into a new series pursuant to this paragraph 5(h)(i)(D) shall immediately upon written notice from the Corporation surrender to the Corporation at its principal office all certificates for such Series D Preferred Stock, and the Corporation shall thereupon deliver to such holder a certificate for such shares of such new series of Series D Preferred Stock. For the purposes of this paragraph 5(h)(i)(D), a holder's "Basic Amount" of a Financing shall be its pro-rata share of such Financing, subject to proportional reduction by the Board of Directors of the Corporation if the Corporation elects to add additional investors in such Financing, such pro rata share to be determined based on the number of shares of Series D Preferred Stock held by each holder of Series D Preferred Stock to the number of shares of Series D Preferred Stock held by all holders of Series D Preferred Stock, and a "Financing" shall mean any transaction, designated as a "Financing" by the Board of Directors of the Corporation, pursuant to which the Corporation shall issue -27- 28 any shares of Common Stock, or other securities convertible into, exchangeable or exercisable for shares of Common Stock, for cash or cash equivalent consideration; however a Financing does not include the issuance of any shares of Common Stock or other securities of the Corporation, or options to purchase shares of Common Stock or other securities of the Corporation, issued pursuant to any stock option or stock purchase plans to the Corporation's employees, officers, directors or consultants. "Applicable Shares" shall mean that percentage of shares of Series D Preferred Stock held by such holders prior to the Financing which is equal to the percentage, if any, of the Basic Amount which such holder does not purchase in the Financing. As an example only: If a holder of Series D Preferred Stock purchases only 75% of its Basic Amount of a Financing, and thereby does not purchase 25% of such Basic Amount, then the Applicable Shares of Series D Preferred Stock held by such holder which will be converted to a new series of Series D Preferred Stock, will be 25% of the number of such shares of Series D Preferred Stock held by such holder immediately prior to such Financing. (ii) Certain Issues of Common Stock Excepted. Anything in paragraph 5(h)(i) to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Series D Preferred Stock Applicable Conversion Value as set forth in paragraph 5(h)(i), in the case of (x) the issuance of any shares of Common Stock upon conversion of any shares of Preferred Stock, or (y) the issuance of, or grant of options to purchase shares of Common Stock to employees, consultants, directors or other contributors as determined by the Board of Directors pursuant to the Corporation's 1995 Incentive Stock Option Plan, as amended from time to time, or the issuance of shares of Common Stock upon the exercise of any such options to officers, directors, employees of or consultants to the Corporation. (i) Adjustments to the Applicable Conversion Value for Series E Preferred Stock. (i) General. (A) Sale or Issuance of Common Stock. If the Corporation shall, while there are any shares of Series E Preferred Stock outstanding, issue or sell shares of its Common Stock without consideration or at a price per share less than the Applicable Conversion Value for the Series E Convertible Preferred Stock (the "Series E Preferred Stock Applicable Conversion Value") in effect immediately prior to such issuance or sale, then upon each such issuance or sale, except as hereinafter provided, such Series E Preferred Stock Applicable Conversion Value shall be lowered so -28- 29 as to be equal to an amount determined by multiplying the Series E Preferred Stock Applicable Conversion Value by a fraction: (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus (2) the number of shares of Common Stock which the net aggregate consideration, if any, received by the Corporation for the total number of such additional shares of Common Stock so issued would purchase at the Series E Preferred Stock Applicable Conversion Value in effect immediately prior to such issuance, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus (2) the number of such additional shares of Common Stock so issued; provided, however, in no event will any adjustment be made to the extent it would result in any shares of Common Stock being issued for an amount which is less than the par value of such shares. (B) Sale or Issuance of Warrants, Options or Purchase Rights with Respect to Common Stock. For the purposes of this paragraph 5(i)(i), the issuance of any warrants, options, subscriptions or purchase rights with respect to shares of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock (or the issuance of any warrants, options or any rights with respect to such convertible or exchangeable securities) shall be deemed an issuance at such time of such Common Stock if the Net Consideration Per Share (as hereinafter determined) which may be received by the Corporation for any such Common Stock shall be less than the Series E Preferred Stock Applicable Conversion Value at the time of such issuance. Any obligation, agreement or undertaking to issue warrants, options, subscriptions or purchase rights or convertible or exchangeable securities at any time in the future shall be deemed to be an issuance at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Series E Preferred Stock Applicable Conversion Value shall be made under this paragraph 5(i)(i) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants, options, subscriptions or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any adjustment shall previously have been made upon the issuance of any such warrants, options or subscriptions or purchase rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) as above provided. Any adjustment of the Series E -29- 30 Preferred Stock Applicable Conversion Value with respect to this paragraph which relates to warrants, options, subscriptions or purchase rights with respect to shares of Common Stock shall be disregarded if, as, and when such warrants, options, subscriptions or purchase rights expire or are canceled without being exercised, so that the Series E Preferred Stock Applicable Conversion Value effective immediately upon such cancellation or expiration shall be equal to the Series E Preferred Stock Applicable Conversion Value in effect immediately prior to the time of the issuance of the expired or canceled warrants, options, subscriptions or purchase rights, with such additional adjustments as would have been made to that Series E Preferred Stock Applicable Conversion Value had the expired or canceled warrants, options, subscriptions or purchase rights not been issued. For purposes of this paragraph 5(i)(i)(B), the "Net Consideration Per Share" which may be received by the Corporation shall be determined as follows: (x) The "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Corporation for the issuance of such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities, plus the minimum amount of consideration, if any, payable to the Corporation upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities were exercised, exchanged or converted. (y) The "Net Consideration Per Share" which may be received by the Corporation shall be determined in each instance as of the date of issuance of warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities without giving effect to any possible future price adjustments or rate adjustments which may be applicable with respect to such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities. (C) Consideration: Non-Cash Property. For purposes of this paragraph 5(i)(i), if a part or all of the consideration received by the Corporation in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this paragraph 5(i)(i) consists of property other than cash, the Board of Directors of the Corporation shall in its good faith discretion value such property, whereupon such value shall be given to such consideration and shall be -30- 31 recorded on the books of the Corporation with respect to receipt of such property. This paragraph 5(i)(i) shall not apply and no adjustment in the Series E Preferred Stock Applicable Conversion Value shall be made hereunder under any of the circumstances which would constitute an Extraordinary Common Stock Event (as hereinafter defined in paragraph 5(j). (ii) Certain Issues of Common Stock Excepted. Anything in paragraph 5(i)(i) to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Series E Preferred Stock Applicable Conversion Value as set forth in paragraph 5(i)(i), in the case of (x) the issuance of any shares of Common Stock upon conversion of any shares of Preferred Stock, or (y) the issuance of, or grant of options to purchase shares of Common Stock to employees, consultants, directors or other contributors as determined by the Board of Directors pursuant to the Corporation's 1995 Incentive Stock Option Plan, as amended from time to time (including in such number all options outstanding on the date the Fifth Amended and Restated Certificate of Incorporation becomes effective), or the issuance of shares of Common Stock upon the exercise of any such options (which number shall be equitably adjusted on the occurrence of an Extraordinary Common Stock Event, as hereinafter defined, a reclassification, reorganization or similar event affecting the Common Stock) to officers, directors, employees of or consultants to the Corporation. (j) Adjustments to the Applicable Conversion Value for Series F Preferred Stock. (i) General. (A) Sale or Issuance of Common Stock. If the Corporation shall, while there are any shares of Series F Preferred Stock outstanding, issue or sell shares of its Common Stock without consideration or at a price per share less than the Applicable Conversion Value for the Series F Convertible Preferred Stock (the "Series F Preferred Stock Applicable Conversion Value") in effect immediately prior to such issuance or sale, then upon each such issuance or sale, except as hereinafter provided, such Series F Preferred Stock Applicable Conversion Value shall be lowered so as to be equal to an amount determined by multiplying the Series F Preferred Stock Applicable Conversion Value by a fraction: (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus (2) the number of shares of Common Stock which the net aggregate -31- 32 consideration, if any, received by the Corporation for the total number of such additional shares of Common Stock so issued would purchase at the Series F Preferred Stock Applicable Conversion Value in effect immediately prior to such issuance, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus (2) the number of such additional shares of Common Stock so issued; provided, however, in no event will any adjustment be made to the extent it would result in any shares of Common Stock being issued for an amount which is less than the par value of such shares. (B) Sale or Issuance of Warrants, Options or Purchase Rights with Respect to Common Stock. For the purposes of this paragraph 5(j)(i), the issuance of any warrants, options, subscriptions or purchase rights with respect to shares of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock (or the issuance of any warrants, options or any rights with respect to such convertible or exchangeable securities) shall be deemed an issuance at such time of such Common Stock if the Net Consideration Per Share (as hereinafter determined) which may be received by the Corporation for any such Common Stock shall be less than the Series F Preferred Stock Applicable Conversion Value at the time of such issuance. Any obligation, agreement or undertaking to issue warrants, options, subscriptions or purchase rights or convertible or exchangeable securities at any time in the future shall be deemed to be an issuance at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Series F Preferred Stock Applicable Conversion Value shall be made under this paragraph 5(j)(i) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants, options, subscriptions or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any adjustment shall previously have been made upon the issuance of any such warrants, options or subscriptions or purchase rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) as above provided. Any adjustment of the Series F Preferred Stock Applicable Conversion Value with respect to this paragraph which relates to warrants, options, subscriptions or purchase rights with respect to shares of Common Stock shall be disregarded if, as, and when such warrants, options, subscriptions or purchase rights expire or are canceled without being exercised, so that the Series F Preferred Stock Applicable Conversion Value effective immediately upon such cancellation or expiration shall be equal to the Series F Preferred Stock -32- 33 Applicable Conversion Value in effect immediately prior to the time of the issuance of the expired or canceled warrants, options, subscriptions or purchase rights, with such additional adjustments as would have been made to that Series F Preferred Stock Applicable Conversion Value had the expired or canceled warrants, options, subscriptions or purchase rights not been issued. For purposes of this paragraph 5(j)(i)(B), the "Net Consideration Per Share" which may be received by the Corporation shall be determined as follows: (x) The "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Corporation for the issuance of such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities, plus the minimum amount of consideration, if any, payable to the Corporation upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities were exercised, exchanged or converted. (y) The "Net Consideration Per Share" which may be received by the Corporation shall be determined in each instance as of the date of issuance of warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities without giving effect to any possible future price adjustments or rate adjustments which may be applicable with respect to such warrants, options, subscriptions or other purchase rights or convertible or exchangeable securities. (C) Consideration: Non-Cash Property. For purposes of this paragraph 5(j)(i), if a part or all of the consideration received by the Corporation in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this paragraph 5(j)(i) consists of property other than cash, the Board of Directors of the Corporation shall in its good faith discretion value such property, whereupon such value shall be given to such consideration and shall be recorded on the books of the Corporation with respect to receipt of such property. This paragraph 5(j)(i) shall not apply and no adjustment in the Series F Preferred Stock Applicable Conversion Value shall be made hereunder under any of the circumstances which would constitute an -33- 34 Extraordinary Common Stock Event (as hereinafter defined in paragraph 5(k). (D) Exceptions. Notwithstanding the foregoing, the following provisions shall apply with respect to the adjustment of the Series F Preferred Stock Applicable Conversion Value pursuant to paragraph 5(j)(i)(A): In the event any entity holding shares of Series F Preferred Stock does not participate in a Financing (as defined below) by purchasing its full Basic Amount (as defined below), then paragraph 5(j)(i)(A) shall not apply to any shares of Series F Preferred Stock held by such holder (the "Applicable Shares," as defined below) and all such Applicable Shares of Series F Preferred Stock held by such holder shall, simultaneous with and effective immediately prior to such financing, automatically be converted into an equal number of shares of a new series of Series F Preferred Stock, such new series to be designated Series F-1, Series F-2, Series F-3 and so on depending upon the order in which such series is created. All new series of Series F Preferred Stock shall be identical in all respects to the Series F Preferred Stock (including the right to any previously effective adjustment to the Series F Preferred Stock Applicable Conversion Value), except that none of the provisions of paragraph 5(j)(i)(A) shall thereafter apply to such new series. Each holder of Applicable Shares of Series F Preferred Stock that have been converted into a new series pursuant to this paragraph 5(h)(i)(D) shall immediately upon written notice from the Corporation surrender to the Corporation at its principal office all certificates for such Series F Preferred Stock, and the Corporation shall thereupon deliver to such holder a certificate for such shares of such new series of Series F Preferred Stock. For the purposes of this paragraph 5(j)(i)(D), a holder's "Basic Amount" of a Financing shall be its pro-rata share of such Financing, subject to proportional reduction by the Board of Directors of the Corporation if the Corporation elects to add additional investors in such Financing, such pro rata share to be determined based on the number of shares of Series F Preferred Stock held by each holder of Series F Preferred Stock to the number of shares of Series F Preferred Stock held by all holders of Series F Preferred Stock, and a "Financing" shall mean any transaction, designated as a "Financing" by the Board of Directors of the Corporation, pursuant to which the Corporation shall issue any shares of Common Stock, or other securities convertible into, exchangeable or exercisable for shares of Common Stock, for cash or cash equivalent consideration; however a Financing does not -34- 35 include the issuance of any shares of Common Stock or other securities of the Corporation, or options to purchase shares of Common Stock or other securities of the Corporation, issued pursuant to any stock option or stock purchase plans to the Corporation's employees, officers, directors or consultants. "Applicable Shares" shall mean that percentage of shares of Series F Preferred Stock held by such holders prior to the Financing which is equal to the percentage, if any, of the Basic Amount which such holder does not purchase in the Financing. As an example only: If a holder of Series F Preferred Stock purchases only 75% of its Basic Amount of a Financing, and thereby does not purchase 25% of such Basic Amount, then the Applicable Shares of Series F Preferred Stock held by such holder which will be converted to a new series of Series F Preferred Stock, will be 25% of the number of such shares of Series F Preferred Stock held by such holder immediately prior to such Financing. (ii) Certain Issues of Common Stock Excepted. Anything in paragraph 5(j)(i) to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Series F Preferred Stock Applicable Conversion Value as set forth in paragraph 5(j)(i), in the case of (x) the issuance of any shares of Common Stock upon conversion of any shares of Preferred Stock, or (y) the issuance of, or grant of options to purchase shares of Common Stock to employees, consultants, directors or other contributors as determined by the Board of Directors pursuant to the Corporation's 1995 Incentive Stock Option Plan, as amended from time to time, or the issuance of shares of Common Stock upon the exercise of any such options to officers, directors, employees of or consultants to the Corporation. (k) Upon Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common Stock Event (as hereinafter defined), the Applicable Conversion Value for each series or subseries of Preferred Stock shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted only under this paragraph 5(k) by multiplying the then effective Applicable Conversion Value for such series or subseries of Preferred Stock by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and (y) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Applicable Conversion Value for such series or subseries of Preferred Stock. The Applicable Conversion Value, as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events. "Extraordinary Common Stock Event" shall mean (x) the issue of additional shares of the Common Stock as a dividend or other distribution on outstanding Common -35- 36 Stock, (y) subdivision of outstanding shares of Common Stock into a greater number of shares of the Common Stock, or (z) combination of outstanding shares of the Common Stock into a smaller number of shares of the Common Stock after October 31, 1997. (l) Dividends. In the event the Corporation shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution (other than a distribution in liquidation or other distribution provided for herein) payable in securities of the Corporation other than shares of Common Stock or in assets (excluding ordinary cash dividends paid out of retained earnings), then and in each such event, provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the number of securities or such other assets of the Corporation which they would have received had their shares of Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the Conversion Date (as that term is hereafter defined in paragraph 5(p)), retained such securities or such other assets receivable by them as aforesaid during such period, giving application to all adjustments called for during such period under this paragraph 5 with respect to the rights of the holders of the Preferred Stock. (m) Capital Reorganization or Reclassification. If the Common Stock issuable upon the conversion of the Preferred Stock shall be changed into the same or different number of shares of any series or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for elsewhere in this paragraph 5, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this paragraph 5), then and in each such event the holder of each share of Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change by holders of the number or shares of Common Stock into which such share of Preferred Stock might have been converted immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. (n) Capital Reorganization, Merger or Sale of Assets. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this paragraph 5 or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation's properties and assets to any other person (other than an event described in paragraph 4(h), unless the requisite number of holders of Preferred Stock and Series F Preferred Stock have elected not to treat such event as a liquidation for purposes of such paragraph), then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Preferred Stock shall be entitled to receive upon consummation of such transaction, the number of shares of stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger, consolidation or sale, to which a holder -36- 37 of Common Stock issuable upon conversion would have been entitled upon consummation of such capital reorganization, merger, consolidation, or sale, provided that no such provision shall be deemed to constitute the consent of the holders of the Preferred Stock to any such transaction if such consent is required by the Fifth Amended and Restated Certificate of Incorporation of the Corporation or under applicable law. (o) Certificate as to Adjustments. In each case of an adjustment or readjustment of the Applicable Conversion Rate, the Corporation will furnish each holder of Preferred Stock with a certificate showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based. (p) Exercise of Conversion Privilege. To exercise his conversion privilege, a holder of Preferred Stock shall surrender the certificate or certificates representing the shares being converted together with a written notice of such conversion to the Corporation at its principal office or to the transfer agent, if any, which has been designated by the Corporation. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock issuable upon such conversion shall be issued. The certificate or certificates for shares of Preferred Stock surrendered for the conversion shall be accompanied by proper assignment thereof to the Corporation or in blank. The date when such written notice is received by the Corporation, together with the certificate or certificates representing the shares of Preferred Stock being converted, shall be the "Conversion Date". As promptly as practicable after the Conversion Date, the Corporation shall issue and deliver to the holder of the shares of Preferred Stock being converted, (i) such certificate or certificates as it may request for the number of whole shares of Common Stock issuable upon the conversion of such shares of Preferred Stock in accordance with the provisions of this paragraph 5, and (ii) cash, as provided in paragraph 5(q), in respect of any fraction of a share of Common Stock issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date, and at such time the rights of the holder as holder of the converted shares of Preferred Stock shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. (q) Cash in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon the conversion of shares of Preferred Stock. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of Preferred Stock, the Corporation shall pay to the holder of the shares of Preferred Stock which were converted a cash adjustment in respect of such fractional shares in an amount equal to the same fraction of the fair market value per share of the Common Stock (as determined in good faith by the Board of Directors) at the close of business on the Conversion Date. The determination as to whether or not to make any cash payment in lieu of the issuance of fractional shares shall -37- 38 be based upon the total number of shares of Preferred Stock being converted at any one time by any holder thereof, not upon each share of Preferred Stock being converted. (r) Partial Conversion. In the event some but not all of the shares of Preferred Stock represented by a certificate or certificates surrendered by a holder are converted, the Corporation shall execute and deliver to or on the order of the holder, at the expense of the Corporation, a new certificate representing the number of shares of Preferred Stock which were not converted. (s) Reservation of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action subject to the terms of the Corporation's Second Amended and Restated Certificate of Incorporation and applicable law as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (t) Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Preferred Stock which is being converted. (u) Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Preferred Stock in any manner which interferes with the timely conversion of such Preferred Stock, except as may otherwise be required to comply with applicable securities laws. 6. Redemption. (a) The Corporation shall on or after June 30, 2004, at the written election of the holders of at least sixty (60%) percent of the then outstanding shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, each voting as a separate class as to its own class of Preferred Stock only, delivered to the Corporation and specifying the first day on which such shares are to be redeemed, (i) redeem on the date specified by such holders one-third of all the shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and/or Series F Preferred Stock as the case may be, outstanding on the date of such election and (ii) redeem on the first and second -38- 39 anniversaries of such date an additional one-third of the shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and/or Series F Preferred Stock outstanding on the date of such election (each such date being herein called a "Redemption Date" and each share of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock to be redeemed under this paragraph 6(a) called "Redeemable Preferred Stock"). (b) All shares of Redeemable Preferred Stock which are to be redeemed hereunder shall remain issued and outstanding until the Redemption Price therefor has been indefeasibly paid in full in cash. If the Corporation for any reason fails to pay the Redemption Price for any shares of Redeemable Preferred Stock on or prior to the date specified in this paragraph 6, then the unpaid Redemption Price shall thereafter bear interest at the annual rate of 12%, compounded annually until paid. (c) The Redemption Price (the "Redemption Price") for each share of Redeemable Preferred Stock redeemed pursuant to paragraph 6 shall be the sum of the Original Purchase Price for such shares (subject to equitable adjustment in the event of any stock dividend, stock split, reclassification of shares or similar event affecting or relating to the Redeemable Preferred Stock) plus (i) the amount of the unpaid Accruing Dividend for such shares and (ii) all other declared but unpaid dividends on such shares to and including the applicable Redemption Date. (d) After receipt of a notice of election pursuant to paragraph 6(a) the Corporation will give written notice by mail, postage prepaid to the holders of record of Redeemable Preferred Stock to be redeemed on each Redemption Date, such notice to be addressed to each such holder at its post office address shown by the records of the Corporation, specifying the number of shares to be redeemed, the Redemption Price, and the place and Redemption Date of such redemption (which date shall not be a day on which banks in the City of Boston are required or authorized to close), and to be given at least twenty (20) days prior to the Redemption Date; provided, however, that the Corporation's failure to give such notice shall in no way affect its obligation to redeem the shares of Redeemable Preferred Stock as provided in this paragraph 6. If on or before any Redemption Date, the funds necessary for redemption of the shares of Redeemable Preferred Stock to be redeemed on such Redemption Date shall have been deposited with an independent payment agent so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares of Redeemable Preferred Stock to be redeemed shall not have been surrendered for cancellation, from and after the close of business on such Redemption Date, the shares so called for redemption shall no longer be deemed outstanding, any dividends thereon shall cease to accrue, and all rights with respect to such shares, including all conversion rights pursuant to paragraph 5 hereof, shall forthwith cease, except only the right of the holders thereof to receive, upon presentation of the certificate representing shares so called for redemption, the Redemption Price applicable to such Redeemable Preferred Stock without interest thereon. -39- 40 (e) If the funds of the Corporation legally available for redemption of Redeemable Preferred Stock on any Redemption Date are insufficient to redeem the total number of outstanding Redeemable Preferred Stock to be redeemed on such Redemption Date, the Corporation shall redeem such shares of Redeemable Preferred Stock ratably first, from holders of Series F Preferred Stock, second, from holders of Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, and third, from holders of Series B Preferred Stock to the extent of any funds legally available for redemption of such Redeemable Preferred Stock, according to the respective amounts which would be payable with respect to the full number of Redeemable Preferred Stock to be redeemed from them on such date (such amounts to be applied first, to redeem Series F Preferred Stock, second to redeem Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, and third to redeem Series B Preferred Stock) as if all such Redeemable Preferred Stock were redeemed in full. Any shares of Redeemable Preferred Stock not redeemed shall remain outstanding. At any time thereafter when additional funds of the Corporation are legally available for the redemption of Redeemable Preferred Stock, such funds will be used to redeem the balance of such Redeemable Preferred Stock, or such portion thereof for which funds are then available, on the basis set forth above. Any Redeemable Preferred Stock may be converted by the holder thereof to Common Stock, in accordance with the provisions of the Fifth Amended and Restated Certificate of Incorporation of the Corporation, at any time prior to the close of business on the last business day next preceding the Redemption Date. (f) No shares of Redeemable Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such acquired Redeemable Preferred Stock shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. The Corporation shall from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of Redeemable Preferred Stock accordingly. (g) Except pursuant to this paragraph 6, the Corporation shall not redeem any shares of capital stock (excepting redemptions of shares held by employees or consultants of the Corporation pursuant to agreements with such employees or consultants upon termination of their employment by, or consulting for, the Corporation) unless consented to by holders of a majority of the issued and outstanding shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock voting as a single class. 7. Notices of Record Date. In the event of (a) any taking by the Corporation of a record of the holders of any series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any series or any other securities or property, or to receive any other right, or -40- 41 (b) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation, or any transfer of all or substantially all of the assets of the Corporation to any other corporation, or any other entity or person, or (c) any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, then and in each such event the Corporation shall mail or cause to be mailed to each holder of Preferred Stock a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up and (iv) the last date on which the holders of shares of Preferred Stock may convert such shares to Common Stock in conjunction with any such action. Such notice shall be mailed at least twenty (20) days prior to the date specified in such notice on which such action is to be taken. B. COMMON STOCK. 1. Relative Rights of Preferred Stock and Common Stock. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions of the Common Stock are expressly made subject and subordinate to those that may be fixed with respect to any shares of the Preferred Stock. 2. Voting Rights. Except as otherwise required by law or the Fifth Amended and Restated Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation. 3. Dividends. Subject to the preferential rights of the Preferred Stock, if any, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock. 4. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, the holders of Common Stock shall be entitled, unless otherwise provided by law or this Fifth Amended and Restated Certificate of Incorporation, to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. -41- 42 FIFTH: In furtherance of and not in limitation of powers conferred by statute, it is further provided that: (a) Subject to the limitations and exceptions, if any, contained in the by-laws of the Corporation, the by-laws may be adopted, amended or repealed by the Board of Directors of the Corporation; and (b) Elections of directors need not be by written ballot unless, and only to the extent, otherwise provided in the by-laws. SIXTH: The Corporation shall indemnify each person who, at any time, is, or shall have been, a director or officer of the Corporation and was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any such action, suit or proceeding, to the maximum extent permitted by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any by-law, agreement, vote of directors or stockholders or otherwise. No amendment to or repeal of the provisions of this Article SIXTH shall deprive a director or officer of the benefit hereof with respect to any act or failure to act occurring prior to such amendment or repeal. SEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. EIGHTH: No director of the Corporation shall be personally liable to the Corporation or to any of its stockholders for monetary damages arising out of such director's -42- 43 breach of fiduciary duty as a director of the Corporation, except to the extent that the elimination or limitation of such liability is not permitted by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended. No amendment to or repeal of the provisions of this Article EIGHTH shall deprive any director of the Corporation of the benefit hereof with respect to any act or failure to act of such director occurring prior to such amendment or repeal. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Fifth Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed by statute and this Fifth Amended and Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, said net.Genesis Corp., has caused this certificate to be signed by Larry Bohn, President, and attested to by John D. Patterson, Jr., Assistant Secretary, this 4th day of June, 1999. By: /s/ Larry Bohn -------------------------- Larry Bohn President ATTEST: /s/ John D. Patterson, Jr. - ---------------------------------- John D. Patterson, Jr. Assistant Secretary -43- EX-3.2 3 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INC 1 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF NET.GENESIS CORP. net.Genesis Corp., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation has adopted by written consent the following resolution: RESOLVED: That the Certificate of Incorporation of the Corporation be amended to increase the number of shares of authorized common stock, $.001 par value per share, of the Corporation to 100,000,000, and that the officers of the Corporation be authorized (i) to prepare, execute and file with the Secretary of State of the State of Delaware an amended certificate (the "Amended Certificate") and (ii) to take any and all other actions necessary, desirable or convenient to give effect to the Amended Certificate or otherwise to carry out the purposes of this Resolution. RESOLVED: That the Amended Certificate of Incorporation be submitted to the stockholders for their consideration. SECOND: That the the Corporation's Fifth Amended and Restated Certificate of Incorporation be amended by deleting the first paragraph of Article Fourth thereof and substituting therefor the following paragraph: The total number of shares of all classes of capital stock that the Corporation shall have the authority to issue is 117,686,887 shares, $.001 par value, which shall consist of Common Stock and six classes of Preferred Stock as follows: Common Stock, $.001 par value ("Common Stock") - 100,000,000 shares Series A Convertible Preferred Stock, $.001 par value ("Series A Preferred Stock") - 925,430 shares Series B Convertible Preferred Stock, $0.001 par value ("Series B Preferred Stock") - 776,718 shares Series C Convertible Preferred Stock, $0.001 par value ("Series C Preferred Stock") - 3,000,000 shares Series D Convertible Preferred
2 Stock, $0.001 par value ("Series D Preferred Stock") - 5,900,000 shares Series E Convertible Preferred Stock, $0.001 par value ("Series E Preferred Stock") - 279,739 shares Series F Convertible Preferred Stock, $0.001 par value ("Series F Preferred Stock") - 6,805,000 shares
The Series A Preferred Stock shall consist of three subseries as follows: Series A-1 Convertible Preferred Stock ("Series A-1 Preferred Stock) - 200,000 shares Series A-2 Convertible Preferred Stock ("Series A-2 Preferred Stock) - 101,430 shares Series A-3 Convertible Preferred Stock ("Series A-3 Preferred Stock) - 624,000 shares
THIRD; That said amendment has been consented to and authorized by a majority of the holders of the issued and outstanding shares of common stock, par value $.001 ("Common Stock") by written consent given in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. FOURTH: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by Lawrence S. Bohn, its President, and attested to by John Delea, its Secretary, this 21st day of December, 1999. /s/ Laurence S. Bohn -------------------------------------- President Attested by: /s/ John Delea - ------------------------------------ Secretary 3 The Series A Preferred Stock shall consist of three subseries as follows: Series A-1 Convertible Preferred Stock ("Series A-1 Preferred Stock") - 200,000 shares Series A-2 Convertible Preferred Stock ("Series A-2 Preferred Stock") - 101,430 shares Series A-3 Convertible Preferred Stock ("Series A-3 Preferred Stock") - 624,000 shares
THIRD: That said amendment has been consented to and authorized by a majority of the holders of the issued and outstanding shares of common stock, par value $.001 ("Common Stock") by written consent given in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. FOURTH: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by Lawrence S. Bohn, its President, and attested to by John Delea, its Secretary, this 21st day of December, 1999. ____________________________________ President Attested by: ___________________________________ Secretary 2 EX-3.3 4 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NET.GENESIS CORP. The following Amended and Restated Certificate of Incorporation (i) amends and restates the provisions of the Certificate of Incorporation of net.Genesis Corp. (the "Corporation") originally filed with the Secretary of State of the State of Delaware on May 6, 1994, as amended and restated to date; (ii) supersedes the Certificate of Incorporation and all amendments thereto and restatements thereof; and (iii) has been duly proposed by the Board of Directors of the Corporation and duly adopted by the stockholders of the Corporation in accordance with the provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law. FIRST: The name of the corporation (the "Corporation") is net.Genesis Corp. SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 105,000,000, consisting of (i) 100,000,000 shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share ("Preferred Stock"). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof, in respect of each class of capital stock of the Corporation: A. COMMON STOCK. 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2 2. Voting. The holders of Common Stock will be entitled to one vote per share on all matters to be voted on by the stockholders of the Corporation. There shall be no cumulative voting. 3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential liquidation rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. No share of Preferred Stock that is redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided herein or by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided herein, in any such resolution or resolutions, or by law. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Except as otherwise provided by law or by this Amended and Restated Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of the Amended and Restated Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. FIFTH: In furtherance of and not in limitation of powers conferred by statute, it is further provided that: -2- 3 (a) Subject to the limitations and exceptions, if any, contained in the by-laws of the Corporation, the by-laws may be adopted, amended or repealed by the Board of Directors of the Corporation. (b) Elections of directors need not be by written ballot. (c) Subject to any applicable requirements of law, the books of the Corporation may be kept outside the State of Delaware at such location as may be designated by the Board of Directors or in the by-laws of the Corporation. SIXTH: The Corporation is to have perpetual existence. SEVENTH: The Corporation shall indemnify each person who at any time is, or shall have been a director or officer of the Corporation, and is threatened to be or is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director or officer of the Corporation, or served at the request of the Corporation as a director, officer, employee, trustee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any such action, suit or proceeding to the maximum extent permitted by the General Corporation Law of Delaware. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any by-law, agreement, vote of directors or stockholders or otherwise. No amendment to or repeal of the provisions of this paragraph shall deprive a person of the benefit of this paragraph with respect to any act or failure to act of such person occurring prior to such amendment or repeal. EIGHTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation. -3- 4 NINTH: To the maximum extent permitted by the General Corporation Law of Delaware as the same exists or may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or to any of its stockholders for monetary damages arising out of such director's breach of fiduciary duty as a director of the Corporation. No amendment to or repeal of the provisions of this paragraph shall apply to or have any effect on the liability or the alleged liability of any director of the Corporation with respect to any act or failure to act of such director occurring prior to such amendment or repeal. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Amended and Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly constituted annual or special meeting of stockholders and may not be effected by any consent in writing by such stockholders. Notwithstanding any other provisions of law, this Amended and Restated Certificate of Incorporation or the by-laws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least eighty percent (80%) of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -4- 5 IN WITNESS WHEREOF, the undersigned, being the duly elected and acting President of net.Genesis Corp., does hereby declare that this Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors and the stockholders of this Corporation in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of Delaware. The undersigned does hereby affirm, under the penalties of perjury, that this instrument is the act and deed of the Corporation and the facts herein set forth are true and correct. I have accordingly hereunto set my hand this_____day of ___________, 2000. NET.GENESIS CORP. By: ---------------------------------- Lawrence S. Bohn Its President -5- EX-3.4 5 BY-LAWS 1 Exhibit 3.4 BY-LAWS OF net.Genesis Corp. (a Delaware Corporation) 2 NET.GENESIS CORP. (a Delaware Corporation) BY-LAWS TABLE OF CONTENTS
Page ARTICLE 1 OFFICES .................................................................... 1 SECTION 1. Registered Office ......................................... 1 SECTION 2. Other Offices .............................................. 1 SECTION 3. Books, Accounts and Records, and Inspection Rights ......... 1 ARTICLE 2 SEAL ....................................................................... 1 ARTICLE 3 MEETINGS OF STOCKHOLDERS ................................................... 2 SECTION 1. Place of Meetings .......................................... 2 SECTION 2. Annual Meetings ............................................ 2 SECTION 3. Special Meetings ........................................... 2 SECTION 4. Notice ..................................................... 2 SECTION 5. Waiver of Notice ........................................... 2 SECTION 6. Quorum and Adjournments .................................... 3 SECTION 7. Votes; Proxies ............................................. 3 SECTION 8. Organization ............................................... 4 SECTION 9. Consent of Stockholders in Lieu of Meeting ................. 4 ARTICLE 4 DIRECTORS .................................................................. 5 SECTION 1. Number ..................................................... 5 SECTION 2. Term of Office ............................................. 5 SECTION 3. Resignations ............................................... 5 SECTION 4. Vacancies .................................................. 6 SECTION 5. Removal by Stockholders .................................... 6 SECTION 6. Meetings of the Newly Elected Board ........................ 6 SECTION 7. Notice of Meetings; Waiver of Notice ....................... 6 SECTION 8. Votes ...................................................... 7 SECTION 9. Quorum and Adjournment ..................................... 7 SECTION 10. Compensation ............................................... 8 SECTION 11. Action By Consent of Directors ............................. 8 SECTION 12. Reliance on Records ........................................ 8 ARTICLE 5 COMMITTEES OF DIRECTORS .................................................... 8 SECTION 1 .................................................................... 8 SECTION 2 .................................................................... 8 SECTION 3 .................................................................... 8 SECTION 4 .................................................................... 9 SECTION 5 .................................................................... 9
3 ARTICLE 6 OFFICERS ................................................................... 9 SECTION 1. Officers ................................................... 9 SECTION 2. Vacancies .................................................. 9 SECTION 3. Chairman of the Board ...................................... 10 SECTION 4. President .................................................. 10 SECTION 5. Executive Vice Presidents and Vice Presidents .............. 10 SECTION 6. Secretary .................................................. 10 SECTION 7. Assistant Secretaries ...................................... 10 SECTION 8. Treasurer .................................................. 10 SECTION 9. Assistant Treasurers ....................................... 11 SECTION 10. Controller ................................................. 11 SECTION 11. Assistant Controllers ...................................... 11 SECTION 12. Subordinate Officers ....................................... 11 SECTION 13. Compensation ............................................... 11 SECTION 14. Removal .................................................... 11 SECTION 15. Bonds ...................................................... 11 ARTICLE 7 CERTIFICATES OF STOCK ...................................................... 12 SECTION 1. Form and Execution of Certificates ......................... 12 SECTION 2. Transfer of Shares ......................................... 13 SECTION 3. Closing of Transfer Books .................................. 13 SECTION 4. Fixing Date for Determination of Stockholders of Record .... 13 SECTION 5. Lost or Destroyed Certificates ............................. 14 SECTION 6. Uncertificated Shares ...................................... 15 ARTICLE 8 EXECUTION OF DOCUMENTS .............................................. 15 SECTION 1. Execution of Checks, Notes, etc. ........................... 15 SECTION 2. Execution of Contracts, Assignments, etc. .................. 15 SECTION 3. Execution of Proxies ....................................... 16 ARTICLE 9 INSPECTION OF BOOKS ........................................................ 16 ARTICLE 10 FISCAL YEAR ................................................................ 16 ARTICLE 11 AMENDMENTS ................................................................. 16 ARTICLE 12 LIABILITY AND INDEMNIFICATION .............................................. 17 SECTION 1. Indemnification ............................................ 17 SECTION 2. Derivative Indemnity ....................................... 17 SECTION 3. Attorneys' Fees ............................................ 18 SECTION 4. Determination of Indemnity ................................. 18 SECTION 5. Advance Payment ............................................ 18 SECTION 6. NonExclusive Remedy ........................................ 18 SECTION 7. Insurance .................................................. 18 SECTION 8. Merger and Consolidation ................................... 19 SECTION 9. Other Enterprises .......................................... 19 SECTION 10. Survival of Indemnity ...................................... 19
4 NET.GENESIS CORP. (a Delaware Corporation) ----------- BY-LAWS ---------- ARTICLE 1 OFFICES SECTION 1. Registered Office. The registered office of the Corporation shall be located at The Company Corporation, Three Christian Center, 201 N. Walnut Street, Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof shall be Vanessa Foster. SECTION 2. Other Offices. The Corporation may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time appoint or the business of the Corporation may require. SECTION 3. Books, Accounts and Records, and Inspection Rights. The books, accounts and records of the Corporation, except as otherwise required by the laws of the State of Delaware, may be kept outside of the State of Delaware, at such place or places as the Board of Directors may from time to time designate. Any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during regular business hours to inspect, for any proper purpose, the Corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. ARTICLE 2 SEAL The seal of the Corporation shall, subject to alteration by the Board of Directors, consist of a flat-faced circular die with the word "Delaware", together with the name of the Corporation and the year of incorporation, cut or engraved thereon. 5 -2- ARTICLE 3 MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meetings. All meetings of the stockholders shall be held at the offices of the Corporation in the City of Wilmington, State of Delaware, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. Annual Meetings. An annual meeting of the stockholders of the Corporation shall be held on the fourth Tuesday in May of each year, if not a legal holiday, and if a legal holiday, then on the next secular day following, at ten o'clock in the forenoon, Eastern Time, or at such other date and time as shall be designed from time to time by the Board of Directors and stated in the notice of the meeting. At such meeting, the stockholders shall elect directors by a plurality vote. Election of directors need not be by written ballot. Each director shall be elected to serve until his successor is duly elected and qualified, or until his earlier resignation or removal. At the annual meeting the stockholders may transact such other business as may be desired, whether or not the same was specified in the notice of the meeting, unless the consideration of such other business without its having been specified in the notice of the meeting as one of the purposes thereof is prohibited by law. SECTION 3. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board of Directors, if there be one, the President or by the directors by resolution adopted by a vote of the majority and special meetings shall be called by the President or the Secretary whenever stockholders owning a majority of the capital stock issued, outstanding and entitled to vote so request in writing. Such request of stockholders shall state the purpose or purposes of the proposed meeting. The "call" and the "notice" of any such meeting shall be deemed to be synonymous. SECTION 4. Notice. Written or printed notice of every meeting of stockholders, annual or special, stating the hour, date and place thereof, and the purpose or purposes in general terms for which the meeting is called shall, not less than ten (10) days, or such longer period as shall be provided by law, the Certificate of Incorporation, these By-Laws, or otherwise, and not more than sixty (60) days before such meeting, be served upon or mailed to each stockholder entitled to vote thereat, at the address of such stockholder as it appears upon the stock records of the Corporation. SECTION 5. Waiver of Notice. Whenever any notice is required to be given to any stockholder under any law, the 6 -3- Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance by a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. SECTION 6. Quorum and Adjournments. Except as otherwise provided by law or by the Certificate of Incorporation, the presence in person or by proxy at any meeting of stockholders of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote thereat, shall be requisite and shall constitute a quorum. If a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote thereat or, where a larger quorum is required, such quorum, shall not be represented at any meeting of the stockholders regularly called, the holders of a majority of the shares present or represented by proxy and entitled to vote thereat shall have power to adjourn the meeting to another time, or to another time and place, without notice other than announcement of adjournment at the meeting, and there may be successive adjournments for like cause and in like manner until the requisite amount of shares entitled to vote at such meeting shall be represented; provided, however, that if the adjournment is for more than thirty (30) days, notice of the hour, date and place of the adjourned meeting shall be given to each stockholder entitled to vote thereat. At any meeting held to consider matters which were subject to adjournment for want of a quorum at which the requisite amount of shares entitled to vote thereat shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 7. Votes; Proxies. Except as otherwise provided in the Certificate of Incorporation, at each meeting of stockholders, every stockholder of record at the closing of the transfer books, if closed, or on the date set by the Board of Directors for the determination of stockholders entitled to vote at such meeting, shall have one vote for each share of stock entitled to vote which is registered in such stockholder's name on the books of the Corporation. Each stockholder having the right to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may personally vote, consent or dissent or may authorize another person or persons to act for such stockholder by proxy appointed by an instrument in writing executed by such stockholder or by the transmission of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be 7 -4- determined that the transmission was authorized by the stockholder. No proxy shall be voted or acted upon after six months from its date unless the proxy shall provide for a longer period. Voting at meetings of stockholders need not be by written ballot and, except as otherwise provided by law, need not be conducted by inspectors of election unless so determined by the Chairman of the meeting or by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or represented by proxy at such meeting. If it is required or determined that inspectors of election be appointed, the Chairman shall appoint two inspectors of election, who shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of their ability. The inspectors so appointed shall take charge of the polls and, after the balloting, shall make a certificate of the result of the vote taken. No director or candidate for the office of director shall be appointed as such inspector. At any meeting at which a quorum is present, a plurality of the votes properly cast for election to fill any vacancy on the Board of Directors shall be sufficient to elect a candidate to fill such vacancy, and a majority of the votes properly cast upon any other question shall decide the question, except in any case where a larger vote is required by law, the Certificate of Incorporation, these By-Laws, or otherwise. SECTION 8. Organization. The Chairman of the Board, if there be one, or in his or her absence the Vice Chairman, or in the absence of a Vice Chairman, the President, or in the absence of the President, a Vice President, shall call meetings of the stockholders to order and shall act as chairman thereof. The Secretary of the Corporation, if present, shall act as secretary of all meetings of stockholders, and, in his or her absence, the presiding officer may appoint a secretary. SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted by the Delaware General Corporation Law to be taken at any annual or special meeting of the stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which, proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. 8 -5- Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this section to the Corporation, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. ARTICLE 4 DIRECTORS SECTION 1. Number. The business and affairs of the Corporation shall be conducted and managed by a Board of Directors consisting of not less than one director, none of whom needs to be a stockholder. The number of directors for each year shall be fixed at each annual meeting of stockholders, but if the number is not so fixed, the number shall remain as it stood immediately prior to such meeting. At each annual meeting of stockholders, the stockholders shall elect directors. Each director so elected shall hold office, subject to the provisions of law, the Certificate of Incorporation, these By-Laws, or otherwise, until the next annual meeting of stockholders or until his or her successor is elected and qualified. At any time during any year, except as otherwise provided by law, the Certificate of Incorporation, these By-Laws, or otherwise, the number of directors may be increased or reduced, in each case by vote of a majority of the stock issued and outstanding and present in person or represented by proxy and entitled to vote for the election of directors or a majority of the directors in office at the time of such increase or decrease, regardless of whether such majority constitutes a quorum. SECTION 2. Term of Office. Each director shall hold office until the next annual meeting of stockholders and until his or her successor is duly elected and qualified or until his or her earlier death or resignation, subject to- the right of the stockholders at any time to remove any director or directors as provided in Section 5 of this Article. SECTION 3. Resignations. Any director may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the time specified therein or shall take effect upon receipt thereof by the Corporation it no time is specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 9 -6- SECTION 4. Vacancies. If any vacancy shall occur among the directors, or if the number of directors shall at any time be increased, the directors then in office, although less than a quorum, by a majority vote may fill the vacancies or newly-created directorships, or any such vacancies or newly-created directorships may be filled by the stockholders at any meeting. SECTION 5. Removal by Stockholders. Except as otherwise provided by law, the Certificate of Incorporation or otherwise, the holders of record of the capital stock of the Corporation entitled to vote for the election of directors may, by a majority vote, remove any director or directors, with or without cause, and, in their discretion, elect a new director or directors in place thereof. SECTION 6. Meetings of the Newly Elected Board. The first meeting of the members of each newly elected Board of Directors shall be held (a) at such time and place either within or without the State of Delaware as shall be suggested or provided, by resolution of the stockholders at the meeting at which such newly elected Board was elected, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or (b) if not so suggested or provided for by resolution of the stockholders or if a quorum shall not be present, at such time and place as shall be consented to in writing by a majority of the newly elected directors, provided that written or printed notice of such meeting shall be given to each of the other directors in the same manner as provided in Article 4, Section 7(b) (ii) of these Bylaws with respect to the giving of notice for special meetings of the Board except that it shall not be necessary to state the purpose of the meeting in such notice, or (c) regardless of whether or not the time and place of such meeting shall be suggested or provided for by resolution of the stockholders, at such time and place as shall be consented to in writing by all of the newly elected directors. Every director of the Corporation, upon his election, shall qualify by accepting the office of director, and his attendance at, or his written approval of the minutes of, any meeting of the Board subsequent to his election shall constitute his acceptance of such office; or he may execute such acceptance by a separate writing, which shall be placed in the minute book. SECTION 7. Notice of Meetings; Waiver of Notice. (a) Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and places either within or without the State of Delaware as shall from time to time be fixed by resolution adopted by a majority of the full Board. Any business may be transacted at a regular meeting. 10 -7- (b) Special Meetings. (i) be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary, or any of the directors. The place may be within or without the State of Delaware as designated in the notice. (ii) Written notice of each special meeting of the Board of Directors, stating the place, date and hour of the meeting and the purpose or purposes thereof, shall be sent to each Director by telecopier or overnight courier, confirmed by mail, at least five business days before the day on which the meeting is to be held, or delivered to the director personally at least two business days before the day on which the meeting is to be held. If mailed, such notice shall be deemed to be delivered when it is deposited in the United States mail with postage thereon addressed to the director at the director's residence or usual place of business. If given by telecopier or overnight courier, such notice shall be deemed to be delivered when it is delivered to the courier company or sent by telecopier. The notice may be given by any person having authority to call the meeting. (iii) "Notice" and "call" with respect to such meeting shall be deemed to be synonymous. (c) Waiver of Notice. Whenever any notice is required to be given to any director under any law, the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the director entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because it was not lawfully called or convened. Neither the business to be transacted at, nor the purposes of, any regular or special meeting of the directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. SECTION 8. Votes. Except as otherwise provided by law, the Certificate of Incorporation or otherwise, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 9. Quorum and Adjournment. Except as otherwise provided by law, the Certificate of Incorporation or otherwise, a majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice other than announcement of the adjournment at the meeting, and at such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally noticed. 11 -8- SECTION 10. Compensation. Directors shall receive compensation for their services, as such, and for service on any Committee of the Board of Directors, as fixed by resolution of the Board of Directors and for expenses of attendance at each regular or special meeting of the Board or any Committee thereof. Nothing in this Section shall be construed to preclude a director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 11. Action By Consent of Directors. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Such consent shall be treated as a vote adopted at a meeting for all purposes. Such consents may be executed in one or more counterparts and not every Director or committee member need sign the same counterpart. SECTION 12. Reliance on Records. A director, or a member of any committee designated by the Board of Directors, shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board, or by any other person as to matters the director reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. ARTICLE 5 COMMITTEES OF DIRECTORS SECTION 1. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. SECTION 2. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. SECTION 3. Any such committee, to the extent provided in the resolution of the Board of Directors or in these Bylaws, shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee 12 -9- shall have the power or authority of the Board with respect to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution, these Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have power or authority to declare a dividend, to authorize the issuance of stock or to adopt a Certificate of ownership and Merger. SECTION 4. All committees so appointed shall, unless otherwise provided by the Board of Directors, keep regular minutes of the transactions at their meetings and shall cause them to be recorded in books kept for that purpose in the office of the Corporation and shall report the same to the Board at its next meeting. The Secretary or an Assistant Secretary of the corporation may act as secretary of the committee if the committee so requests. SECTION 5. Term of Office. Each member of a committee shall hold office until the first meeting of the Board of Directors following the annual meeting of stockholders (or until such other time as the Board of Directors may determine, either in the vote establishing the committee or at the election of such member or otherwise) and until his or her successor is elected and qualified, or until he or she sooner dies, resigns, is removed, is replaced by change of membership or becomes disqualified by ceasing to be a director (where membership on the Board is required), or until the committee is sooner abolished by the Board of Directors. ARTICLE 6 OFFICERS SECTION 1. Officers. The Board of Directors shall elect a President, a Secretary and a Treasurer, and, in their discretion, may elect a Chairman of the Board, a Vice Chairman of the Board, a Controller, and one or more Executive Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Controllers as deemed necessary or appropriate. Such officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders (or at such other meeting as the Board of Directors determines), and each shall hold office for the term provided by the vote of the Board, ,except that each will be subject to removal from office in the discretion of the Board as provided herein. The powers and duties of more than one office may be exercised and performed by the same person. SECTION 2. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors, at any regular or special meeting. 13 -10- SECTION 3. Chairman of the Board. The Chairman of the Board of Directors, if elected, shall be a member of the Board of Directors and shall preside at its meetings. The Chairman shall advise and counsel with the President, and shall perform such duties as from time to time may be assigned to him or her by the Board of Directors. SECTION 4. President. The President shall be the chief executive officer of the Corporation. Subject to the directions of the Board of Directors, the President shall have and exercise direct charge of and general supervision over the business and affairs of the Corporation and shall perform all duties incident to the office of the chief executive officer of a corporation and such other duties as from time to time may be assigned to him or her by the Board of Directors. The President may but need not be a member of the Board of Directors. SECTION 5. Executive Vice Presidents and Vice Presidents. Each Executive Vice President and Vice President shall have and exercise such powers and shall perform such duties as from time to time may be assigned to him or to her by the Board of Directors or the President. SECTION 6. Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors in books provided for the purpose; shall see that all notices are duly given in accordance with the provisions of law and these By-Laws; the Secretary shall be custodian of the records and of the corporate seal or seals of the Corporation; shall see that the corporate seal is affixed to all documents the execution of which, on behalf of the Corporation under its seal, is duly authorized, and, when the seal is so affixed, he or she may attest the same; the Secretary may sign, with the President, an Executive Vice President or a Vice President, certificates of stock of the Corporation; and, in general, the Secretary shall perform all duties incident to the office of secretary of a corporation, and such other duties as from time to time may be assigned to him or her by the Board of Directors. SECTION 7. Assistant Secretaries. The Assistant Secretaries in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors shall prescribe or as from time to time may be assigned by the Secretary. SECTION 8. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all monies or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; may endorse for collection on behalf of the Corporation checks, notes and other obligations; may sign receipts and vouchers for payments made to the Corporation; may sign checks 14 -11- of the Corporation, singly or jointly with another person as the Board of Directors may authorize, and pay out and dispose of the proceeds under the direction of the Board; the Treasurer shall render to the President and to the Board of Directors, whenever requested, an account of the financial condition of the Corporation; the Treasurer may sign, with the President, or an Executive Vice President or a vice President, certificates of stock of the Corporation; and in general, shall perform all the duties incident to the office of treasurer of a corporation, and such other duties as from time to time may be assigned by the Board of Directors. SECTION 9. Assistant Treasurers. The Assistant Treasurers in order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe or as from time to time may be assigned by the Treasurer. SECTION 10. Controller. The Controller, if elected, shall be the chief accounting officer of the Corporation and shall perform all duties incident to the office of a controller of a corporation, and, in the absence of or disability of the Treasurer or any Assistant Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe or as from time to time may be assigned by the President or the Treasurer. SECTION 11. Assistant Controllers. The Assistant Controllers in order of their seniority shall, in the absence or disability of the Controller, perform the duties and exercise the powers of the Controller and shall perform such other duties as the Board of Directors shall prescribe or as from time to time may be assigned by the Controller. SECTION 12. Subordinate Officers. The Board of Directors may appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers and to prescribe the powers and duties thereof. SECTION 13. Compensation. The Board of Directors shall fix the compensation of all officers of the Corporation. It may authorize any officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the compensation of such subordinate officers. SECTION 14. Removal. Any officer of the Corporation may be removed, with or without cause, by action of the Board of Directors. SECTION 15. Bonds. The Board of Directors may require any officer of the Corporation to give a bond to the Corporation, 15 -12- conditional upon the faithful performance of his or her duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. ARTICLE 7 CERTIFICATES OF STOCK SECTION 1. Form and Execution of Certificates. The interest of each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates of stock of each class shall be consecutively numbered and signed by the Chairman or Vice Chairman of the Board, if any, the President, an Executive Vice President or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of the Corporation, and may be countersigned and registered in such manner as the Board of Directors may by resolution prescribe, and shall bear the corporate seal or a printed or engraved facsimile thereof. Where any such certificate is signed by a transfer agent or transfer clerk acting on behalf of the Corporation, the signatures of any such Chairman, Vice Chairman, President, Executive Vice President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimiles, engraved or printed. In case any officer or officers, who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates, shall cease to be such officer or officers, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered by the Corporation as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers. In case the corporate seal which has been affixed to, impressed on, or reproduced in any such certificate or certificates shall cease to be the seal of the Corporation before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered by the Corporation as though the seal affixed thereto, impressed thereon or reproduced therein had not ceased to be the seal of the Corporation. Every certificate for shares of stock which are subject to any restriction on transfer pursuant to law, the Certificate of Incorporation, these By-Laws, or any agreement to which the Corporation is a party, shall have the restriction noted conspicuously on the certificate, and shall also set forth, on the face or back, either the full text of the restriction or a statement of the existence of such restriction and (except if such 16 -13- restriction is imposed by law) a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications, and special and relative rights of the shares of each class and series authorized to be issued, or a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. SECTION 2. Transfer of Shares. The shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his or her attorney lawfully constituted, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof or guaranty of the authenticity of the signature as the Corporation or its agents may reasonably require. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by law or by the Certificate of Incorporation. It shall be the duty of each stockholder to notify the Corporation of his or her post office address. SECTION 3. Closing of Transfer Books. The stock transfer books of the Corporation may, if deemed appropriate by the Board of Directors, be closed for such length of time not exceeding fifty (50) days as the Board may determine, preceding the date of any meeting of stockholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any issuance, change, conversion or exchange of capital stock shall go into effect, during which time no transfer of stock on the books of the Corporation may be made. SECTION 4. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, the 17 -14- Certificate of Incorporation or otherwise, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall, unless otherwise required by law, the Certificate of Incorporation or otherwise, not be more than ten (10) days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (c) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 5. Lost or Destroyed Certificates. In case of the loss or destruction of any certificate of stock, a new certificate may be issued under the following conditions: (a) The owner of said certificate shall file with the Secretary or any Assistant Secretary of the Corporation an affidavit giving the facts in relation to the ownership, and in relation to the loss or destruction of said certificate, stating its number and the number of shares represented thereby; such affidavit shall be in such form and contain such statements as shall satisfy the President, any Executive Vice President, Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer, that said certificate has been accidentally destroyed or lost, and that a new certificate ought to be issued in lieu thereof. Upon being so satisfied, any such officer may require such owner to furnish the Corporation a bond in such penal sum and in such form as he or she may deem advisable, and with a surety or sureties approved by him or her, to indemnify and save harmless the Corporation from any claim, loss, damage or liability which may be occasioned by the issuance of a new certificate in lieu thereof. Upon such bond being so filed, if so required, 18 -15- a new certificate for the same number of shares shall be issued to the owner of the certificates so lost or destroyed; and the transfer agent and registrar, if any, of stock shall countersign and register each new certificate upon receipt of a written order signed by any such officer, and thereupon the Corporation will save harmless said transfer agent and registrar in the premises. In case of the surrender of the original certificate, in lieu of which a new certificate has been issued, or the surrender of such new certificate, for cancellation, the bond of indemnity given as a condition of the issue of such new certificate may be surrendered; or (b) The Board of Directors of the Corporation may by resolution authorize and direct any transfer agent or registrar of stock of the Corporation to issue and register respectively from time to time without further action or approval by or on behalf of the Corporation new certificates of stock to replace certificates reported lost, stolen or destroyed upon receipt of an affidavit of loss and bond of indemnity in form and amount and with surety satisfactory to such transfer agent or registrar in each instance or upon such terms and conditions as the Board of Directors may determine. SECTION 6. Uncertificated Shares. The Board of Directors of the Corporation may by resolution provide that one or more of any or all classes or series of the stock of the Corporation shall be uncertificated shares, subject to the provisions of Section 158 of the Delaware General Corporation Law. ARTICLE 8 EXECUTION OF DOCUMENTS SECTION 1. Execution of Checks, Notes, etc. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers, or agent or agents, as shall be thereunto authorized from time to time by the Board of Directors, which may in its discretion authorize any such signatures to be facsimile. SECTION 2. Execution of Contracts, Assignments, etc. Unless the Board of Directors shall have otherwise provided generally or in a specific instance, all contracts, agreements, endorsements, assignments, transfers, stock powers, or other instruments shall be signed by the President, any Executive Vice President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer. The Board of Directors may, however, in its discretion, require any or all such instruments to be signed by any two or more of such officers, or 19 -16- may permit any or all of such instruments to be signed by such other officer or officers, agent or agents, as it shall be thereunto authorized from time to time. SECTION 3. Execution of Proxies. The President, any Executive Vice President or any Vice President, and the Secretary, the Treasurer, any Assistant Secretary or any Assistant Treasurer, or any other officer designated by the Board of Directors, may sign on behalf of the Corporation proxies to vote upon shares of stock of other companies standing in the name of the Corporation. ARTICLE 9 INSPECTION OF BOOKS The Board of Directors shall determine from time to time whether, and if allowed, to what extent and at what time and places and under what conditions and regulations, the accounts and books of the Corporation (except such as may by law be specifically open to inspection) or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the Corporation. ARTICLE 10 FISCAL YEAR The fiscal year of the Corporation shall be January 1 to December 31. The Board of Directors shall have power to fix and from time to time to change the fiscal year of the Corporation. ARTICLE 11 AMENDMENTS These By-Laws may be altered, amended, changed or repealed and new By-Laws adopted by the stockholders or, to the extent provided in the Certificate of Incorporation, by the Board of Directors, in either case at any meeting called for that purpose at which a quorum shall be present. Any by-law, whether made, altered, amended, changed or repealed by the stockholders or the Board of Directors may be repealed, amended, changed, further amended, changed, repealed or reinstated, as the case may be, either by the stockholders or by the Board of Directors, as herein provided; except that this Article may be altered, amended, changed or repealed only by vote of the stockholders. 20 -17- ARTICLE 12 LIABILITY AND INDEMNIFICATION SECTION 1. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, trustee, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. Derivative Indemnity. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, trustee, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. 21 -18- SECTION 3. Attorneys' Fees. To the extent that any person referred to in Paragraphs (a) and (b) of this Article 12 has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to therein, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 4. Determination of Indemnity. Any indemnification under paragraphs (a) and (b) of this Article 12 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such paragraphs (a) and (b) of this Article 12. Such determination shall be made (1) by the Board of Directors by a majority vote of the directors who were not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 5. Advance Payment. Expenses (including attorney's fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking reasonably satisfactory to the Board of Directors by or on behalf of such director or officer to repay such amount (including an evaluation of his or her ability to so repay) if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article 12. Such expenses (including attorney's fees) incurred by other employees and agents of the Corporation may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. SECTION 6. Non-Exclusive Remedy. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Paragraphs of this Article 12 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. SECTION 7. Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, trustee, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his 22 -19- status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 12. SECTION 8. Merger and Consolidation. For purposes of this Article 12, references to "the Corporation" include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued would have had power and authority to indemnify its directors, officers and employees or agents so that any person who is or was a director, trustee, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article 12 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. SECTION 9. Other Enterprises. For purposes of this Article 12, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall mean only such service as is specifically authorized by the Corporation's Board of Directors, and shall include any service as a director, trustee, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, trustee, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article 12. SECTION 10. Survival of Indemnity. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 12 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. EX-3.5 6 AMENDED AND RESTATED BY-LAWS 1 Exhibit 3.5 AMENDED AND RESTATED BY-LAWS OF NET.GENESIS CORP. Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS 1.1 These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to the certificate of incorporation and by-laws mean the provisions of the certificate of incorporation and the by-laws as are from time to time in effect. Section 2. OFFICES 2.1 Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. 2.2 Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. Section 3. STOCKHOLDERS 3.1 Location of Meetings. All meetings of the stockholders shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the board of directors. Any adjourned session of any meeting shall be held at the place designated in the vote of adjournment. 3.2 Annual Meeting. The annual meeting of stockholders shall be held at 10:00 a.m. on the fourth Wednesday in May in each year (unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday) (the "Specified Date"), or at such other date and time as shall be designated from time to time by the board of directors, at which the stockholders shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting. 3.3 Special Meeting in Place of Annual Meeting. If the election for directors shall not be held on the day designated by these by-laws, the directors shall cause the election to be held as soon thereafter as convenient, and to that end, if the annual meeting is omitted on the day herein provided therefor or if the election of directors shall not be held thereat, a special meeting of the stockholders may be held in place of such omitted meeting or election, and any business transacted or election held at such special meeting shall have the same effect as if transacted or held at the annual meeting, and in such case all references in these by-laws to the annual meeting of the stockholders, or to the annual election of directors, shall be deemed to refer to or include such special meeting. Any such special meeting shall be called and the purposes thereof shall be specified in the call, as provided in Section 3.4. 3.4 Notice of Annual Meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such 2 meeting not less than ten nor more than sixty days before the date of the meeting. Such notice may specify the business to be transacted and actions to be taken at such meeting. No action shall be taken at such meeting unless such notice is given, or unless waiver of such notice is given by the holders of outstanding stock having not less than the minimum number of votes necessary to take such action at a meeting at which all shares entitled to vote thereon were voted. Prompt notice of all action taken in connection with such waiver of notice shall be given to all stockholders not present or represented at such meeting. 3.5 Other Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors. Such request shall state the purpose or purposes of the proposed meeting and business to be transacted at any special meeting of the stockholders. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 3.6 Notice of Special Meeting. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. No action shall be taken at such meeting unless such notice is given, or unless waiver of such notice is given by the holders of outstanding stock having not less than the minimum number of votes necessary to take such action at a meeting at which all shares entitled to vote thereon were voted. Prompt notice of all action taken in connection with such waiver of notice shall be given to all stockholders not present or represented at such meeting. 3.7 Notice of Stockholder Business at Annual Meeting. The following provisions of this Section 3.7 shall apply to the conduct of business at any annual meeting of the stockholders. (As used in this Section 3.7, the term annual meeting shall include a special meeting in lieu of an annual meeting.) (a) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the corporation's notice of meeting, (ii) by or at the direction of the board of directors or (iii) by any stockholder of the corporation who is a stockholder of record at the time of giving of the notice provided for in Section 3.7(b), who is entitled to vote at such meeting and who has complied with the notice procedures set forth in Section 3.7(b). (b) For business to be properly brought before any annual meeting of the stockholders by a stockholder pursuant to clause (iii) of 3.7(a), the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days prior to the date for such annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if the annual meeting of stockholders is to be held on a date prior -2- 3 to the Specified Date, and if less than seventy (70) days' notice or prior public disclosure of the date of such annual or special meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the date on which notice of the date of such meeting was mailed or the day on which public disclosure was made of the date of such meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, the name and address of the beneficial owner, if any, on whose behalf the proposal is made, and the name and address of any other stockholders or beneficial owners known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder of record, by the beneficial owner, if any, on whose behalf the proposal is made and by any other stockholders or beneficial owners known by such stockholder to be supporting such proposal, and (iv) any material interest of such stockholder of record and/or of the beneficial owner, if any, on whose behalf the proposal is made, in such proposed business and any material interest of any other stockholders or beneficial owners known by such stockholder to be supporting such proposal in such proposed business, to the extent known by such stockholder. (c) Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 3.7. The person presiding at the annual meeting shall, if the facts warrant, determine that business was not properly brought before the meeting and in accordance with the procedures prescribed by these by-laws, and if he should so determine, he shall so declare at the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 3.7, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (or any successor provision), and the rules and regulations thereunder with respect to the matters set forth in this Section 3.7. (d) This provision shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the board of directors, but, in connection with such reports, no new business shall be acted upon at such meeting unless properly brought before the meeting as herein provided. 3.8 Stockholder List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place -3- 4 of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 3.9 Quorum of Stockholders. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise required by law, or by the certificate of incorporation or by these by-laws. Except as otherwise provided by law, no stockholder present at a meeting may withhold his shares from the quorum count by declaring his shares absent from the meeting. 3.10 Adjournment. Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these by-laws, which time and place shall be announced at the meeting, by a majority of votes cast upon the question, whether or not a quorum is present. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 3.11 Proxy Representation. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. Except as provided by law, a revocable proxy shall be deemed revoked if the stockholder is present at the meeting for which the proxy was given. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. 3.12 Inspectors. The directors or the person presiding at the meeting may, but need not, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote -4- 5 with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 3.13 Action by Vote. When a quorum is present at any meeting, whether the same be an original or an adjourned session, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 3.14 No Action by Consent. Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly constituted annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. Section 4. DIRECTORS 4.1 Number. The number of directors which shall constitute the whole board shall not be less than two nor more than nine, except that whenever there shall be only one stockholder, such number shall be not less than one. Within the foregoing limits, the number of directors shall be determined by resolution of the board of directors and may be increased or decreased at any time or from time to time by the directors by vote of a majority of directors then in office, except that any such decrease by vote of the directors shall only be made to eliminate vacancies existing by reason of the death, resignation or removal of one or more directors. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 4.7 of these by-laws. Directors need not be stockholders. 4.2 Tenure. Except as otherwise provided by law, by the certificate of incorporation or by these by-laws, each director shall hold office until the next annual meeting and until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified. 4.3 Classes of Directors. The board of directors shall be and is divided into three classes: Class I, Class II and Class III, each having as nearly as possible the same number of directors. If a fraction is contained in the quotient arrived at by dividing the designated number of directors by three, then, if such fraction is one-third, the extra director shall be a member of Class III, and if such fraction is two-thirds, one of the extra directors shall be a member of Class II and the other shall be a member of Class III, unless otherwise provided from time to time by resolution adopted by the board of directors. 4.4 Terms of Office. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, that each initial director in Class I shall serve for a term ending on the date of the annual meeting in 2000; each initial director in Class II shall serve for a term ending on the -5- 6 date of the annual meeting in 2001; and each initial director in Class III shall serve for a term ending on the date of the annual meeting in 2002; and provided further, that the term of each director shall be subject to the election and qualification of his successor and to his earlier death, resignation or removal. 4.5 Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors. In the event of any increase or decrease in the authorized number of directors, (a) each director then serving as such shall nevertheless continue as a director of the class of which he is a member and (b) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the board of directors among the three classes of directors so as to ensure that the classes have as nearly as possible the same number of directors. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the board of directors. 4.6 Powers. The business of the corporation shall be managed by or under the direction of the board of directors which shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 4.7 Vacancies. Any vacancy in the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, shall be filled by the vote of a majority of the directors then in office, although less than a quorum, or by the sole remaining director. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. A director elected to fill a vacancy shall hold office until the next election of the class for which such director has been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. 4.8 Nomination of Directors. The following provisions of this Section 4.8 shall apply to the nomination of persons for election to the board of directors at any annual meeting or special meeting of stockholders. (a) Nominations of persons for election to the board of directors of the corporation at any annual meeting or special meeting of stockholders may be made (i) by or at the direction of the board of directors or (ii) by any stockholder of the corporation who is a -6- 7 stockholder of record at the time of giving of notice provided for in Section 4.8(b), who is entitled to vote for the election of directors at the meeting and who has complied with the notice procedures set forth in Section 4.8(b). (b) Nominations by stockholders shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation, not less than sixty (60) days prior to the date for the annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if the annual meeting of stockholders or a special meeting in lieu thereof is to be held on a date prior to the Specified Date, and if less than seventy (70) days' notice or prior public disclosure of the date of such annual or special meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the date of such annual or special meeting was mailed or the day on which public disclosure was made of the date of such annual or special meeting. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or pursuant to any other then existing statute, rule or regulation applicable thereto (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the corporation's books, of such stockholder and (B) the class and number of shares of the corporation which are beneficially owned by such stockholder and also which are owned of record by such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf the nomination is made, (A) the name and address of such person and (B) the class and number of shares of the corporation which are beneficially owned by such person. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee as a director. At the request of the board of directors, any person nominated by the board of directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. (c) No person shall be eligible for election as a director of the corporation at any annual meeting or special meeting of stockholders unless nominated in accordance with the procedures set forth in this Section 4.8. The person presiding at the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by these by-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 4.8, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (or any successor provision), and the rules and regulations thereunder with respect to the matters set forth in this by-law. -7- 8 4.9 Committees. The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers and authority of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. 4.10 Regular Meeting. Regular meetings of the board of directors may be held without call or notice at such place within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. 4.11 Special Meetings. Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the president or by any one of the directors calling the meeting. 4.12 Notice. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting, addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 4.13 Quorum. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors -8- 9 then in office shall constitute a quorum. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each director so disqualified, provided that a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 4.14 Action by Vote. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 4.15 Action Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. 4.16 Participation in Meetings by Conference Telephone. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors or of any committee thereof may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person at such meeting. 4.17 Compensation. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and the performance of their responsibilities as directors and may be paid a fixed sum for attendance at each meeting of the board of directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The board of directors may also allow compensation for members of special or standing committees for service on such committees. 4.18 Interested Directors and Officers. (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: -9- 10 (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. 4.19 Resignation or Removal of Directors. Directors of the corporation may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at an election of directors. Any director may resign at any time by delivering his resignation in writing to the president or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time; and without in either case the necessity of its being accepted unless the resignation shall so state. No director resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director removed shall have any right to receive compensation as such director for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. Section 5. NOTICES 5.1 Form of Notice. Whenever, under the provisions of law, or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, telecopy, commercial delivery service, telex or similar means, addressed to such director or stockholder at his address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the -10- 11 persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given. 5.2 Waiver of Notice. Whenever notice is required to be given under the provisions of law, the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders, directors or members of a committee of the directors need be specified in any written waiver of notice. Section 6. OFFICERS AND AGENTS 6.1 Enumeration; Qualification. The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation one or more vice presidents. Any officer may be, but none need be, a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 6.2 Powers. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 6.3 Election. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a secretary and a treasurer. Other officers may be appointed by the board of directors at such meeting, at any other meeting or by written consent. At any time or from time to time, the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 6.4 Tenure. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his successor is elected and qualified unless a shorter period shall have been specified in terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent of the corporation shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power. -11- 12 6.5 President and Vice Presidents. The president shall be the chief executive officer and shall have direct and active charge of all business operations of the corporation and shall have general supervision of the entire business of the corporation, subject to the control of the board of directors. He shall preside at all meetings of the stockholders and of the board of directors at which he is present, except as otherwise voted by the board of directors. The president or treasurer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Any vice presidents shall have such duties and powers as shall be designated from time to time by the board of directors or by the president. 6.6 Treasurer and Assistant Treasurers. The treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be assigned to him from time to time by the board of directors or by the president. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 6.7 Secretary and Assistant Secretaries. The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all writings of, or related to, action by stockholder or director consent. In the absence of the secretary from any meeting, an assistant secretary, or if there is none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed, the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. The secretary shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. 6.8 Resignation and Removal. Any officer may resign at any time by delivering his resignation in writing to the president or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in any case the necessity of its being accepted unless the resignation shall so state. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. No officer resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no officer removed shall have any right to any compensation as such officer for any period following his resignation or removal, -12- 13 or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. 6.9 Vacancies. If the office of the president or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that office may choose a successor. Each such successor shall hold office for the unexpired term of his predecessor, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Section 7. CAPITAL STOCK 7.1 Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the president or a vice-president and (i) the treasurer or an assistant treasurer or (ii) the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 7.2 Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 8. TRANSFER OF SHARES OF STOCK 8.1 Transfer on Books. Subject to any restrictions with respect to the transfer of shares of stock, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be -13- 14 otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. Section 9. GENERAL PROVISIONS 9.1 Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action to which such record date relates. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. If no record date is fixed, (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed; and (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating to such purpose. 9.2 Dividends. Dividends upon the capital stock of the corporation may be declared by the board of directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. 9.3 Payment of Dividends. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors -14- 15 from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 9.4 Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. 9.5 Fiscal Year. The fiscal year of the corporation shall begin on the first day of January in each year and shall end on the last day of December next following, unless otherwise determined by the board of directors. 9.6 Seal. The board of directors may, by resolution, adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word "Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the board of directors. Section 10. INDEMNIFICATION The following provisions shall apply with respect to the indemnification of, and advancement of expenses to, certain parties as set forth below: 10.1 General. The corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that such person is or was, or has agreed to become, a director or officer of the corporation, or is or was serving or has agreed to serve, at the request of the corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation (including any partially or wholly owned subsidiary of the corporation), partnership, joint venture, trust or other enterprise (including any employee benefit plan) (each of such persons being referred to as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in connection with such action, suit or proceeding and any appeal therefrom, if (i) the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the corporation and (ii) with respect to any criminal action or proceeding, the Indemnitee had no reasonable cause to believe the Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee did -15- 16 not act in good faith, did not act in a manner that the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the corporation or, with respect to any criminal action or proceeding, did not have reasonable cause to believe that the Indemnitee's conduct was unlawful. Notwithstanding anything to the contrary in this Section 10, except as set forth in Section 10.3(b), the corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the corporation. The corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in the corporation's favor by reason of the fact that the Indemnitee is or was, or has agreed to become, a director or officer of the corporation, or is or was serving as a director, officer or trustee of, or in a similar capacity with, another corporation (including any partially or wholly owned subsidiary of the corporation), partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in connection with such action, suit or proceeding and any appeal therefrom, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of Delaware shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) that the Court of Chancery of the State of Delaware shall deem proper. Notwithstanding any other provision of this Section 10, to the extent that an Indemnitee has been successful, on the merits or otherwise (including a disposition without prejudice), in defense of any action, suit or proceeding referred to in Section 10.1, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, the Indemnitee shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe the Indemnitee's conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. -16- 17 If any Indemnitee is entitled under any provision of this Section 10.1 to indemnification by the corporation for a portion, but not all, of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf, the corporation shall indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 10.2 Advancement of Expenses. Subject to Section 10.3(b), in the event that the corporation does not assume a defense pursuant to 10.3(a) of any action, suit, proceeding or investigation of which the corporation receives notice under this Section 10, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the corporation in advance of the final disposition of such matter; provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the corporation as authorized in this Section 10. Any such undertaking by an Indemnitee shall be accepted without reference to the financial ability of the Indemnitee to make such repayment. 10.3 Procedures. As a condition precedent to any Indemnitee's right to be indemnified, the Indemnitee must promptly notify the corporation in writing of any action, suit, proceeding or investigation involving the Indemnitee for which indemnity will or may be sought. With respect to any action, suit, proceeding or investigation of which the corporation is so notified, the corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee; provided that the corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the corporation or as to which counsel for the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the corporation and the Indemnitee in the conduct of the defense of such claim. After notice from the corporation to the Indemnitee of its election so to assume such defense, the corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided in Section 10.1. The Indemnitee shall have the right to employ the Indemnitee's own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the corporation, (ii) counsel to the Indemnitee has reasonably concluded that there may be a conflict of interest or position on any significant issue between the corporation and the Indemnitee in the conduct of the defense of such action or (iii) the corporation has not in fact employed counsel to assume the defense of such action, in each of -17- 18 which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the corporation except as otherwise expressly provided by this Section 10. In order to obtain indemnification or advancement of expenses pursuant to this Section 10, an Indemnitee shall submit to the corporation a written request therefor, which request shall include documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within sixty days after receipt by the corporation of the written request of the Indemnitee, unless with respect to requests under Sections 10.1(a), 10.1(B) or 10.2, the corporation determines, by clear and convincing evidence, within such sixty-day period, that any Indemnitee did not meet the applicable standard of conduct set forth in 10.1(A), 10.1(B) or 10.2. Such determination shall be made in each instance by (i) a majority vote of the directors of the corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), even though less than a quorum, (ii) a majority vote of a quorum of the outstanding shares of capital stock of all classes entitled to vote for directors, which quorum shall consist of stockholders who are not at that time parties to the action, suit, proceeding or investigation in question, (iii) independent legal counsel (who may be regular legal counsel to the corporation), or (iv) a court of competent jurisdiction. The right of an Indemnitee to indemnification or advancement of expenses pursuant to this Section 10 shall be enforceable by the Indemnitee in any court of competent jurisdiction if the corporation denies, in whole or in part, a request of an Indemnitee in accordance with Section 10.3(b) or if no disposition thereof is made within the sixty-day period referred to in Section 10.3(b). Unless otherwise provided by law, the burden of proving that an Indemnitee is not entitled to indemnification or advancement of expenses pursuant to this Section 10 shall be on the corporation. Neither the failure of the corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met any applicable standard of conduct, nor an actual determination by the corporation pursuant to Section 10.3(b) that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing the Indemnitee's right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the corporation. 10.4. Rights Not Exclusive. The right of an Indemnitee to indemnification and advancement of expenses pursuant to this Section 10 shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under any law (common or statutory), agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in the Indemnitee's official capacity and as to action in any other capacity while holding office for the corporation, and shall continue as to an Indemnitee who has ceased to serve in the capacity with respect to which the -18- 19 Indemnitee's right to indemnification or advancement of expenses accrued, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Section 10 shall be deemed to prohibit, and the corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures supplemental to those set forth in this Section 10. The corporation may, to the extent authorized from time to time by its board of directors, grant indemnification rights to other employees or agents of the corporation or other persons serving the corporation and such rights may be equivalent to, or greater or less than, those set forth in this Section 10. In addition, the corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation (including any partially or wholly owned subsidiary of the corporation), partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by such a person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General corporation Law of the State of Delaware. 10.5. Subsequent Events. No amendment, termination or repeal of this Section 10 or of any relevant provisions of the General corporation Law of the State of Delaware or any other applicable law shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions of this Section 10 with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the effective date of such amendment, termination or repeal. If the General corporation Law of the State of Delaware is amended after adoption of this Section 10 to expand further the indemnification permitted to any Indemnitee, then the corporation shall indemnify the Indemnitee to the fullest extent permitted by the General corporation Law of the State of Delaware, as so amended, without the need for any further action with respect to this Section 10. If the corporation is merged into or consolidated with another corporation and the corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the corporation under this Section 10 with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or factors occurring prior to the date of such merger or consolidation. 10.6. Invalidation. If any or all of the provisions of this Section 10 shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the corporation, to the fullest extent permitted by any applicable provision of this Section 10 that shall not have been -19- 20 invalidated and to the fullest extent permitted by the General Corporation Law of the State of Delaware or any other applicable law. 10.7. Definitions. Unless defined elsewhere in this Amended and Restated Certificate of Incorporation, any term used in this Section 10 and defined in Section 145(h) or (i) of the General Corporation Law of the State of Delaware shall have the meaning ascribed to such term in such Section 145(h) or (i), as the case may be. Section 11. AMENDMENTS 11.1 By the Board of Directors. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the board of directors at which a quorum is present. 11.2 By the Stockholders. Notwithstanding any other provision of these by-laws, and notwithstanding the fact that a lesser percentage may be specified by law, these by-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of at least eighty percent (80%) of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any regular or special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such regular or special meeting. -20- EX-10.1 7 1995 INCENTIVE STOCK OPTION PLAN 1 Exhibit 10.1 net.Genesis Corp. 1995 INCENTIVE STOCK OPTION PLAN TABLE OF CONTENTS SECTION Page 1. PURPOSE .................................................. 1 2. ADMINISTRATION OF THE PLAN ............................... 1 3. OPTION SHARES ............................................ 1 4. AUTHORITY TO GRANT OPTIONS ............................... 1 5. WRITTEN AGREEMENT ........................................ 2 6. ELIGIBILITY .............................................. 2 7. OPTION PRICE ............................................. 2 8. DURATION OF OPTIONS ...................................... 3 9. RESTRICTION ON EXERCISE OF OPTIONS ....................... 3 10. EXERCISE OF OPTIONS ...................................... 3 11. NONTRANSFERABILITY OF OPTIONS ............................ 4 12. TERMINATION OF EMPLOYMENT OF OPTIONEE WITH THE COMPANY ... 5 13. REQUIREMENTS OF LAW ...................................... 5 14. NO RIGHTS AS STOCKHOLDER ................................. 6 15. EMPLOYMENT OBLIGATION .................................... 6 16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE .......... 6 17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE ............... 7 18. AMENDMENT OR TERMINATION OF PLAN ......................... 8 20. EFFECTIVE DATE AND DURATION OF THE PLAN .................. 13 2 net.Genesis Corp. 1995 INCENTIVE STOCK OPTION PLAN 1. PURPOSE The purpose of this 1995 Incentive Stock option Plan (the "Plan") is to encourage key employees of net.Genesis Corp. (the "Company") to continue their association with the Company, by providing favorable opportunities for such persons to participate in the ownership of the Company and in its future growth through the granting of stock options (the "Options") designed to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). A person to whom an option has been granted pursuant to the Plan is hereinafter referred to as an "Optionee". 2. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Board of Directors, which shall have the authority to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. All questions of interpretation and application of such rules and regulations, of the Plan or of Options granted thereunder shall be subject to the determination, which shall be final and binding, of a majority of the Board of Directors. The Plan shall be administered in such a manner as to Permit those Options granted hereunder and specially designated under Section 4 hereof to qualify as "incentive stock options" as described in Section 422A of the Code. 3. OPTION SHARES The stock subject to options under the Plan shall be shares of the Company's common stock, no par value per share (the "Stock"). At no time shall the number of shares of Stock with respect to which outstanding Options have been granted plus the number of shares of Stock issued as a result of the exercise of options under the Plan and which are still outstanding exceed in the aggregate 1,316,809 shares (the "Option Pool"); provided that such aggregate number of shares shall be subject to adjustment in accordance with the provisions of Section 17. In the event that any outstanding Option shall expire for any reason or shall terminate by reason of the death or severance of employment of the Optionee, the surrender of any such option, or any other cause, the shares of Stock allocable to the unexercised portion of such option may again be subject to an option under the Plan. Should the Company repurchase any shares of Stock which were acquired pursuant to the exercise of options granted under the Plan, such shares may be returned to the Option Pool pursuant to a vote of the Board of Directors, subject, however, to the Option Pool size limitation set forth above. 4. AUTHORITY TO GRANT OPTIONS The Board of Directors may grant from time to time, to such eligible individuals as it shall from time to time determine, an option or Options to buy a stated-number of shares of 3 Stock under the terms and conditions of the Plan. Subject only to any applicable limitations set forth elsewhere in the Plan, the number of shares of Stock to be covered by any option shall be as determined by the Board of Directors. 5. WRITTEN AGREEMENT Options granted hereunder shall be embodied in written option agreements (which need not be identical) in such forms as the Board of Directors may from time to time approve (each an "Option Agreement"). Option Agreements shall be subject to the terms and conditions prescribed herein and shall be signed by the Optionee and by the President or any Vice President of the Company for and in the name and on behalf of the Company. The written Option Agreement for any Option may contain such provisions not inconsistent with this Plan as the Board of Directors in its discretion may deem advisable. 6. ELIGIBILITY The individuals who shall be eligible for grant of options under the Plan shall be key employees (including officers who may be members of the Board), who render services of special importance to the management, operation, or development of the Company and who have contributed or may be expected to contribute materially to the success of the Company. If required to insure compliance with Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), the selection of a director as a participant and the number of shares for which an option may be granted to such director shall be determined either (i) by the Board of Directors, of which a majority, as well as a majority of the directors acting in the matter, shall be "disinterested persons" (as hereinafter defined) or (ii) by, or only in accordance with, the recommendations of a committee of three or more persons having full authority to act in the matter, of which all members shall be "disinterested persons". For purposes of the Plan, a director or member of such committee shall be deemed to be "disinterested" only if such person qualifies as a "disinterested person" within the meaning of Rule 16.b-3 under the Exchange Act, or any successor rule, as such term is interpreted from time to time. 7. OPTION PRICE The price at which shares may be purchased pursuant to an option shall be specified by the Board of Directors at the time the option is granted, but shall not be less than the fair market value of the shares of Stock on the date the option is granted. In the case of any employee who owns (or is considered under Section 424(d) as owning) stock possessing more than ten percent (10%.) of the total combined voting power of all classes of stock of the Company, the price at which shares may be so purchased pursuant to an incentive stock option shall be not less than one hundred ten percent (110%) of the fair market value of the Stock on the date the ISO is granted. For purposes of the Plan, the "fair market value" of a share of Stock on any date specified herein shall mean (a) the last reported sales price, regular way, or, in the event that no sale takes place on such day, the average of the reported lowest closing bid and asked prices, regular way, -2- 4 in either case (i) as reported on the New York Stock Exchange Composite Tape, or (ii) if the Stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities-...exchange on which such security is listed or admitted to trading, or (iii) if not then listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System; or (b) if the stock is not quoted on such National Market System, (i) the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ, or (ii) if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average . of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly-making a market in such security selected for such purpose by the Board of Directors; or (c) if the Stock is not then listed or admitted to trading on any national exchange or quoted in the over-the-counter market, the fair value thereof determined in good faith by the Board of Directors as of a date which is within thirty (30) days of the date as of which the determination is to be made; provided, however, that any method of determining fair market value employed by the Board of Directors with respect to an ISO shall be consistent with any applicable laws or regulations pertaining to "incentive stock options". 8. DURATION OF OPTIONS The duration of any option shall be specified by the Board of Directors in the Option Agreement, but no Option shall be exercisable after the expiration-of ten (10) years from the date such option is granted. In the case of any employee who owns (or is considered under Section 4 24(d) of the Code as owning) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, no Option shall be exercisable after the expiration of five (5) years from the date such option is granted. The Board of Directors, in its sole and absolute discretion, may extend any Option theretofore granted subject to the aforesaid limits and may provide that an Option shall be exercisable during its entire duration or during any lesser period of time. 9. RESTRICTION ON EXERCISE OF OPTIONS Notwithstanding any other provision of the Plan, the aggregate fair market value (determined as of the time the Option is granted) of the Stock with respect to which ISOs may be exercisable for the first time by an Optionee during any calendar year (under the Plan or any other incentive stock option plan(s) of the Company) shall not exceed $100,000. Subject to the foregoing, each Option may be exercised so long as it is valid and outstanding from time to time, in part or as a whole, in such manner and subject to such conditions as the Board of Directors, in its sole and absolute discretion, may provide in the option Agreement. 10. EXERCISE OF OPTIONS Each Option may be exercised from time to time in such amounts as is provided in the Option Agreement by the delivery of written notice to the Company setting forth the number of shares with respect to which the Option is to be exercised, accompanied by payment of the option price of such shares, which payment shall he made, subject to the alternative provisions of this Section, in cash or by such cash equivalents, payable to the order of the Company in an -3- 5 amount in United States dollars equal to the option price of such shares, as the Board of Directors in its discretion shall consider acceptable. Such notice shall be delivered in person to the Secretary of the Company or shall be sent by registered mail, return receipt requested, to the Secretary of the Company, in which case delivery shall be deemed made on the date such notice is deposited in the mail. Alternatively, payment of the option price may be made, in whole or in part, in shares of Stock owned by the Optionee; provided, however, that the Optionee may not make payment in shares of Stock that he acquired upon the earlier exercise of any ISO, unless he has held the shares until at least two (2) years after the date the ISO was granted and at least one (1) year after the date the ISO was exercised. If payment is made in whole or in part in shares of Stock, then the Optionee shall deliver to the Company in payment of the option price of the shares with respect of which such Option is exercised (i) certificates registered in the name of such Optionee representing a number of shares of Stock legally and beneficially owned by such optionee, free of all liens, claims and encumbrances of every kind and having a fair market value on the date of delivery of such notice equal to the option price of the shares with respect to which such option is to be exercised, such certificates to be accompanied by stock powers duly endorsed in blank by the record holder of the shares represented by such certificates; and (ii) if the option price of the shares with respect to which such Option is to be exercised exceeds such fair market value, cash or such cash equivalents payable to the order to the Company, in an amount in United States dollars equal to the amount of such excess, as the Board of Directors in its discretion shall consider acceptable. Notwithstanding the foregoing provisions of this Section, the Board of Directors, in its sole discretion, may refuse to accept shares of Stock in payment of the option price of the shares with respect to which such option is to be exercised and, in that event, any certificates representing shares of Stock which were delivered to the Company with such written notice shall be returned to such Optionee together with notice by the Company to such Optionee of the refusal of the Board of Directors to accept such shares of Stock. Alternatively, if the Option Agreement so specifies, payment of the option price may be made in part by a promissory note executed by the optionee and collaterally secured by the Stock obtained upon exercise of the Option, providing for repayment at such time or times as the Board of Directors shall specify; provided, however, (a) that such promissory note shall provide for repayment no later than five (5) years from the date of exercise and for interest at a rate not less than the "base" rate announced on the date of exercise by [BANK] and (b) the payment of such exercise price by promissory note does not violate any applicable laws or regulations, including, without limitation, margin lending rules. The decision as to whether to permit partial payment by a promissory note for Stock to be issued upon exercise of any option granted shall rest entirely in the discretion of the Board of Directors. As promptly as practicable after the receipt by the Company of (i) written notice from the optionee setting forth the number of shares with respect to which such Option is to be exercised and (ii) payment of the option price of such shares in the form required by the foregoing provisions of this Section, the Company shall cause to be delivered to such optionee certificates representing the number of shares with respect to which such Option has been so exercised. 11. NONTRANSFERABILITY OF OPTIONS -4- 6 No Option shall be transferable by the Optionee, either voluntarily or by operation of law, except by will or pursuant to the laws of descent and distribution. During the life of an Optionee, an option shall be exercisable only by such Optionee. 12. TERMINATION OF EMPLOYMENT OF OPTIONEE WITH THE COMPANY Options shall be exercisable after the Optionee's termination of employment with the Company only within the period of three (3) months after the date the Optionee ceases to be in the employ of the Company, and only to the extent to which the Optionee was entitled to exercise the option immediately prior to the termination of his or her employment. If, before the date of expiration of the Option, the Optionee shall be retired in good standing from the employ of the Company for reasons of age under the then established rules of the Company, the option shall terminate on the earlier of such date of expiration or three (3) months after the date of such retirement. In the event of the death of the holder of an Option before the date of expiration of such option and while in the employ of the Company or during the three (3) month . period described in the preceding sentence, or in the event of the retirement of the Optionee for reasons of disability (within the meaning of Section 22(e)(3) of the Code), such Option shall terminate on the earlier of such date of expiration or one (1) year following the date of such death or retirement. After the death of the Optionee, his or her executors, administrators or any persons to whom his or her Option may be transferred by will or by the laws of descent and distribution shall have the right at any time prior to such termination to exercise the Option to the extent to which the Optionee was entitled to exercise the Option on the date of his or her death. Authorized leave of absence or absence on military or government service shall not constitute severance of the employment relationship between the Company and the Optionee for purposes of the Plan, provided that either (i) such absence is for a period of no more than ninety (90) days or (ii) the Optionee's right to re-employment after such absence is guaranteed either by statute or by contract. 13. REQUIREMENTS OF LAW The Company shall not be required to sell or issue any shares of Stock upon the exercise of any Option if the issuance of such shares shall constitute or result in a violation by the Optionee or the Company of any provisions of any law, statute or regulation of any governmental authority. Specifically, in connection with the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities or "blue sky" law (a "Blue Sky Law"), upon exercise of any Option the Company shall not be required to issue such shares unless the Board of Directors has received evidence satisfactory to it to the effect that the holder of such Option will not transfer such shares except pursuant to a registration statement in effect under the Securities Act and Blue Sky Laws or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration and compliance is not required. Any determination in this connection by the Board of Directors shall be final, binding and conclusive. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an option or the issuance of shares of Stock pursuant thereto to comply -5- 7 with any law or regulations of any governmental authority, including, without limitation, the Securities Act or applicable Blue Sky laws. Notwithstanding any other provision of the Plan to the contrary, the Company may refuse to permit transfer of shares of Stock if in the opinion of its legal counsel such transfer would violate federal or state securities laws or subject the Company to liability thereunder. Any sale, assignment, transfer, pledge or other disposition of shares of Stock received upon exercise of any option (or any other shares or securities derived therefrom) which is not in accordance with the provisions of this section shall be void and of no effect and shall not be recognized by the Company. The Company shall not be required to sell or issue any shares upon the exercise of any Option if the Board of Directors is advised by counsel that the issuance of such shares would result in the termination of any then effective election of the Company to be taxed as an S corporation pursuant to the Code. Legend on Certificates. The Board of Directors may cause any certificate representing shares of Stock acquired upon exercise of an option (and any other shares or securities derived therefrom) to bear a legend to the effect that the securities represented by such certificate have not been registered under the Securities Act or any applicable state securities laws, and may not be sold, assigned, transferred, pledged or otherwise disposed of except in accordance with the Plan and applicable agreements binding the holder and the Company or any of its stockholders. 14. NO RIGHTS AS STOCKHOLDER No Optionee shall have rights as a stockholder with respect to shares covered by his or her Option until the date of issuance of a stock certificate for such shares. Except as otherwise provided in Section 17 no adjustment for dividends or other rights shall be made if the record date therefor is prior to the date of issuance of such certificate. 15. EMPLOYMENT OBLIGATION Nothing in this Plan nor the granting of any option under this Plan shall (i) impose upon the Company any obligation to employ or continue to employ any Optionee, or to engage or retain the services of any person, (ii) diminish or affect the right of the Company to terminate the employment or services of any person or (iii) affect the ability of the Company to increase or decrease the compensation of any person. The existence of any Option shall not be taken into account in determining any damages relating to termination of employment for any reason. 16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE Notwithstanding anything to the contrary in the Plan, if the Board of Directors determines, after full consideration of the facts presented on behalf of both the Company and an Optionee, that -6- 8 (a) the Optionee has been engaged in fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her employment by or involvement with the Company which damaged the Company or has made unauthorized disclosure of trade secrets or other proprietary information of the Company or of a third party who has entrusted such information to the Company, or (b) the Optionee's employment or involvement was otherwise terminated for "cause", as defined in any employment agreement with the Optionee, if applicable, or if there is no such agreement, as determined by the Board of Directors, which may determine that "cause" includes among other matters the failure or inability of the Optionee to carry out his or her assigned duties diligently and in a manner satisfactory to the Company, then the Optionee's right to exercise an Option shall terminate as of the date of such act (in the case of (a)) or such termination (in the case of (b)) and the Optionee shall forfeit all unexercised Options. If an optionee whose behavior the Company asserts falls within the provisions of (a) or (b) above has exercised or attempts to exercise an Option prior to a decision of the Board of Directors, the Company shall not be required to recognize such exercise until the Board of Directors has made its decision and, in the event of any exercise shall have taken place, it shall be of no force and effect (and void ab initio) if the Board of Directors makes an adverse determination; provided, however, if the Board of Directors finds in favor of the Optionee then the Optionee will be deemed to have exercised such Options retroactively as of the date he or she originally gave written notice of his or her attempt to exercise or actual exercise, as the case may be. The decision of the Board of Directors as to the cause of an Optionee's discharge and the damage done to the Company shall be final, binding and conclusive. No decision of the Board of Directors, however, shall affect in any manner the finality of the discharge of such Optionee by the Company. 17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE The existence of outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business or any merger or consolidation of the Company or any issue of bonds, debentures, preferred or preference stock, whether or not convertible into the Stock or other securities, ranking prior to the Stock or affecting the rights thereof, or warrants, rights or options to acquire the same, or the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise. The number of shares of Stock in the Option Pool (less the number of shares theretofore delivered upon exercise of options) and the number of shares of Stock covered by any outstanding Option and the price per share payable upon exercise thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Stock resulting from the subdivision, split, combination or consolidation of shares of Stock or any other capital adjustment, the payment of a Stock dividend or any other increase in such shares effected without receipt of consideration by the Company or any other decrease therein effected without a -7- 9 distribution of cash or property in connection therewith, provided, however, that no adjustment shall be made that would constitute a modification as defined in Section 424(h)(3) of the Code. Upon the occurrence of a Change of Control as defined in this Section 17: (i) after the effective date of such Change of Control, each holder of an outstanding Option, shall be entitled, upon exercise of such Option, to receive, in lieu of shares of Stock (or consideration based upon the fair market value of Stock), shares of such stock or other securities, cash or property (or consideration based upon shares of such stock or other securities, cash or property) as the holders of shares of Stock received in connection with the Change of Control; and (ii) the vesting schedule, if any, of each unexercised and unexpired Option, shall, effective immediately prior to the effective date of such Change of Control, be accelerated by twelve (12) months such that an additional number of shares, equal to the number that under the terms of the Option in question would have vested had the holder remained employed during the twelve (12) month period following the effective date of the Change of Control, will vest immediately prior to the effective date of the Change of Control. A "Change of Control" shall mean the occurrence of any one of the following events: (i) any "person" becomes a "beneficial owner" (as such terms are defined in Rule 13d-3 promulgated under the Securities and Exchange Act of 1934, as amended) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; (ii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation or other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Except as expressly provided herein, the issue by the Company of shares of Stock or other securities of any class or securities convertible into or exchangeable or exercisable for shares of Stock or other securities of any class for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall he made with respect to, the number, class or price of shares of Stock then subject to outstanding options. -8- 10 18. AMENDMENT OR TERMINATION OF PLAN The Board may, in its sole and absolute discretion, modify, revise or terminate the Plan at any time and from time to time; provided, however, that without the further approval of the holders of at least a majority of the outstanding shares of Stock, the Board may not (a) materially increase the benefits accruing to Optionees under the Plan or make any "modifications" as that term is defined under Section 424(h)(3) (or its successor) of the Code if such increase in benefits or modifications would adversely affect (i) the availability to the Plan of the protections of Section 16(b) of the Securities Exchange Act, if applicable to the Company, or (ii) the qualification of the Plan or any options for "incentive stock option" treatment under Section 422 of the Code; (b) change the aggregate number of shares of Stock which may be issued under Options pursuant to the provisions of the Plan; (c) reduce the option price at which ISOs may be granted to an amount less than the fair market value per share, or 110% of fair market value as the case may be, at the time the Option is granted; or (d) change the class of persons eligible to receive ISOs. Notwithstanding the preceding sentence, the Board shall in all events have the power and authority to make such changes in the Plan and in the regulations and administrative provisions hereunder or in any outstanding option as, in the opinion of counsel for the Company, may be necessary or appropriate from time to time to enable any Option granted pursuant to the Plan to qualify as an ISO or such other stock option as may be defined under the Code, as amended from time to time, so as to receive preferential federal income tax treatment. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionee affected, the Board may amend outstanding option agreements in a manner not inconsistent with the Plan. 19. CERTAIN-RIGHTS OF THE COMPANY Unless an Optionee's Option Agreement specifically provides to the contrary, or an Optionee has entered into an employment, stockholder or other agreement with the Company which provides for the repurchase of options or stock in the event such Optionee's employment or involvement with the Company terminates, the provisions of this Section 19 shall apply to each option granted under the Plan and to the shares of Stock acquired on exercise thereof. a. Justifiable Termination of Employment or Involvement. if the Optionee's employment by or involvement with the Company is terminated on account of any circumstance listed in Section 16 (a) or (b) (a "Justifiable Termination"), the Company shall have the right to repurchase all or any of the shares of Stock acquired by the Optionee pursuant to the exercise of any options (or any other shares or securities derived from such shares of Stock) at the lesser of (i) the exercise price per share or (ii) the Repurchase Price. If the option price for any repurchased shares has been paid by the Optionee's promissory note pursuant to Section 10, then the repurchase price for such shares of Stock shall be first applied to the repayment of the outstanding amount, if any, due under such note in respect of the repurchased shares, and any accrued but unpaid interest thereon. The Company's right to repurchase shares of Stock (or other shares or securities) may be exercised at any time during the period beginning on the date of the Optionee's termination of employment and ending ninety (90) days after the later of (a) the date of such termination and (b) the date on which shares of Stock (or other shares or securities) -9- 11 subject to the repurchase rights of this Section are acquired by the Optionee. Any such shares of Stock (or other shares or securities) as to which the-Company does not exercise its repurchase rights within such period shall thereafter be free of the restrictions of this Section. b. Right of First Refusal on Dispositions by Optionee. An optionee may not sell, assign, transfer or otherwise dispose of any Unvested Stock (as defined below) without the prior written approval of the Company. In the event an optionee proposes to sell, assign, transfer or otherwise dispose of any or all of his Vested Stock (as defined below), or with the Company's written approval, Unvested Stock, the optionee will notify in writing (the "Notification") the Company of the optionee's intention to do so, specifying the number of shares of Option Stock proposed to be transferred (the "Offered Shares"), the name of the person or persons to whom the optionee proposes to transfer the offered Shares (or if no particular purchaser is identified, then the general class of persons to whom he proposes to transfer the Offered Shares), and a price per share which shall be the minimum price at which he proposes to effect the transfer (the "Minimum Price"). The Notification shall contain a copy or recitation of all the terms and conditions of the proposed transfer of the offered Shares at the Minimum Price to such person or persons (or class of persons) and an undertaking that a condition of such transfer shall be the agreement of each transferee to be bound by and be deemed to be an optionee for the purposes of this Plan. The Notification shall offer to sell to the Company the Offered Shares, free and clear of any liens or encumbrances in favor of third persons, at (a) in the case of Vested Stock, the Minimum Price and (b) in the case of Unvested Stock, the price the optionee acquired the Offered Shares, adjusted for all splits, stock dividends and similar adjustments (the "Acquisition Price"). The Company shall act upon the offer of the optionee by giving written notice (the "Company's Notice") to the optionee setting forth the Company's intention as to any or all of the Offered Shares. The Company's Notice shall be given as soon as practicable after receipt of the Notification, and in all events within thirty (30) days after such receipt, such thirty (30) day period being herein referred to as the "Company's Acceptance Period." In the event the Company shall elect to purchase or acquire any of the offered Shares, written notice to the optionee of such election to purchase or so acquire any of the Offered Shares shall, when taken in conjunction with the Notification, be deemed to constitute a valid and legally binding purchase and sale agreement as to those Offered Shares. If the Company fails to accept the offer to sell all of the Offered Shares, the optionee shall be free to proceed to sell all but not less than all of the remaining Offered Shares to the person or persons (or class of persons) specified in the Notification at not less than the Minimum Price. If the optionee fails to complete his proposed sale within a period of ninety (90) days after the date of the Notification, then the Offered Shares shall once again be subject to the requirement of a prior offer pursuant to the provisions of this Section. The closing of a purchase and sale of Offered Shares pursuant hereto shall take place at the principal executive offices of the Company on the ninetieth (90th) day following the date of the Notification unless another time is mutually agreed upon, at which time the optionee shall deliver the stock certificate or certificates representing the Offered Shares so sold (duly endorsed -10- 12 or accompanied by a duly executed stock power or assignment to effect transfer of ownership to the purchaser or purchasers on the records of the Company) against the Optionee's receipt of payment in cash (by certified check, bank cashier's check or wire transfer). c. Involuntary Disposition. It is the intent of the Company that any involuntary disposition of the shares of Option Stock of the Company owned by an optionee and still subject to the restrictions under Section 19 of this Plan, including dispositions pursuant to a divorce or separation proceeding or any other judicial proceeding, be subject to the prior rights of the Company hereunder and that any such disposition be deemed to be an offer to sell to the Company (a) all shares of Unvested Stock at the Acquisition Price and (b) all shares of Vested Stock at the Repurchase Price. The Company shall act upon the deemed offer under this Section within the time periods and following the procedures set forth in Section 19(a), with the date of the deemed offer being the later of the date of the Company's receipt of written notice setting forth the existence of such an involuntary disposition event and the date of such involuntary disposition event, such later date being the date of Notification for the purpose of Section 19(a). Repurchase Price. As used herein the term "Repurchase Price" shall mean the fair market value of a share of Stock as determined by the Company's independent accountants. In making their determination of-fair market value of a share of Stock the accountants will not take into account that the Stock may be illiquid or may constitute a minority interest in the Company. The fees and expenses of the accountants will be paid equally by the Company and the Stockholder or the Stockholder's estate, as the case may be. Company Note. The term "Company Note" shall mean a promissory note of the Company having a maturity of no more than five (5) years, with equal annual principal payments and bearing interest on the same terms as the Company is required to pay under its bank loans from its primary lending bank, or, if it is not then a borrower, on the same terms as it last was required to pay on such borrowings or, if it has not been a-borrower within the prior twelve months, at an annual rate equal to the prime or base commercial lending rate announced by on the date of the note plus one percent (1%) per annum. The note shall provide that if interest is not paid on a due date, the accrued interest shall be added to the principal of the note as of such due date. The note shall provide for prepayment without penalty of principal and interest in whole or in part at any time. The note shall by its terms be subordinate to, and the holder of the note by receiving the same shall be deemed to have subordinated payment thereof to, indebtedness of the Company then or thereafter existing to banks, financial institutions or others who provide debt based working capital to the Company; provided, however, that so long as the Company shall not be in default with respect to said indebtedness, the holder of the note shall be entitled to receive payments of the principal of and interest accrued upon the note in accordance with its terms. d. Permitted Transfers; Lifting of Restrictions. The provisions of Section 19 shall not apply to any proposed sale, assignment, transfer or other disposition of Vested Stock pursuant to a registration statement filed by the Company pursuant to the Securities Act of 1933, as amended (a "Public Offering"). -11- 13 As used herein, the term "Vested Stock" shall mean and include for any optionee at any time the meaning set forth in the applicable written option agreement for the Option Stock to which it applies. The term "Unvested Stock" shall mean and include for any optionee at any time the number of shares of Option Stock which are not Vested Stock. e. Death of An Optionee. In the event of the death of an optionee he will be deemed to have voluntarily terminated his Relationship with the Company and to have offered to sell to the Company all of his Unvested Stock at the Acquisition Price. The Company shall act upon the deemed offer of a deceased optionee as soon as practicable after the death of the optionee and in any event within ninety (90) days. If the Company fails to accept the offer to sell all of a deceased optionee's shares, the representative of the deceased optionee may proceed to sell, distribute or otherwise dispose of said shares, subject to the other provisions of this Plan. f. Disability of An Optionee. In the event of the disability of an optionee which materially prevents the optionee from performing his work for the Company, he will be deemed to have voluntarily terminated his Relationship with the Company and to have offered to sell to the Company all of his Unvested Stock at the Acquisition Price. The Company shall act upon the offer of a disabled optionee as soon as practicable after such disability of the optionee and in any event within ninety (90) days. If the Company fails to accept the offer to sell all of a disabled optionee's shares, the disabled optionee or representative of the disabled optionee may proceed to sell, distribute or otherwise dispose of said shares, subject to the other provisions of this Plan. g. Termination of Employment or Other Relationship with the Company. In the event an optionee's employment by the Company (or if the optionee is not an employee, his or her active consulting, work or other involvement with the Company) is terminated voluntarily, for cause or without cause, the terminated optionee will be deemed to have offered to sell to the Company all Unvested Stock in the Company owned by him and still subject to the restrictions in this Section 19 at the Acquisition Price. The employment or other active involvement of an optionee with the Company is hereinafter referred to as the optionee's "Relationship" with the Company. The determination of whether an optionee's Relationship with the Company has terminated shall be made by the Board of Directors, whose determination shall be final and binding on the optionee. The Company shall act upon the offer of a terminated optionee within ninety (90) days of termination. If the Company fails to accept the offer to sell all of a terminated optionee's shares, such terminated optionee may proceed to sell, distribute or otherwise dispose of said shares, subject to the other provisions of this Plan. h. Securities Laws; Transfers In Violation of Plan. Notwithstanding any other provision of this Plan the Company may refuse to permit transfer of the Offered Shares if in the opinion of its legal counsel such transfer would violate securities laws or subject the Company to liability thereunder. Any sale, transfer, pledge or other disposition of shares of Stock which is -12- 14 not in accordance with the provisions of this Section 19 shall be void and of no effect and shall not be recognized by the Company. 20. EFFECTIVE DATE AND DURATION OF THE PLAN The Plan shall become effective and shall be deemed to have been adopted on ________________ subject only to ratification by the holders of at least a majority of the outstanding shares of Stock within twelve (12) months after such date. Unless the Plan shall have terminated earlier, the Plan shall terminate on the tenth (10th) anniversary of its effective date, and no option shall be granted pursuant to the Plan after the day preceding the tenth (10th) anniversary of its effective date. -13- 15 Exhibit 1 to Stock Option Plan Form of Incentive Stock Option Certificate net.Genesis Corp. *** Stock Option Agreement Option Certificate Number: _______________________ Specific Terms of the Option Subject to the terms and conditions hereinafter set forth and the terms and conditions of the net.Genesis Corp. 1995 Incentive Stock Option Plan (the "Plan"), net.Genesis Corp., a Delaware corporation (the "Company") hereby grants the following option to purchase Common Stock, no par value per share (the "Stock") of the Company: 1. Name of Person to Whom the Option is granted (the "Optionee"): _________________________________________. 2. Date of Grant of Option: _____________________ . 3. An Option for _____________ shares of Common Stock. 4. Option Exercise Price (per share): $_____________. 5. Term of Option: Subject to Section 9 below, this option expires at 5:00 pm Eastern Time on _____________________________. 6. Exercise Schedule: Provided that on the dates set forth below the Optionee is still employed by the Company or, if the Optionee is not employed by the Company the Optionee is still actively involved in the Company (as determined by the Board of Directors) the Option will become exercisable as follows and as provided in Section 9 below:
The Option will Cumulative On This Become Exercisable as Number Date To This Number of Shares Exercisable
-1- 16 Does Section 19 of the Plan apply to Stock covered by this Option? Yes ________ No ________ net.Genesis Corp. By:_________________________________ X________________________________ Title: (Signature of Optionee) Date: Optionee's Address: ___________________________________________________________ -2- 17 OTHER TERMS OF THE OPTION WHEREAS, the Board of Directors (the "Board") has authorized the grant of stock options upon certain terms and conditions set forth herein; and WHEREAS, the Board has authorized the grant of this stock option pursuant and subject to the terms of the Plan, a copy of which is available from the Company and is hereby incorporated herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Optionee agree as set forth on the first page hereof and as follows: 7. Grant. Pursuant and subject to the Plan, the Company does hereby grant to the Optionee a stock option (the "Option") to purchase from the Company the number of shares of its Common Stock set forth in Section 3 on the first page hereof upon the terms and conditions set forth in the Plan and upon the additional terms and conditions contained herein. This Option is intended to qualify for special federal income tax treatment as an "incentive stock option" pursuant to Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Option Price. This Option may be exercised at the option price per share of Stock -set forth in Section 4 on page 1 hereof, subject to adjustment as provided herein and in the Plan. 9. Term and Exercisability of Option. This Option shall expire on the date determined pursuant to Section 5 on page 1 hereof and shall be exercisable prior to that date in accordance with and subject to the conditions set forth in the Plan and those conditions, if any, set forth in Section 6 on page 1 hereof. In addition in the event that before this option has been exercised in full, the Optionee ceases to be an employee of the Company for any reason other than death or a termination for dishonesty or other "cause" as provided in Section 16 of the Plan, the Optionee may exercise this Option to the extent that he or she might have exercised it on the date of termination of his or her employment, during the period ending on the earlier of (i) the date on which the option expires in accordance with Section 5 of this Agreement or (ii) three months after the date of termination of the Optionee's employment by the Company. In the event of the death of the Optionee before this Option has been exercised in full, the personal representative of the Optionee may exercise this Option to the extent that the Optionee might have exercised it on the date of his or her death, during the period ending on the earlier of (i) the date on which the Option expires in accordance with Section 5 of this Agreement or (ii) the first anniversary of the date of the Optionee's death. 10. Method of Exercise. To the extent that the right to purchase shares of Stock has accrued hereunder, this Option may be exercised from time to time by written notice to the Company substantially in the form attached hereto as Exhibit A, stating the number of shares with respect to which this Option is being exercised, and accompanied by payment in full of the option price for the number of shares to be delivered, by means of payment acceptable to the Company in accordance with Section 10 of the Plan. As soon as practicable after its receipt of -3- 18 such notice, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise this option), deliver to the Optionee (or other person entitled to exercise this option), at the principal executive offices of the Company or such other place as shall be mutually acceptable, a certificate or certificates for such shares out of theretofore authorized but unissued shares or reacquired shares of its Stock as the Company may elect; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable-diligence to comply with any applicable requirements of law. Payment of the option price may be made in cash or cash equivalents, [or, in accordance with the terms and conditions of Section 10 of the Plan, (a) in whole or in part in shares of Common Stock of the Company, or (b) in part by promissory note of the Optionee in the form attached hereto as Exhibit B; provided, however, that the Board reserves the right upon receipt of any written notice of exercise from the Optionee to require payment in cash with respect to the shares contemplated in such notice]. If the Optionee (or other person entitled to exercise this Option) fails to pay for and accept delivery of all of the shares specified in such notice upon tender of delivery thereof, his or her right to exercise this Option with respect to such shares not paid for may be terminated by the Company. 11. Non-assignability of Option Rights. This Option shall not be assignable or transferable by the Optionee except by will or by the laws of descent and distribution. During the life of the Optionee, this Option shall be exercisable only by him or her. 12. Compliance with Securities Act. The Company shall not be obligated to sell or issue any shares of Stock or other securities pursuant to the exercise of this option unless the shares of Stock or other securities with respect to which this Option is being exercised are at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and applicable state securities laws. In the event shares or other securities shall be issued which shall not be so registered, the Optionee hereby represents, warrants and agrees that he or she will receive such shares or other securities for investment and not with a view to their resale or distribution, and will execute an appropriate investment letter satisfactory to the Company and its counsel. 13. Legends. The Optionee hereby acknowledges that the stock certificate or certificates evidencing shares of Stock or other securities issued pursuant to any exercise of this option will bear a legend setting forth the restrictions on their transferability described in Section 12 hereof and, if-applicable to this Option, in Section 19 of the Plan. 14. Rights as Stockholder. The Optionee shall have no rights as a stockholder with respect to any shares of Stock or other securities covered by this Option until the date of issuance of a certificate to him or her for such shares or other securities. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 15. Notice to Company of Disqualifying Disposition. The Optionee hereby agrees that he or she will promptly give notice to the Company in the event that he or she sells, transfers, exchanges or otherwise disposes of any shares of Stock or other securities obtained pursuant to any exercise of this option before the day after the later of (a) the second anniversary -4- 19 of the date of grant set forth at the conclusion of this Agreement and (b) the first anniversary of-the date on which the shares of Stock or other securities were transferred to him or her pursuant to his or her exercise of this Option. 16. Termination or Amendment of Plan. The Board may in its sole and absolute discretion at any time terminate or from time to time modify and amend the Plan, but no such termination or amendment will affect rights and obligations under this option. 17. Effect Upon Employment. Nothing in this option or the Plan shall be construed to impose any obligation upon the-Company to employ the Optionee or to retain the Optionee in its employ, or continue its involvement with, the Optionee. 18. Time for Acceptance. Unless the Optionee shall evidence his acceptance of this option by execution of this Agreement within seven (7) days after its delivery to him or her, the Option and this Agreement shall be null and void. 19. General Provisions. a. Amendment; Waivers. This Agreement, including the Plan, contains the full and complete understanding and agreement of the parties hereto as to the subject matter hereof and may not be modified or amended, nor may any provision hereof be waived, except by a further written agreement duly signed by each of the parties. The waiver by either of the parties hereto of any provision hereof in any instance shall not operate as a waiver of any other provision hereof or - -in any other instance. b. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, representatives, successors and assigns. c. Construction. This Agreement is to be construed in accordance with the terms of the Plan. In case of any conflict between the Plan and this Agreement, the Plan shall control. The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions. The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires. d. Notices. Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered in hand or sent by registered mail to the party addressed as follows, unless another address has been substituted by notice so given: To the Optionee: To his or her address as listed on the books of the Company. -5- 20 To the Company: net.Genesis Corp. 526 Beacon Street Boston, Massachusetts 02215-2396 Copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attention: Joseph G. Hadzima, Jr. -6- 21 EXHIBIT A to Incentive Stock Option [FORM FOR EXERCISE OF INCENTIVE STOCK OPTION] net.Genesis Corp. 526 Beacon Street Boston, Massachusetts 02215-2396 RE: Exercise of Incentive Stock Opt-ion under net.Genesis Corp, 1995 Stock Option Plan Gentlemen: Please take notice that the undersigned hereby elects to exercise the stock option granted to ________________________ on ________________, 199__ by and to the extent of purchasing ____________ shares of the Common Stock of net.Genesis Corp. for the option price of $________ per share, subject to the terms and conditions of the incentive Stock Option Agreement between _________________ and net.Genesis Corp. dated as of ___________199__. The undersigned encloses herewith payment, in cash or in such other property as is permitted under the Plan, of the purchase price for said shares. If the undersigned is making payment of any part of the purchase price by delivery of shares of Common Stock of net.Genesis Corp., he or she hereby confirms that he or she has investigated and considered the possible income tax consequences to him or her of making such payments in that form. The undersigned hereby specifically confirms to net.Genesis Corp. that he or she is acquiring said shares for investment and not with a view to their sale or distribution, and that said shares shall he held subject to all of the terms and conditions of said Incentive Stock Option Agreement. Very truly yours, Date (Signed by __________________________or other party duly exercising option) -7- EX-10.2 8 1999 STOCK INCENTIVE PLAN 1 Exhibit 10.2 NET.GENESIS CORP. 1999 STOCK INCENTIVE PLAN SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS The name of the plan is the net.Genesis Corp. 1999 Stock Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable officers and employees of net.Genesis Corp. (the "Company") or its Subsidiaries and certain other persons providing services to or acting as directors of the Company to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company's welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The Company intends that this purpose will be effected by the granting of Awards (as defined below) under the Plan. The following terms shall be defined as set forth below: "Award" or "Awards", except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Statutory Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share Awards and Stock Appreciation Rights. "Board" means the Board of Directors of the Company. "Cause" means (i) any material breach by the participant of any agreement to which the participant and the Company are both parties, (ii) any act (other than Normal Retirement) or omission to act by the participant which may have a material and adverse effect on the Company's business or on the participant's ability to perform services for the Company, including, without limitation, the commission of any crime (other than minor traffic violations), or (iii) any material misconduct or material neglect of duties by the participant in connection with the business or affairs of the Company or any Subsidiary or Affiliate of the Company. "Change of Control" shall have the meaning set forth in Section 15. "Code" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "Committee" shall have the meaning set forth in Section 2. "Disability" means disability as set forth in Section 22(e)(3) of the Code. "Effective Date" means the date on which the Plan is approved by stockholders as set forth in Section 17. "Eligible Person" shall have the meaning set forth in Section 4. "Fair Market Value" on any given date means the closing price per share of the Stock on such date as reported by a nationally recognized stock exchange, or, if the Stock is not listed on such an exchange, as 2 reported by NASDAQ, or, if the Stock is not quoted on NASDAQ, the fair market value of the Stock as determined by the Committee. "Incentive Stock Option" means any Stock Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. "IPO" shall have the meaning set forth in Section 5. "IPO Director" shall have the meaning set forth in Section 5. "IPO Effective Date" shall have the meaning set forth in Section 5. "Non-Employee Director" any director of the Company who is not an employee of the Company or any Subsidiary. "Non-Statutory Stock Option" means any Stock Option that is not an Incentive Stock Option. "Normal Retirement" means retirement from active employment with the Company and its Subsidiaries in accordance with the retirement policies of the Company and its Subsidiaries then in effect. "Outside Director" means any director who (i) is not an employee of the Company or of any "affiliated group," as such term is defined in Section 1504(a) of the Code, which includes the Company (an "Affiliate"), (ii) is not a former employee of the Company or any Affiliate who is receiving compensation for prior services (other than benefits under a tax-qualified retirement plan) during the Company's or any Affiliate's taxable year, (iii) has not been an officer of the Company or any Affiliate and (iv) does not receive remuneration from the Company or any Affiliate, either directly or indirectly, in any capacity other than as a director. "Outside Director" shall be determined in accordance with Section 162(m) of the Code and the Treasury regulations issued thereunder. "Option" or "Stock Option" means any option to purchase shares of Stock granted pursuant to Section 5. "Performance Share Award" means an Award granted pursuant to Section 8. "Restricted Stock" shall have the meaning set forth in Section 6. "Restricted Stock Award" means an Award granted pursuant to Section 6. "Request" shall have the meaning set forth in Section 9. "Stock" means the Common Stock, $.001 par value per share, of the Company, subject to adjustments pursuant to Section 3. "Stock Appreciation Right" means an Award granted pursuant to Section 9. "Subsidiary" means a subsidiary as defined in Section 424 of the Code. "Unrestricted Stock Award" means an award granted pursuant to Section 7. SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS 2 3 (a) Committee. The Plan shall be administered by a committee of the Board (the "Committee") consisting of not less than two (2) Outside Directors, but the authority and validity of any act taken or not taken by the Committee shall not be affected if any person administering the Plan is not an Outside Director. The Committee shall select one of its members as its chairman and shall hold its meetings at such times and places as it shall deem advisable. A majority of its members shall constitute a quorum, and all actions of the Committee shall require the affirmative vote of a majority of its members. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be as fully effective as if it had been taken by a vote of a majority of the members at a meeting duly called and held. Except as specifically reserved to the Board under the terms of the Plan, the Committee shall have full and final authority to operate, manage and administer the Plan on behalf of the Company. Action by the Committee shall require the affirmative vote of a majority of all members thereof. (b) Powers of Committee. The Committee shall have the power and authority to grant and modify Awards consistent with the terms of the Plan, including the power and authority: (i) to select the persons to whom Awards may from time to time be granted; (ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Statutory Stock Options, Restricted Stock, Unrestricted Stock, Performance Shares and Stock Appreciation Rights, or any combination of the foregoing, granted to any one or more participants; (iii) to determine the number of shares to be covered by any Award; (iv) to determine and modify the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and participants, and to approve the form of written instruments evidencing the Awards; provided, however, that no such action shall adversely affect rights under any outstanding Award without the participant's consent; (v) to accelerate the exercisability or vesting of all or any portion of any Award; (vi) subject to the provisions of Section 5(b), to extend the period in which any outstanding Stock Option or Stock Appreciation Right may be exercised; (vii) to determine whether, to what extent, and under what circumstances Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the participant and whether and to what extent the Company shall pay or credit amounts equal to interest (at rates determined by the Committee) or dividends or deemed dividends on such deferrals; (viii) to delegate to other persons the responsibility for performing ministerial actions in furtherance of the Plan's purpose; and (ix) to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan. All decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan participants. SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION 3 4 (a) Shares Issuable. The maximum number of shares of Stock with respect to which Awards (including Stock Appreciation Rights) may be granted under the Plan, subject to adjustment upon changes in capitalization of the Company as provided in this Section 3, shall be 3,500,000 shares of Stock, which number shall increase by 500,000 shares on each of the first three anniversaries of the date of adoption of the Plan, up to a maximum of 5,000,000 shares of Stock. For purposes of this limitation, the shares of Stock underlying any Awards which are forfeited, canceled, reacquired by the Company or otherwise terminated (other than by exercise) shall be added back to the shares of Stock with respect to which Awards may be granted under the Plan so long as the participants to whom such Awards had been previously granted received no benefits of ownership of the underlying shares of Stock to which the Awards related. Subject to such overall limitation, any type or types of Award may be granted with respect to shares, including Incentive Stock Options. Shares issued under the Plan may be authorized but unissued shares or shares reacquired by the Company. (b) Limitation on Awards. In no event may any Plan participant be granted Awards (including Stock Appreciation Rights) with respect to more than 1,000,000 shares of Stock in any calendar year. The number of shares of Stock relating to an Award granted to a Plan participant in a calendar year that is subsequently forfeited, cancelled or otherwise terminated shall continue to count toward the foregoing limitation in such calendar year. In addition, if the exercise price of an Award is subsequently reduced, the transaction shall be deemed a cancellation of the original Award and the grant of a new one so that both transactions shall count toward the maximum shares issuable in the calendar year of each respective transaction. (c) Stock Dividends, Mergers, etc. In the event that after approval of the Plan by the stockholders of the Company in accordance with Section 17, the Company effects a stock dividend, stock split or similar change in capitalization affecting the Stock, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock or securities with respect to which Awards may thereafter be granted (including without limitation the limitations set forth in Sections 3(a) and (b) above), (ii) the number and kind of shares remaining subject to outstanding Awards, and (iii) the option or purchase price in respect of such shares. (d) Substitute Awards. The Committee may grant Awards under the Plan in substitution for stock and stock based awards held by employees of another corporation who concurrently become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. Shares which may be delivered under such substitute awards may be in addition to the maximum number of shares provided for in Sections 3(a) and 3(b). SECTION 4. ELIGIBILITY Awards may be granted to officers, directors and employees of the Company or its Subsidiaries and to consultants and other individuals providing services to the Company or its Subsidiaries ("Eligible Persons"). SECTION 5. STOCK OPTIONS The Committee may grant Stock Options to Eligible Persons pursuant to the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Options granted under the Plan may be either Incentive Stock Options or Non-Statutory Stock Options. Unless otherwise so designated, an Option shall be a Non-Statutory Stock Option. To the extent that any option does not qualify as an Incentive Stock Option, it shall constitute a Non-Statutory Stock Option. 4 5 No Incentive Stock Option shall be granted under the Plan after the tenth anniversary of the earlier of (i) the date of adoption of the Plan by the Board or (ii) the date on which the Plan is approved by the stockholders as set forth in Section 17. Non-Statutory Stock Options shall automatically be granted to all Non-Employee Directors as follows: (1) Each Non-Employee Director who is serving on the Board on the effective date (the "IPO Effective Date") of the initial public offering (the "IPO") of the Stock and who continues to serve after the closing of the IPO (an "IPO Director") shall be granted an Option to purchase 25,000 shares of Stock as of the IPO Effective Date, such Option to vest in annual installments over three years from the date of grant. (2) Following the IPO, each Non-Employee Director who is not an IPO Director shall be granted an Option to purchase 25,000 shares of Stock at the close of business on the date such Non-Employee Director is first elected to serve on the Board, such Option to vest in annual installments over three years from the date of grant. (3) Following the IPO, each Non-Employee Director who is serving on the Board at the adjournment of any annual meeting which begins after the date of his or her election shall be granted an Option to purchase 5,000 shares of Stock at the close of business on the date of each such adjournment, such Option to be fully vested upon the date of grant. Subject to execution by the Non-Employee Director of an appropriate option agreement, the Committee may grant additional Non-Statutory Stock Options to purchase a number of shares to be determined by the Committee in recognition of services provided by a Non-Employee Director in his or her capacity as a director, provided that such grants are in compliance with the requirements of Rule 16b-3, as promulgated under the Securities Exchange Act of 1934, as amended from time to time ("Rule 16b-3"). The Committee in its discretion may determine the effective date of Stock Options, provided, however, that grants of Incentive Stock Options shall be made only to persons who are, on the effective date of the grant, employees of the Company or any Subsidiary. Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and the terms and conditions of Sections 10 and 15 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable: (a) Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Committee at the time of grant but shall be, in the case of Incentive Stock Options, not less than one hundred percent (100%) of Fair Market Value on the date of grant. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation and an Incentive Stock Option is granted to such employee, the option price shall be not less than one hundred ten percent (110%) of Fair Market Value on the grant date. (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Incentive Stock Option shall be exercisable more than ten (10) years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation and an Incentive Stock Option is granted to such employee, the term of such option shall be no more than five (5) years from the date of grant. 5 6 (c) Exercisability; Rights of a Stockholder. Stock Options shall become vested and exercisable at such time or times, whether or not in installments, as shall be determined by the Committee at or after the grant date. The Committee may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. (d) Method of Exercise. Stock Options may be exercised in whole or in part, by delivering written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Committee; (ii) in the form of shares of Stock that are not then subject to restrictions, if permitted by the Committee, in its discretion. Such surrendered shares shall be valued at Fair Market Value on the exercise date; (iii) by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure. The Company need not act upon such exercise notice until the Company receives full payment of the exercise price; or (iv) by any other means (including, without limitation, by delivery of a promissory note of the optionee payable on such terms as are specified by the Committee; provided, however, that the interest rate borne by such note shall not be less than the lowest applicable federal rate, as defined in Section 1247(d) of the Code) which the Committee determines are consistent with the purpose of the Plan and with applicable laws and regulations. The delivery of certificates representing shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the Optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Stock Option or imposed by applicable law. (e) Non-transferability of Options. Except as the Committee may provide with respect to a Non-Statutory Stock Option, no Stock Option shall be transferable other than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee. (f) Annual Limit on Incentive Stock Options. To the extent required for "incentive stock option" treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Stock with respect to which incentive stock options granted under this Plan and any other plan of the Company or its Subsidiaries become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. (g) Form of Settlement. Shares of Stock issued upon exercise of a Stock Option shall be free of all restrictions under the Plan, except as otherwise provided in this Plan. 6 7 SECTION 6. RESTRICTED STOCK AWARDS (a) Nature of Restricted Stock Award. The Committee in its discretion may grant Restricted Stock Awards to any Eligible Person, entitling the recipient to acquire, for a purchase price determined by the Committee, shares of Stock subject to such restrictions and conditions as the Committee may determine at the time of grant ("Restricted Stock"), including continued employment and/or achievement of pre-established performance goals and objectives. (b) Acceptance of Award. A participant who is granted a Restricted Stock Award shall have no rights with respect to such Award unless the participant shall have accepted the Award within 10 days (or such shorter date as the Committee may specify) following the delivery of written notice to the participant of the Award by making payment to the Company of the specified purchase price of the shares covered by the Award and by executing and delivering to the Company a written instrument that sets forth the terms and conditions applicable to the Restricted Stock in such form as the Committee shall determine. (c) Rights as a Stockholder. Upon complying with Section 6(b) above, a participant shall have all the rights of a stockholder with respect to the Restricted Stock, including voting and dividend rights, subject to non-transferability restrictions and Company repurchase or forfeiture rights described in this Section 6 and subject to such other conditions contained in the written instrument evidencing the Restricted Award. Unless the Committee shall otherwise determine, certificates evidencing shares of Restricted Stock shall remain in the possession of the Company until such shares are vested as provided in Section 6(e) below. (d) Restrictions. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein. In the event of termination of employment by the Company and its Subsidiaries for any reason (including death, Disability, Normal Retirement and for Cause), the Company shall have the right, at the discretion of the Committee, to repurchase shares of Restricted Stock with respect to which conditions have not lapsed at their purchase price, or to require forfeiture of such shares to the Company if acquired at no cost, from the participant or the participant's legal representative. The Company must exercise such right of repurchase or forfeiture within 60 days following such termination of employment (unless otherwise specified in the written instrument evidencing the Restricted Stock Award). (e) Vesting of Restricted Stock. The Committee at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company's right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed "vested." The Committee at any time may accelerate such date or dates and otherwise waive or, subject to Section 13, amend any conditions of the Award. (f) Waiver, Deferral and Reinvestment of Dividends. The written instrument evidencing the Restricted Stock Award may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. SECTION 7. UNRESTRICTED STOCK AWARDS (a) Grant or Sale of Unrestricted Stock. The Committee in its discretion may grant or sell to any Eligible Person shares of Stock free of any restrictions under the Plan ("Unrestricted Stock") at a purchase price determined by the Committee. Shares of Unrestricted Stock may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration. 7 8 (b) Restrictions on Transfers. The right to receive unrestricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. SECTION 8. PERFORMANCE SHARE AWARDS Nature of Performance Shares. A Performance Share Award is an award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Committee may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. Performance Share Awards may be granted under the Plan to any Eligible Person. The Committee in its discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded Performance Shares. SECTION 9. STOCK APPRECIATION RIGHTS The Committee in its discretion may grant Stock Appreciation Rights to any Eligible Person (i) alone or (ii) simultaneously with the grant of a Stock Option and in conjunction therewith or in the alternative thereto. A Stock Appreciation Right shall entitle the participant upon exercise thereof to receive from the Company, upon written request to the Company at its principal offices (the "Request"), a number of shares of Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Committee in its sole discretion), an amount of cash, or any combination of Stock and cash, as specified in the Request (but subject to the approval of the Committee in its sole discretion, at any time up to and including the time of payment, as to the making of any cash payment), having an aggregate Fair Market Value equal to the product of (i) the excess of Fair Market Value, on the date of such Request, over the exercise price per share of Stock specified in such Stock Appreciation Right or its related Option, multiplied by (ii) the number of shares of Stock for which such Stock Appreciation Right shall be exercised. Notwithstanding the foregoing, the Committee may specify at the time of grant of any Stock Appreciation Right that such Stock Appreciation Right may be exercisable solely for cash and not for Stock. SECTION 10. TERMINATION OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS (a) Incentive Stock Options: (i) Termination by Death. If any participant's employment by the Company and its Subsidiaries terminates by reason of death, any Incentive Stock Option owned by such participant may thereafter be exercised to the extent exercisable at the date of death, by the legal representative or legatee of the participant, for a period of one year (or such longer period as the Committee shall specify at any time) from the date of death, or until the expiration of the stated term of the Incentive Stock Option, if earlier. (ii) Termination by Reason of Disability or Normal Retirement. (A) Any Incentive Stock Option held by a participant whose employment by the Company and its Subsidiaries has terminated by reason of Disability may thereafter be exercised, to the extent it was exercisable at the time of such termination, for a period of 180 days from the date of such termination of employment, or until the expiration of the stated term of the Option, if earlier. (B) Any Incentive Stock Option held by a participant whose employment by the Company and its Subsidiaries has terminated by reason of Normal Retirement may thereafter be exercised, to the extent it was exercisable at the time of such termination, for 8 9 a period of 90 days from the date of such termination of employment, or until the expiration of the stated term of the Option, if earlier. (C) The Committee shall have sole authority and discretion to determine whether a participant's employment has been terminated by reason of Disability or Normal Retirement. (D) Except as otherwise provided by the Committee at the time of grant, the death of a participant during a period provided in this Section 10(a)(ii) for the exercise of an Incentive Stock Option shall extend such period for one (1) year from the date of death, subject to termination on the expiration of the stated term of the Option, if earlier. (iii) Termination for Cause. If any participant's employment by the Company and its Subsidiaries has been terminated for Cause, any Incentive Stock Option held by such participant shall immediately terminate and be of no further force and effect; provided, however, that the Committee may, in its sole discretion at the time of such termination, provide that such Option can be exercised for a period of up to 60 days from the date of termination of employment, or until the expiration of the stated term of the Option, if earlier. (iv) Other Termination. Unless otherwise determined by the Committee, if a participant's employment by the Company and its Subsidiaries terminates for any reason other than death, Disability, Normal Retirement or for Cause, any Incentive Stock Option held by such participant may thereafter be exercised, to the extent it was exercisable on the date of termination of employment, for 60 days from the date of termination of employment, or until the expiration of the stated term of the Option, if earlier. (b) Non-Statutory Stock Options and Stock Appreciation Rights. Any Non-Statutory Stock Option or Stock Appreciation Right granted under the Plan shall contain such terms and conditions with respect to its termination as the Committee, in its discretion, may from time to time determine. SECTION 11. TAX WITHHOLDING (a) Payment by Participant. Each participant shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. (b) Payment in Shares. A Participant may elect, with the consent of the Committee, to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to an Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due with respect to such Award, or (ii) transferring to the Company shares of Stock owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due. SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC. For purposes of the Plan, the following events shall not be deemed a termination of employment: 9 10 (a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; and (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee's right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing. SECTION 13. AMENDMENTS AND TERMINATION The Board may at any time amend or discontinue the Plan and the Committee may at any time amend or cancel any outstanding Award (or provide substitute Awards at the same or reduced exercise or purchase price or with no exercise or purchase price, but such price, if any, must satisfy the requirements which would apply to the substitute or amended Award if it were then initially granted under this Plan) for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder's consent. However, no such amendment, unless approved by the stockholders of the Company, shall be effective if it would cause the Plan to fail to satisfy the incentive stock option requirements of the Code SECTION 14. STATUS OF PLAN With respect to the portion of any Award which has not been exercised and any payments in cash, Stock or other consideration not received by a participant, a participant shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company's obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the provision of the foregoing sentence. SECTION 15. CHANGE OF CONTROL PROVISIONS (a) Upon the occurrence of a Change of Control as defined in this Section 15: (i) after the effective date of such Change of Control, each holder of an outstanding Stock Option, Restricted Stock Award, Performance Share Award or Stock Appreciation Right shall be entitled, upon exercise of such Award, to receive, in lieu of shares of Stock (or consideration based upon the Fair Market Value of Stock), shares of such stock or other securities, cash or property (or consideration based upon shares of such stock or other securities, cash or property) as the holders of shares of Stock received in connection with the Change of Control; and (ii) the vesting schedule, if any, of each unexercised and unexpired Stock Option, Restricted Stock Award, Performance Share Award and Stock Appreciation Right, shall, effective immediately prior to the effective date of such Change of Control, be accelerated by twelve (12) months such that an additional number of shares, equal to the number that under the terms of the Award in question would have vested had the holder remained employed during the twelve (12) month period following the effective date of the Change of Control, will vest immediately prior to the effective date of the Change of Control. (b) "Change of Control" shall mean the occurrence of any one of the following events: (i) any "person" becomes a "beneficial owner" (as such terms are defined in Rule 13d-3 promulgated under the Securities and Exchange Act of 1934, as amended) (other than the Company, 10 11 any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or (ii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation or other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. SECTION 16. GENERAL PROVISIONS (a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. No shares of Stock shall be issued pursuant to an Award until all applicable securities laws and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of such stop orders and restrictive legends on certificates for Stock and Awards as it deems appropriate. (b) Delivery of Stock Certificates. Delivery of stock certificates to participants under this Plan shall be deemed effected for all purposes when the Company or a stock transfer agent of the Company shall have delivered such certificates in the United States mail, addressed to the participant, at the participant's last known address on file with the Company. (c) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan or any Award under the Plan does not confer upon any employee any right to continued employment with the Company or any Subsidiary. SECTION 17. EFFECTIVE DATE OF PLAN The Plan shall become effective upon approval by the holders of a majority of the shares of capital stock of the Company present or represented and entitled to vote at a meeting of stockholders. SECTION 18. GOVERNING LAW This Plan shall be governed by, and construed and enforced in accordance with, the substantive laws of the Commonwealth of Massachusetts without regard to its principles of conflicts of laws. * * * 11 EX-10.3 9 1999 EMPLOYEE STOCK PURCHASE PLAN 1 Exhibit 10.3 NET.GENESIS CORP. 1999 EMPLOYEE STOCK PURCHASE PLAN SECTION 1. PURPOSE The net.Genesis Corp. 1999 Employee Stock Purchase Plan (the "Plan") is intended to provide a method whereby employees of net.Genesis Corp. (the "Company") will have an opportunity to acquire an ownership interest (or increase an existing ownership interest) in the Company through the purchase of shares of the Common Stock of the Company. It is the intention of the Company that the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. SECTION 2. DEFINITIONS "Compensation" means, for the purpose of any Offering pursuant to this Plan, base pay in effect as of the Offering Commencement Date (as hereinafter defined). Compensation shall not include any deferred compensation other than contributions by an individual through a salary reduction agreement to a cash or deferred plan pursuant to Section 401(k) of the Code or to a cafeteria plan pursuant to Section 125 of the Code. "Board" means the Board of Directors of the Company. "Committee" means the Compensation Committee of the Board. "Common Stock" means the common stock, $.001 par value per share, of the Company. "Company" shall also include any Parent or Subsidiary of net.Genesis Corp. designated by the Board, unless the context otherwise requires. "Employee" means any person who is customarily employed at least 20 hours per week and more than five months in a calendar year by the Company. "Parent" shall mean any present or future corporation which is or would constitute a "parent corporation" as that term is defined in Section 424 of the Code. "Subsidiary" shall mean any present or future corporation which is or would constitute a "subsidiary corporation" as that term is defined in Section 424 of the Code. SECTION 3. ELIGIBILITY (a) Participation in the Plan is completely voluntary. Participation in any one or more of the offerings under the Plan shall neither limit, nor require, participation in any other offering. 2 (b) Each Employee shall be eligible to participate in the Plan on the first Offering Commencement Date, as hereafter defined, following the completion of 3 months of continuous service with the Company. Notwithstanding the foregoing, no Employee shall be granted an option under the Plan: (i) if, immediately after the grant, such Employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any Parent or Subsidiary; for purposes of this Paragraph the rules of Section 424(d) of the Code shall apply in determining stock ownership of any Employee; or (ii) which permits his rights to purchase stock under all Section 423 employee stock purchase plans of the Company and any Parent or Subsidiary to exceed $25,000 of the fair market value of the stock (determined at the time such option is granted) for each calendar year in which such option is outstanding; for purposes of this Paragraph, the rules of Section 423(b)(8) of the Code shall apply. SECTION 4. OFFERING DATES The right to purchase stock hereunder shall be made available by a series of offerings of such duration as the Committee determines (the "Offering" or "Offerings") to Employees eligible in accordance with Paragraph 3 hereof. The Committee will, in its discretion, determine the applicable date of commencement ("Offering Commencement Date") and termination date ("Offering Termination Date") for each Offering. Participation in any one or more of the Offerings under the Plan shall neither limit, nor require, participation in any other Offering. SECTION 5. PARTICIPATION Any eligible Employee may become a participant by completing a payroll deduction authorization form provided by the Company and filing it with the office of the Company's Treasurer 20 days prior to an applicable Offering Commencement Date, as determined by the Committee pursuant to Paragraph 4. A participant who obtains shares of Common Stock in one Offering will be deemed to have elected to participate in each subsequent Offering, provided such participant is eligible to participate during each such subsequent Offering and provided that such participant has not specifically elected not to participate in such subsequent Offering. Such participant will also be deemed to have authorized the same payroll deductions under Paragraph 6 hereof for each such subsequent Offering as in the immediately preceding Offering; provided however, that, during the enrollment period prior to each new Offering, the participant may elect to change such participant's payroll deductions by submitting a new payroll deduction authorization form. SECTION 6. PAYROLL DEDUCTIONS (a) At the time a participant files his or her authorization for a payroll deduction, he or she shall elect to have deductions made from his or her pay on each payday during any Offering in which he or she is a participant at a specified percentage of his or her Compensation as determined on the applicable Offering Commencement Date; said percentage shall be in increments of one percent up to a maximum percentage of 10%. (b) Payroll deductions for a participant shall commence on the applicable Offering Commencement Date when his or her authorization for a payroll deduction becomes effective and subject to the last sentence of Paragraph 5 shall end on the Offering Termination Date of the Offering to which such authorization is applicable unless sooner terminated by the participant as provided in Paragraph 10. (c) All payroll deductions made for a participant shall be credited to his or her account under the Plan. A participant may not make any separate cash payment into such account. 2 3 (d) A participant may withdraw from the Plan at any time during the applicable Offering period. SECTION 7. GRANTING OF OPTION (a) Except as provided in clause (ii) of Paragraph 3(b), on the Offering Commencement Date of each Offering, a participating Employee shall be deemed to have been granted an option to purchase a maximum number of shares of the Common Stock equal to two times an amount determined as follows: 85% of the market value per share of the Common Stock on the applicable Offering Commencement Date shall be divided into an amount equal to the percentage of the Employee's Compensation which he has elected to have withheld (but no more than 10%) multiplied by the Employee's Compensation over the Offering period. Such market value per share of the Common Stock shall be determined as provided in clause (i) of Paragraph 7(b). (b) The option price of the Common Stock purchased with payroll deductions made during each such Offering for a participant therein shall be the lower of: (i) 85% of the closing price per share on the Offering Commencement Date as reported by a nationally recognized stock exchange, or, if the Common Stock is not listed on such an exchange, as reported by the National Association of Securities Dealers Automated Quotation System ("Nasdaq") National Market System or, if the Common Stock is not listed on the Nasdaq National Market System, 85% of the mean of the bid and asked prices per share on the Offering Commencement Date or, if the Common Stock is not traded over-the-counter, 85% of the fair market value on the Offering Commencement Date as determined by the Committee; and (ii) 85% of the closing price per share on the Offering Termination Date as reported by a nationally recognized stock exchange, or, if the Common Stock is not listed on such an exchange, as reported by the Nasdaq National Market System or, if the Common Stock is not listed on the Nasdaq National Market System, 85% of the mean of the bid and asked prices per share on the Offering Termination Date or, if the Common Stock is not traded over-the-counter, 85% of the fair market value on the Offering Termination Date as determined by the Committee. SECTION 8. EXERCISE OF OPTION (a) Unless a participant gives written notice to the Treasurer of the Company as hereinafter provided, his option for the purchase of Common Stock with payroll deductions made during any Offering will be deemed to have been exercised automatically on the Offering Termination Date applicable to such Offering for the purchase of the number of full shares of Common Stock which the accumulated payroll deductions in his or her account at that time will purchase at the applicable option price (but not in excess of the number of shares for which options have been granted the Employee pursuant to Paragraph 7(a)), and any excess in his or her account at that time, other than amounts representing fractional shares, will be returned to him or her. (b) Fractional shares will not be issued under the Plan and any accumulated payroll deductions which would have been used to purchase fractional shares shall be automatically carried forward to the next Offering unless the participant elects, by written notice to the Treasurer of the Company, to have the excess cash returned to him or her. SECTION 9. DELIVERY The Company will deliver to each participant (as promptly as possible after the appropriate Offering Termination Date), a certificate representing the Common Stock purchased upon exercise of his or her option. 3 4 SECTION 10. WITHDRAWAL AND TERMINATION (a) Prior to the Offering Termination Date for an Offering, any participant may withdraw the payroll deductions credited to his or her account under the Plan for such Offering by giving written notice to the Treasurer of the Company. All of the participant's payroll deductions credited to such account will be paid to him or her promptly after receipt of notice of withdrawal, without interest, and no future payroll deductions will be made from his or her pay during such Offering. The Company will treat any attempt to borrow by a participant on the security of accumulated payroll deductions as an election to withdraw such deductions. (b) A participant's election not to participate in, or withdrawal from, any Offering will not have any effect upon his eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company. (c) Upon termination of the participant's employment for any reason, including retirement but excluding death, the payroll deductions credited to his account will be returned to him or her, or, in the case of his or her death, to the person or persons entitled thereto under Paragraph 14. (d) Upon termination of the participant's employment because of death, his or her beneficiary (as defined in Paragraph 14) shall have the right to elect, by written notice given to the Company's Treasurer prior to the expiration of a period of 90 days commencing with the date of the death of the participant, either: (i) to withdraw all of the payroll deductions credited to the participant's account under the Plan; or (ii) to exercise the participant's option for the purchase of stock on the Offering Termination Date next following the date of the participant's death for the purchase of the number of full shares which the accumulated payroll deductions in the participant's account at the date of the participant's death will purchase at the applicable option price (subject to the limitation contained in Paragraph 7(a)), and any excess in such account will be returned to said beneficiary. In the event that no such written notice of election shall be duly received by the office of the Company's Treasurer, the beneficiary shall automatically be deemed to have elected to withdraw the payroll deductions credited to the participant's account at the date of the participant's death and the same will be paid promptly to said beneficiary. SECTION 11. INTEREST No interest will be paid or allowed on any money paid into the Plan or credited to the account of any participating Employee. SECTION 12. STOCK (a) The maximum number of shares of Common Stock available for issuance and purchase by Employees under the Plan, subject to adjustment upon changes in capitalization of the Company as provided in Paragraph 17, shall be 300,000 shares of Common Stock, which number shall increase by 70,000 shares on each of the first three anniversaries of the date of adoption of the Plan, up to a maximum of 510,000 shares of Common Stock. (b) The participant will have no interest in stock covered by his or her option until such option has been exercised. 4 5 SECTION 13. ADMINISTRATION The Plan shall be administered by the Committee. The interpretation and construction of any provision of the Plan and adoption of rules and regulations for administering the Plan shall be made by the Committee. Determinations made by the Committee with respect to any matter or provision contained in the Plan shall be final, conclusive and binding upon the Company and upon all participants, their heirs or legal representatives. Any rule or regulation adopted by the Committee shall remain in full force and effect unless and until altered, amended, or repealed by the Committee. SECTION 14. DESIGNATION OF BENEFICIARY A participant shall file with the Treasurer of the Company a written designation of a beneficiary who is to receive any Common Stock and/or cash under the Plan. Such designation of beneficiary may be changed by the participant at any time by written notice. Upon the death of a participant and upon receipt by the Company of proof of the identity and existence at the participant's death of a beneficiary validly designated by him or her under the Plan, the Company shall deliver such Common Stock and/or cash to such beneficiary. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such Common Stock and/or cash to the executor or administrator of the estate of the participant. No beneficiary shall prior to the death of the participant by whom he or she has been designated, acquire any interest in the Common Stock and/or cash credited to the participant under the Plan. SECTION 15. TRANSFERABILITY Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive Common Stock under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge, or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Paragraph 10. SECTION 16. USE OF FUNDS All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. SECTION 17. EFFECT OF CHANGES OF COMMON STOCK If the Company shall subdivide or reclassify the Common Stock which has been or may be subject to options under this Plan, or shall declare thereon any dividend payable in shares of such Common Stock, or shall take any other action of a similar nature affecting such Common Stock, then the number and class of shares of Common Stock which may thereafter be subject to options under the Plan (in the aggregate and to any participant) shall be adjusted accordingly and in the case of each option outstanding at the time of any such action, the number and class of shares which may thereafter be purchased pursuant to such option and the option price per share shall be adjusted to such extent as may be determined by the Committee, with the approval of independent public accountants and counsel, to be necessary to preserve the rights of the holder of such option. SECTION 18. AMENDMENT OR TERMINATION The Board may at any time terminate or amend the Plan. No such termination shall affect options previously granted, nor may an amendment make any change in any option theretofore granted which would 5 6 adversely affect the rights of any participant holding options under the Plan without the consent of such participant. SECTION 19. NOTICES All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received by the Treasurer of the Company. SECTION 20. MERGER OR CONSOLIDATION In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering then in progress shall be shortened by setting a new Offering Termination Date (the "New Offering Termination Date"). The New Offering Termination Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten business days prior to the New Offering Termination Date, that the Offering Termination Date for the participant's option has been changed to the New Offering Termination Date and that the participant's option shall be exercised automatically on the New Offering Termination Date, unless prior to such date the participant has withdrawn from the Offering as provided in Section 10 hereof. SECTION 21. APPROVAL OF STOCKHOLDERS The Plan is subject to the approval of the stockholders of the Company within twelve months before or after the adoption of the Plan by the Board, such approval to take place either at the next annual meeting of stockholders, at any special meeting of the stockholders for which one of the purposes shall be to act upon the Plan, or by written consent of the stockholders. SECTION 22. GOVERNMENTAL AND OTHER REGULATIONS The Plan, and the grant and exercise of the rights to purchase shares hereunder, and the Company's obligation to sell and deliver shares upon the exercise of rights to purchase shares, shall be subject to all applicable federal, state and foreign laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may, in the opinion of counsel for the Company, be required. The Plan shall be governed by, and construed and enforced in accordance with, the provisions of Sections 421, 423 and 424 of the Code and the substantive laws of the State of Delaware. In the event of any inconsistency between such provisions of the Code and any such laws, such provisions of the Code shall govern to the extent necessary to preserve favorable federal income tax treatment afforded employee stock purchase plans under Section 423 of the Code. * * * 6 EX-10.4 10 LEASE 10/23/96 1 EXHIBIT 10.4 LEASE 1. PARTIES. ROBERT A. JONES and K. GEORGE NAJARIAN, Trustees of ATHENAEUM REALTY NOMINEE TRUST, under a Declaration of Trust dated October 3, 1979, recorded at the Middlesex South Registry District of the Land Court as Document #592998 and recorded with the Middlesex South Registry of Deeds, in Book 15102, at Page 13, and not individually, ("LESSOR"), which expression shall include its heirs, successors and assigns where the context so permits, does hereby lease to net.Genesis Corp., a Massachusetts Corporation, ("LESSEE") which expression shall include its successors, administrators, and assigns where the context so permits, and the LESSEE hereby leases and shall peaceably hold and enjoy the follow described premises: 2. PREMISES. Portions of the third floor, of the building at 215 First Street, Cambridge, Middlesex County, Massachusetts, ("The Building") containing sixteen thousand (16,000) square feet of space, all as described in Exhibit A attached hereto and shown on the plan in said Exhibit A (the "Leased Premises"), together with all improvements therein and together with all appurtenances thereto, including but not limited to the right to use in common, with others entitled thereto, the entrances, lobby, hallways, stairways, loading docks, and elevators, necessary for access to and enjoyment of said Leased Premises. The Leased Premises shall have as appurtenant thereto: (a) the right to use in common with others entitled thereto, the entrances, lobbies, hallways, stairways, walkways, sidewalks, driveways, loading docks, elevators and other common facilities in the building containing any 2 portion of the Leased Premises necessary for access to and enjoyment of the Leased Premises, or portion, and (b) the pipes, conduits, wires, and appurtenant equipment serving the Leased Premises, or portion thereof, in common with other portions of the building containing any part of the Leased premises, subject, however, to the following rights which are expressly excepted and reserved by LESSOR: (i) the right, from time to time and after adequate advanced notice, to install, maintain, use, repair, relocate, place and replace utility lines, pipes, ducts, conduits, wires, gas, electric, or any other meters and fixtures located on or passing through any portion of the Leased Premises to serve other portions of the LESSOR's property of which the Leased Premises, or a portion thereof, are a part provided the above work does not materially impair the appearance of LESSEE's use of the Leased Premises and provided that if LESSOR's work reduces the square footage available to the LESSEE then the rent due under this Lease shall be reduced accordingly; (ii) the right to enter into, upon and across any portion of the Leased Premises after adequate advanced notice to exercise any reserved right of LESSOR hereunder or to complete LESSOR's construction of the Leased Premises, or part thereof, and the Building; and (iii) the right from time to time after adequate advanced notice to make alterations or additions to the Building and to construct other buildings or improvements on the Lot and to make additions to such buildings or improvements, and to permit others to do so from time to time all as LESSOR may determine in its sole discretion, and without LESSEE's consent in any instance; any such alterations or additions being performed to the greatest possible extent in a manner so as not unreasonably to interfere with the LESSEE's use and occupancy of the Leased Premises. Subject to LESSOR's reserved rights specified above, there shall be appurtenant to the 3 Leased Premises the right to park twenty (20) passenger motor vehicles in the parking areas adjacent to the Building. LESSOR reserves the right to designate the locations of the spaces with adequate advance notice to be utilized for such parking rights by written notice to LESSEE, and to change the location of any or all of such spaces by notice to LESSEE at any time and from time to time as LESSOR shall solely determine. The parking spaces provided hereunder need not be contiguous. Additional parking may be leased on a month-to-month basis at fair market value, subject to availability. 3.1 TERM. The Term of this Lease shall be for a term of five (5) years commencing on the Commencement Date. The Commencement Date shall be the latter of: (a) the date the Leased Premises are "ready for occupancy" as that term is defined in Paragraph 3.2; or (b) December 1, 1996. 3.1.1. PHASED OCCUPANCY. In the event a portion of the Leased Premises are substantially completed and ready for occupancy, and LESSOR shall have given notice to LESSEE thereof, then LESSEE shall have the right to commence use and occupancy of such portion of the Leased Premises subject to the terms and conditions of this Lease. During the period of such partial use and occupancy, Base Rent and additional rent payable under Paragraphs 4 and 5 hereof shall be payable on a pro rata basis in the same proportion as the square footage of the space being used and occupied bears to the total square footage of the Leased Premises, and LESSEE shall perform, comply with and abide by all of its obligations, undertakings and covenants as if, and to the same extent, as though the term has commenced. 4 3.2 COMPLETION OF IMPROVEMENTS. The Leased Premises shall be considered "ready for occupancy" on the date upon which the improvements described in Exhibit C hereto to be constructed by LESSOR at its sole cost and expense with respect to the Leased premises are substantially completed, and LESSEE is given a copy of a certificate of occupancy issued by the City of Cambridge Building Department covering the Leased Premises. The Leased Premises shall be deemed substantially completed notwithstanding that completion of work and adjustment of equipment and fixtures or minor items of uncompleted work (so-called "punch list" work items) remain to be done, if such work can be completed after occupancy has been taken without causing unreasonable interference with LESSEE's use of the Leased Premises. Except for latent defects and except to the extent to which the LESSEE shall have given the LESSOR written notice, not later than thirty (30) days after the Commencement Date, of matters or items as to which the LESSOR has not properly performed its obligations with respect to the construction and installation of the improvements called for under the Lease, the LESSEE shall have no claim that the LESSOR has failed to perform such obligations, and LESSEE's taking possession shall be conclusive evidence as against LESSEE that said space and improvements were in good order and satisfactory condition when LESSEE took possession. Notwithstanding the above, during the first year of the Lease, the LESSEE may also give LESSOR notice of any items it believes LESSOR has not properly performed its obligations with respect to and that LESSEE did not discover until after thirty (30) days after the Commencement Date because of the seasonality of that item (i.e., air conditioning). The LESSOR shall complete all items of work not properly performed as to which the LESSEE shall have given the LESSOR 5 such timely notices as soon as conditions practicably permit thereafter in such a manner as not to unreasonably disturb the LESSEE or its business operations carried out in the Leased Premises. 4. RENT. LESSEE covenants and agrees to pay to LESSOR annual base rent ("Base Rent") in the amounts set forth or provided for below, by equal payments of one-twelfth of such annual rate on the first day of each calendar month in advance, the first monthly payment to be made on the first anniversary of the Commencement Date, and by payment in advance of a pro-rata portion of a monthly payment for any portion of a month at the beginning or end of the Term; all payments to be made to LESSOR or such agent, and at such place, as LESSOR shall from time to time in writing designate, the following being now so designated: ATHENAEUM REALTY NOMINEE TRUST c/o THE ATHENAEUM GROUP 215 FIRST STREET CAMBRIDGE, MASSACHUSETTS 02142-1268 The annual Base Rent during the Term is the sum of the following: (i) Year 1 - $104,000.00 Years 2 - 5 - 200,000.00, plus; (ii) the annual fair rental value of LESSEE's parking spaces from Paragraph 2 above. ("Parking"). During the term of this Lease, the fair rental value of the LESSEE's parking spaces shall be $85.00 per space per month. Each rent payment shall be due and payable on the first of the month for which the rent payment is applicable. Any installment not paid within five (5) days of the due date will be subject to a late charge of five (5%) percent. 6 4A. PREPAID RENT. Upon the Commencement Date, LESSEE shall pay to LESSOR twelve (12) months rent for amounts due under Paragraphs 4(i) and 5 of this Lease. The amount prepaid shall be comprised of the first year rental rate ($6.50 per RSF), common area charges due under Paragraph 5.1 ($2.13 per RSF) and real estate tax charges due under Paragraph 5.3.2 ($2.01 per RSF). The total amount due from LESSOR on the Commencement Date shall be One Hundred Seventy Thousand Two Hundred Forty ($170,240.00) Dollars. The payment shall fulfill LESSEE's rental obligations (other than for parking and utilities which are separately metered to LESSEE) for Year One of this Lease. 5. RENT ADJUSTMENTS. 5.1 RENT ADJUSTMENT - COMMON AREA OPERATING EXPENSES FOR THE BUILDING. Commencing as of the Commencement Date and with respect to any calendar year falling within the Term, or fraction of a calendar year at the beginning or end of the Term, the LESSEE shall pay to the LESSOR, as additional rent, the "LESSEE's Proportionate Building Share" (defined below) of operating expenses attributable to the Building ("CAO Building") shall include, but is not limited to, the following: all costs and expenses incurred by the LESSOR in connection with the insurance, operation, repair, maintenance and cleaning of or for the Building and heating, plumbing, elevators, electrical, air-conditioning and other systems thereof, trash removal, janitorial services, security systems and general expenses incurred by the LESSOR in connection with the insurance, operation and maintenance of the Building (and not other tenants' spaces), to keep the same safe, secure and in first-class order and condition. LESSEE's Proportionate Building Share shall be that percentage, which is equal to the 7 8 ratio of the square footage of space constituting the Leased Premises to the aggregate square footage of space in the Building. The LESSEE's Proportionate Building Share with respect to the Leased Premises is 5.61 percent. 5.2 MONTHLY PAYMENTS. Except as provided in Paragraph 4A. above, beginning with the calendar year in which the Commencement Date occurs, and in subsequent years during the Term of this Lease, the LESSEE shall pay to the LESSOR pro rata monthly installments of amounts due under Paragraphs 5.1 on account of projected CAO Building for such year, calculated by the LESSOR on the basis of the best and most recent budget or data available. Appropriate adjustments of estimated amounts shall be made between LESSOR and LESSEE promptly after the close of each calendar year to account for actual CAO Building for such year, except that LESSOR may, at its option, credit any amount due from it to LESSEE as provided above against any sums then due from LESSEE to LESSOR under this Lease. The balance of any amounts due shall be paid within twenty (20) days after written notice thereof 5.3 RENT ADJUSTMENT - TAXES. 5.3.1 LESSOR TO PAY TAXES. The LESSOR shall be responsible for the payment. before the same become delinquent, of all general and special taxes of every kind and nature, including assessments for local improvements, and other governmental charges which may be lawfully charged, assessed or imposed (herein collectively called the "Taxes") upon the Building. At any time during the Term if the present system of ad valorem taxation of real property shall be changed to that in lieu of the whole or any part of the ad valorem tax on real property, 9 there shall be assessed on LESSOR a capital levy or other tax on the gross rents received with respect to the Building or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect) measured by or based, in whole or in part, upon any such gross rents, then any and all of such taxes, assessments, levies or charges to the extent so measured or based, shall be deemed to be included within the term "Taxes" but only to the extent that the same would be payable if the Lot and the Building were the only property of LESSOR. 5.3.2 LESSEE's SHARE OF TAXES. The LESSEE shall pay to the LESSOR, as additional rent, the LESSEE's Proportionate Building Share of that portion of the Taxes attributable to the Building. 5.3.3 RENT ADJUSTMENT - PAYMENT. Beginning with the calendar year in which the Commencement Date occurs and in subsequent years during the Term of this Lease, LESSEE shall pay to the LESSOR monthly installments of one-twelfth of the amounts due to LESSOR under Paragraphs 5.4.1 and 5.4.2 on account of projected Taxes for such year, calculated by the LESSOR on the basis of the best and most recent data available as set forth in a statement from LESSOR (and, when available, based upon the real estate tax bill covering any such period). Appropriate adjustments of estimated amounts shall be made between LESSOR and LESSEE promptly after LESSOR shall have received the tax bill covering any such period. The LESSEE shall have the right to inspect and audit the LESSOR's books as they relate to the calculation of CAO Building expenses and Taxes. The expense of inspecting and auditing LESSOR's books, as aforesaid, shall be borne by LESSEE, unless said audit results in a variance 10 which is greater than five (5%) percent, in which event the cost of the audit shall be borne by LESSOR. 5.4.4 TAX ADJUSTMENT. If the LESSOR or any other tenant (excluding LESSEE) in the Building shall construct an addition to the Building, or construct improvements within the Building of unusual value so as to result in an increase in Taxes over the Taxes which would have been assessed to that Building but for such construction, there shall not be included in Taxes for purposes of this Lease the amount of such increase in Taxes unless such additions or improvements directly benefit the LESSEE. If the LESSEE, or the LESSOR at the direction of the LESSEE, shall construct improvements within the Leased premises, or any part thereof, of unusual value so as to result in an increase in Taxes over the Taxes which would have been assessed to the Building, or part, but for such unusually valuable improvements, the LESSEE shall be responsible for the payment of the full amount of such increase. 6. UTILITIES AND OTHER SERVICES. (a) The LESSEE shall pay charges for all heat, air-conditioning, electricity, and water and sewer use charges and all other utilities separately metered or sub-metered to the Leased Premises, and LESSEE shall be responsible for all utility company deposits applicable to the supply of such services to the Leased Premises. LESSEE shall also be responsible for the payment of its proportionate share of all water and sewer use and utilities or separately metered or sub-metered to the Leased Premises all as reasonably determined by LESSOR. Upon request by the LESSOR, the LESSEE shall provide the LESSOR with evidence of payment of such charges. LESSEE shall defend, indemnify and hold LESSOR harmless from and against any 11 claim or liability arising for such charges for which LESSEE is responsible. (b) LESSOR agrees to furnish reasonable heat to the stairways, elevators and other common areas in the Building, or portions thereof, as necessary for comfortable occupancy and to provide adequate lighting to passageways and stairways and all parking areas and walkways providing access from the Building to the parking area in the evening during customary business hours on regular business days, and to furnish ordinary repairs and cleaning of the common areas and facilities of the Building and to the parking areas and removal of snow and ice reasonably promptly after snowfall and ice accumulation have ended to all walkways, access ways and approaches to the Building and the parking lots as is customary in or about similar buildings in Cambridge. LESSEE shall have access to the Leased Premises on a 365 day per year, 24 hours per day basis. LESSOR shall, at its own costs, provide for LESSEE to be listed on all Building tenant directories. LESSOR shall not be liable to LESSEE for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from the necessity of LESSOR or its agent entering the Leased Premises, or for LESSOR's repairing the Leased Premises if such repair is not performed by LESSOR, or for making repairs or renovations to any portion of the Building, however, the necessity may occur unless the same is due to the LESSOR's gross negligence. In case LESSOR is prevented or delayed from making any such repairs or alterations, or supplying the utilities or services provided for herein, or performing any other covenant or duty to be performed on LESSOR's part, by reason of any cause beyond LESSOR's control, LESSOR shall not be liable to LESSEE therefor, nor shall LESSEE be entitled to any abatement or reduction of rent by reason thereof. 12 nor shall the same give rise to a claim in LESSEE's favor that such failure constitutes actual or constructive, total or partial, eviction from the Leased Premises, or any portion thereof. LESSOR reserves the right to stop any service or utility system, when necessary by reason of accident or emergency, or until necessary repairs have been completed. (c) To the extent that LESSOR has installed separate meters for all utilities including heat, electricity, water and sewer, and air-conditioning, the LESSEE shall pay its utility charges directly to the suppliers of such utility services, as billed by the LESSOR within ten (10) days of receipt of said bill and at least before the same become delinquent. If there are not separate meters, then LESSEE shall pay its pro rata share of the utility cost, as billed by LESSOR. The LESSEE and LESSOR shall have the right to audit said charges and payments upon reasonable notice. 7. USE OF LEASED PREMISES. The LESSEE shall use the Leased Premises only for the purpose of general offices. 8. COMPLIANCE WITH LAWS. The LESSEE acknowledges that no trade or occupation shall be conducted in the Leased Premises or use made thereof which shall be unlawful, improper, noisy or offensive, or be contrary to any law or any municipal by-law or ordinance in force in the City of Cambridge. LESSEE shall keep the Leased Premises equipped with all safety appliances and shall procure and keep in force all licenses and permits required by law or ordinance of any public authority because of the uses made of the Leased Premises by LESSEE and shall maintain in good condition on the Leased Premises all safety and fire protection devices required by the Board of Fire Underwriters, or other body having similar 13 functions, and of every insurance company and policy by which LESSOR or LESSEE is insured. If any use of the Leased Premises results in the cancellation of any insurances carried by LESSOR, or increases the cost thereof, the LESSEE shall on demand reimburse the LESSOR all extra insurance premiums incurred as a result of such use of the Leased Premises by the Leased Premises results in the cancellation of any insurances carried by LESSOR, or increases the cost thereof, the LESSEE shall on demand reimburse the LESSOR all extra insurance premiums incurred as a result of such use of the Leased Premises by the LESSEE. 9. RISK OF LOSS OF PERSONAL EFFECTS. LESSEE acknowledges and agrees that all of the furnishings, equipment, effects and property of LESSEE and of all persons claiming by through or under LESSEE which may be on the Leased Premises or elsewhere in any building in the Complex, shall be at the sole risk and hazard of LESSEE and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft or from any other cause, no part of said loss or damage is to be charged to or to be borne by LESSOR, except that LESSOR shall in no event be indemnified or held harmless or exonerated from any liability to LESSEE or to any other person, arising from any injury, loss, damage or liability caused by LESSOR's negligence. 9A. INSURANCE - WAIVER OF SUBROGATION. LESSOR agrees to keep the Building (and LESSEE agrees to keep all LESSEE's equipment, machinery and fixtures therein) insured in amounts equal to the replacement cost of the same, against fire and other perils included in a standard extended coverage endorsement, and against breakdown of boilers and other machinery and equipment, and LESSEE agrees to procure and keep in force comprehensive 14 general liability insurance indemnifying LESSEE against all claims and damages for any injury to or death of person or damage to property which may be claimed to have occurred upon or to have been caused by activities or conditions within the Leased Premises and indemnifying LESSOR to the extent any such claims and demands are the responsibility or obligation of LESSEE pursuant to this lease or as a matter of law, in amounts not less than $500,000 for property damage, $500,000 for injury or death of one person, and $1,000,000 for injury or death of more than one person in a single accident. All insurance required hereunder shall be written by insurance carriers qualified to do business and in good standing in Massachusetts and approved by LESSOR, which approval shall not be unreasonably withheld. All policies of insurance, shall name LESSOR and LESSEE as the insured parties. Each required policy of insurance shall provide that, notwithstanding any act or omission of LESSEE which might otherwise result in forfeiture of said insurance: (A) it shall not be canceled nor its coverage reduced without at least ten (10) days prior written notice to each insured named therein, and (B) any proceeds shall be first payable to LESSOR or to holder of any mortgage encumbering the Leased Premises, as their respective interests may appear. As of the commencement of the Term hereof, and thereafter not less than fifteen (15) days prior to the expiration dates of the expiring policies, the original policies to be obtained by LESSEE hereto issued by the respective insurers or certificates thereof including photocopies of the original policies, shall be delivered to LESSOR. Any insurance carried by either party with respect to the Leased Premises or property therein or occurrences thereon shall include a clause or endorsement denying to the insurer rights 15 of subrogation against the other party to the extent rights have been waived by the insured prior to occurrence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury of loss due to hazards covered by such insurance to the extent of the indemnification received thereunder. 10. MAINTENANCE OF PREMISES. LESSEE shall pay its proportionate share of the expenses and services set out in Paragraph 5 above. The LESSEE agrees to maintain the Leased Premises in the same condition as they are at the commencement of the Term or as they may be put in during the Term of this Lease, reasonable wear and tear, damage by fire, other casualty and eminent domain, and matters for which LESSOR is responsible hereunder only excepted, to provide its own interior janitorial service, to install and maintain its own security system as it considers appropriate and, whenever necessary, to replace plate glass and other glass therein with that of the same quality as that damaged or injured. LESSEE shall maintain and LESSEE shall pay for the maintenance of the HVAC System servicing the Leased Premises. The LESSEE shall not permit the Leased Premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. LESSEE shall obtain written consent of LESSOR before erecting any sign on or about the Leased Premises, which consent shall not be unreasonably withheld or delayed. LESSEE further covenants and agrees: to take all reasonably necessary actions to insure that smoke, fumes, vapors and odors will not permeate any building containing the Leased Premises and will be removed only through the exhaust and ventilating system servicing the Leased Premises; to keep the Leased Premises free of pests, roaches and vermin; to keep all trash garbage and debris stored on the Leased Premises (and not in any other portions of the Lot or the 16 Building) in adequate covered containers, approved by LESSOR and placed in locations or areas approved by LESSOR in writing and to arrange for the regular removal thereof once each day; to provide for the frequent and adequate cleaning of the Leased Premises and all walls, floors, fixtures and equipment therein consistent with its use. LESSOR shall maintain in good condition the structural elements and the roof of the Building, the mechanical equipment and systems in the Building (other than such equipment and systems which are located within or exclusively serve the Leased Premises, and other than LESSEE's maintenance obligations otherwise provided herein), and the common areas of the Building. 11. ALTERATIONS - ADDITIONS. The LESSEE shall not make structural alterations or additions to the Leased Premises, but may make nonstructural alterations and improvements, provided the LESSOR consents thereto in advance in writing in each instance, which consent shall not be unreasonably withheld or delayed provided that LESSOR is furnished with detailed plans and specifications reasonably approved by LESSOR. All such allowed alterations or additions shall be at LESSEE's expense and shall be in quality at least equal to the present construction. LESSEE shall not permit any mechanics' liens, or similar liens, to remain upon the Leased Premises for labor and materials furnished to LESSEE or claimed to have been furnished to LESSEE in connection with work of any character performed or claimed to have been performed at the direction of LESSEE, and shall cause any such lien to be released of record forthwith without cost to LESSOR. Any alterations, or improvements made by the LESSEE, except for moveable partitions and furnishings, installed at the LESSEE's cost, shall become the property of the LESSOR at the termination of Lease as provided herein. 17 EXHIBIT C October 18, 19___ Lessor's Work Scope For net.Genesis Corp. DESIGN architectural engineering services including PE stamped plans. as-built plans operation manuals (as applicable) CONSTRUCTION permits, insurance, supervision demo demolition (some existing walls, existing mens/womens rooms, floors) reconstruction of conference rooms per attached plan kitchen provide building standard cabinetry @ kitchen area with color approval by Lessee provide appliance book-ups (tenant provides its own equipment) interior open ceiling in new area repair/replace ceiling in area that currently has dropped ceiling painted drywall partitions for new wall areas replace broken or stained exterior windows doors to match existing doors lock/hardware on doors paint new and existing GWB (2 coats) repair/cosmetic treatment of freight elevator areas. flooring VCT: Armstrone Excelon in non-carpet areas. 26 ou. carpet throughout. Lessee to select color. carpet manufacturer to be determined plumbing/hvac men's & women's rooms (new) clean/repair existing small restroom at east end of space sprinkler system adjusted for any changes required due to new construction plumbing at kitchen and bathrooms upgraded or new HVAC system as needed. (mftr. to be determined) electrical new light fixtures at approximate 1/100 spacing. ada build-out comply with ADA standards appliance all code compliance including fire Lessor agrees to use best efforts to assist Lessee in making any design changes Lessee desires, provided that said changes do not materially interfere with Lessor's construction schedule. At the time Lessee request a change, Lessor shall provide Lessee with an allowance for the cost of the Lessor's scope above for the item being changed and will either pay Lessee that amount or bill Lessee for the incremental cost of the change made. For example, if Lessee chooses to replace the carpet with a higher grade carpet that costs $5,000 more. Lessee could pay the $5,000 cost increase to Lessor for the substitution. Upon request, Lessor will provide upgrade costs estimates for Lessee. 18 EXHIBIT B SUBLET PREMISES 19 215 First Street Cambridge, Massachusetts 02142 (the "Building") OVERLANDLORD'S CONSENT October 8, 1999 A. The undersigned Overlandlord, as Landlord, under a certain lease dated October 23, 1996 (the "Lease), by and between Cambridge Athenaeum LLC, a Delaware limited liability company, successor in interest to Robert A. Jones and K. George Najarian, Trustees of Athenaeum Realty Nominee Trust, Landlord, and net.Genesis Corp., a Massachusetts corporation, Tenant, for premises in the Building (the "Premises"), hereby consents to a sublease ("Sublease") by and between, net.Genesis Corp., as Sublandlord, and iXL-Boston, Inc., a Delaware corporation, as Subtenant, for office premises on the third (3rd) floor of the Building ("Sublet Premises"), provided that: 1. A copy of any notice sent pursuant to said Sublease shall be sent to: Beacon Capital Partners, Inc., One Federal Street, Boston, Massachusetts 02110, Attention: Treasurer. 2. Subtenant shall have no right, without Overlandlord's prior written consent, to further sublet the Sublet Premises or any portion thereof nor shall the Subtenant have any right, without Overlandlord's prior written consent, to assign said sublease. 3. Subtenant shall name Overlandlord as an additional insured party under any liability insurance policy which Subtenant is required to maintain and, 20 prior to taking possession of the Sublet Premises, Subtenant shall deliver to Overlandlord a certificate of such insurance. B. Nothing herein contained shall: 1. Be deemed to diminish or relieve net.Genesis Corp. of its primary responsibility as party-tenant under the Lease; 2. Be deemed in any way to limit, restrict, or diminish Overlandlord's rights under the Lease; 3. Extend, or otherwise increase, Overlandlord's obligations under the Lease; or 4. Extend the term of the Lease. Without limiting the foregoing, in the event that the Lease is terminated for any reason, Subtenant shall have no further right to occupy the Sublet Premises. C. Anything to the contrary to provisions and conditions of this Overlandlord's Consent which is contained in any instrument of sublease shall be null and void and of no force and effect so far as it relates to the rights and obligations of Overlandlord. D. By executing this Overlandlord's Consent, the Overlandlord shall not be deemed to have consented to any work proposed to be performed by Tenant or Subtenant in the Premises. Any and all alterations, additions and improvements in or to the Sublet Premises shall be subject to Overlandlord's prior written consent. -2- 21 E. The undersigned Overlandlord hereby reserves its right to withhold consent where the Lease allows the Landlord to withhold consent. OVERLANDLORD: CAMBRIDGE ATHENAEUM LLC, a Delaware limited liability company By: Kendall Athenaeum LLC, a Delaware limited liability company, its manager By: Beacon/PW Kendall LLC, a Delaware limited liability company, its manager By: Beacon Capital Partners, L.P., a Delaware limited partnership d/b/a Beacon Capital Partners Limited Partnership, its manager By: Beacon Capital Partners, Inc., a Maryland corporation, its, General Partner By: /s/ Illegible Signature ---------------------------- Name: --------------------------- Title: -------------------------- Hereunto Duly Authorized -3- 22 With respect to all such LESSEE work, LESSEE further agrees as follows: that such work shall commence only after all required municipal and other governmental permits and authorizations have been obtained (the LESSOR agreeing to promptly upon request join in any application therefor at the LESSEE's expense, whenever necessary) and all such work shall be done in a good and workmanlike manner in compliance with building and zoning laws and with all other laws, ordinances, regulations and requirements of all federal, state and municipal agencies, and in accordance with the requirements and policies issued by any insurer of LESSOR or LESSEE; that all such work shall be prosecuted with reasonable dispatch to completion; that at all times when any such work is in progress, LESSEE shall maintain or cause to be maintained adequate worker's compensation insurance for those employed in connection therewith with respect to whom death or injury claims could be asserted against LESSOR, the LESSEE or the Leased Premises and comprehensive general liability or builder's risk insurance (for mutual benefit of LESSEE and LESSOR) in coverages reasonably approved by LESSOR; and that all such work of LESSEE shall be coordinated with any work being performed by LESSOR and other tenants of the building in which the work is taking place in such manner as to maintain harmonious labor relations and not to interfere with the operation of the Building or the construction work of others. 12. ASSIGNMENT - SUBLEASING. The LESSEE shall not assign or sublet the whole or any part of the Leased Premises without the LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. Except, however, such consent is not required for a Sublease to any entity which is majority-owned by the Sublessor. Notwithstanding 23 such consent, LESSEE shall remain liable to LESSOR for the payments of all rent and for the full performance of the covenants and conditions of this Lease. 12A. QUIET ENJOYMENT, COVENANT OF TITLE. The LESSEE, on paying the rent and other charges hereunder, as and when the same shall become due and payable and observing and performing the covenants, conditions and agreements contained in this Lease on the part of the LESSEE to be observed and performed, all as herein provided, shall and may lawfully, peaceably and quietly have, hold and enjoy the Leased Premises during the Term, subject to all of the terms and provisions hereof, without hindrance, ejection or disturbance by the LESSOR or by any person or persons claiming by, through or under the LESSOR or by anyone claiming paramount title. 13. SUBORDINATION. The Lease and LESSEE's interest hereunder, except as hereinafter provided, shall be subordinate to the lien of any present or future mortgage or mortgages upon the Leased Premises or any property of which the Leased Premises are a part, irrespective of the time of execution or the time of recording of any such mortgage or mortgages. The word "mortgage" as used in this Paragraph shall mean mortgages, deeds of trust, and other similar instruments held by any lender and all modifications, extensions, renewals and replacements thereof. This Paragraph is self-operative, and no further instrument of subordination shall be required by the holder of any such mortgage so long as the subordination is made and granted upon the condition that, in the event of any entry by the holder of any such mortgage to foreclose a foreclosure of any such mortgage by entry or by sale or an acquisition by the holder of any such mortgage of LESSOR's interest under this Lease or in the Leased Premises 24 through foreclosure or otherwise, LESSEE shall peaceably hold and enjoy the Leased Premises as a lessee of such holder, upon the same terms, covenants and conditions as set forth in this Lease without any hindrance or interruption from such holder. In the event of such entry, foreclosure or acquisition, LESSEE shall recognize the holder of the mortgage with respect to which such action is taken as the LESSOR under this Lease. As used in this Paragraph, the word "holder" includes any person claiming through or under any such mortgage, including any purchaser at a foreclosure sale, and the word "LESSEE" shall include LESSEE's successors and assigns. The word "mortgage" as used in this Paragraph shall mean mortgages, deeds of trust, and other similar instruments held by any institutional lender and all modifications, extensions, renewals and replacements thereof. This Paragraph 13 is self-operative, and no further instrument of subordination shall be required. LESSOR shall use reasonable efforts to obtain a Subordination; Non-disturbance and Attornment agreement from LESSOR's mortgagee for this Lease. Notwithstanding the self-operative effect of this Paragraph 13, the LESSEE agrees to execute such further documents in recordable form as the LESSOR or any lender may reasonably require, consistent with the terms of this Paragraph 13 and 21. Should the LESSEE fail to execute and deliver to the LESSOR any such document within ten (10) days of a written notice requesting the LESSEE to execute and deliver such document, LESSEE shall pay to LESSOR (as liquidated damages and not as a penalty) the sum of $500.00 per day for each day after such tenth (10th) day during which such failure to deliver such instrument continues. 14. LESSOR'S ACCESS. The LESSOR or agents of the LESSOR may, at 25 reasonable times, upon reasonable prior notice, and so as not to unreasonably interfere with the LESSEE's business, enter to view the Leased Premises, and may remove placards and signs not approved and affixed as herein provided, and make repairs and alterations as LESSOR should elect to do, and may show the Leased Premises to others, with reasonable prior notice at any time within four (4) months before the expiration of the term, may affix to any suitable part of the Leased Premises a notice for letting or selling the Leased Premises or property of which the Leased Premises are a part and keep the same so affixed without hindrance or molestation. 15. INDEMNIFICATION AND LIABILITY. The LESSEE and LESSOR shall defend, save harmless and indemnify each other from any claims of liability for injury, loss, accident or damage to any person or property while on the Leased Premises, if not due to the negligence of either party, or its employees or agents, and to any person or property anywhere occasioned by any omission, fault, negligence or other misconduct of either party and persons for whose conduct either party is legally responsible. 16. HOLDING OVER. For each month or portion thereof LESSEE shall remain in possession of the Leased Premises or any portion thereof after the termination of this Lease, whether by lapse of time or otherwise, LESSEE agrees to pay to LESSOR one and one-half times the total of the Base Rent set forth in Paragraph 4 in effect for the period immediately prior to LESSEE's holding, over and one and one-half times the Additional Rent provided for under this Lease then applicable, and also to pay all damages sustained by LESSOR on account thereof; the provisions of this Paragraph shall not operate as a waiver by LESSOR of any right of re-entry provided in this Lease. 26 16A. FURTHER LESSEE COVENANTS. LESSEE further covenants and agrees during the Term and such further time as LESSEE holds any part of the Leased Premises: (a) to pay when due all rent and other sums herein specified, without offset, deduction or counterclaim except as otherwise specifically provided in this Lease; (b) not to obstruct in any manner any portion of any building, not hereby leased or the sidewalks or approaches to such building or any inside windows or doors; (c) that neither the original LESSOR nor any successor LESSOR who or which is a trustee or a partnership, nor any beneficiary of the original LESSOR or any successor LESSOR nor any partner, general or limited, or such partnership shall be personally liable under any term, condition, covenant, obligation or agreement expressed herein or implied hereunder or for any claim or damage or cause at law or in equity arising out of the occupancy of the Leased Premises or the use or maintenance of the Building and LESSEE specifically agrees to look solely to the LESSOR's interest in the Building for the recovery of any judgment against LESSOR; and (d) if any payment of rent or other sums due hereunder is not paid within five (5) days of the due date, LESSEE shall pay to LESSOR a late charge equal to five (5%) percent of the unpaid amount per month, or part thereof, that such amount remains unpaid. 17. FIRE, CASUALTY. 17.1 DEFINITION OF "SUBSTANTIAL DAMAGE" AND "PARTIAL DAMAGE." The term "substantial damage", as used herein shall refer to damage which is of such a character that the same cannot, in ordinary course, be expected to be repaired within 27 ninety (90) calendar days from the time that such repair work would commence. Any damage which is not "substantial damage" is "partial damage." In the event of substantial damage to the Building, the LESSOR shall notify the LESSEE as soon as is practicable and in no event later than thirty (30) days after such damage of LESSOR's estimated time for repair of such damage. 17.2 PARTIAL DAMAGE TO THE BUILDING. If during the Lease Term there shall be partial damage to the Building by fire or other casualty and if such damage shall materially interfere with the LESSEE's use of the Leased Premises as contemplated by this Lease, the LESSOR shall, to the extent insurance proceeds are available to LESSOR, promptly proceed to restore the Building to substantially the condition in which it was immediately prior to the occurrence of such damage. Notwithstanding the foregoing, if there shall be partial damage to the Building, and if such damage shall materially interfere with LESSEE's use of the Leased Premises as contemplated by this Lease occurring during the last twelve (12) months of the Lease Term of such a character that the same cannot, in ordinary course, be expected to be repaired within thirty (30) days from the time such repair work would begin, the LESSOR or LESSEE may, within ten (10) days of the date of such damage, elect to terminate this Lease. If such election is not made, the LESSOR shall promptly proceed with such restoration. 17.3 SUBSTANTIAL DAMAGE TO THE BUILDING. If during the Lease Term there shall be substantial damage to the Building by fire or other casualty and if such damage shall materially interfere with the LESSEE's use of the Leased Premises as contemplated by this Lease, the LESSOR shall, to the extent insurance proceeds are available to LESSOR, promptly restore the Building to an architectural unit that is not. less suitable than that which existed prior 28 to such fire or casualty, unless the LESSOR or the LESSEE, within forty-five (45) days after the occurrence of such damage, shall give notice to the other of its election to terminate this Lease. If at any time during such forty-five (45) day period the LESSOR notifies the LESSEE of its intention to restore the Building, the LESSEE must then give notice to the LESSOR, within ten (10) days of its receipt of the LESSOR's notice of intention to restore the Building, as to whether the LESSEE will elect to terminate the Lease. Should the LESSEE fail to elect to terminate the Lease within such ten (10) day period, the LESSEE's right to terminate under this Paragraph 17.3 shall expire. If the LESSOR proceeds with the restoration of the Building and if such damage shall not have been repaired to the extent necessary for the LESSEE to resume its normal business operations at the Leased Premises by the end of the 180th day following the date of such fire or casualty, or if the LESSOR shall fail diligently to cause such repair and restoration work to be performed, then the LESSEE may, at any time thereafter while the damage remains unrepaired, terminate this Lease upon notice to the LESSOR. If the LESSOR or the LESSEE shall give such notice of termination, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof. 17.4 ABATEMENT OF RENT. If during the Lease Term the Building shall be damaged by fire or casualty and if such damage shall materially interfere with the LESSEE's use of the Leased Premises as contemplated by this Lease, a just proportionate amount of the rent and other charges payable by the LESSEE hereunder shall abate proportionately for the period in which, by reason of such damage, there is such interference with the LESSEE's use of the Leased 29 18. DEFAULT AND BANKRUPTCY. In the event that: (a) The LESSEE shall, after the applicable five (5) day grace period, default in the payment of any installment of rent or other sum herein specified; or (b) The LESSEE shall default in the observance or performance of the LESSEE's covenants, agreements, or obligations hereunder (except as provided in Paragraph 18(a) above) and the LESSEE shall not cure such default within thirty (30) days after written notice thereof or if such default cannot be cured within thirty (30) days, then if LESSEE shall not commence to cure the same within thirty (30) days and diligently pursue the curing of the same; or (c) LESSEE makes any assignment for the benefit of creditors, commits any act of bankruptcy or files a petition under any bankruptcy or insolvency law; or if such a petition is filed against LESSEE or any guarantor of LESSEE's obligations under this Lease and is not dismissed within thirty (30) days; or if a receiver or similar offer becomes entitled to LESSEE's leasehold hereunder and it is not returned to LESSEE within thirty (30) days, or if such leasehold is taken on execution or other process of law in any action against LESSEE; then in any such case the LESSOR shall have the right thereafter, while such default continues, to reenter and-take complete possession of the Leased Premises, to declare the term of this Lease ended, and remove the LESSEE's effects at LESSEE's sole cost and expense, without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The LESSEE shall indemnify the LESSOR against all loss and reasonable payment of rent and other payments which the LESSOR may incur by reason of such termination during the residue of the term. In the event of default, LESSOR shall use its reasonable efforts to re-let the Leased Premises so as 30 to mitigate any damages to the LESSEE hereunder. If the LESSEE shall default, in the observance or performance of any conditions or covenants on its part to be observed or performed under or by virtue of any of the provisions of this Lease and after the expiration of any period within which the LESSEE is entitled to cure such default as is provided above in this Paragraph 18, the LESSOR, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of the LESSEE. If the LESSOR makes any expenditures or incurs any obligations for the payment of money in connection therewith, including but not limited to, reasonable attorney's fees, (except for unsuccessful suits against the LESSEE) in instituting, prosecuting, or defending any action or proceeding, such sums paid or obligations incurred, with interest at the rate of twelve (12%) per annum and costs, shall be paid to the LESSOR by the LESSEE as additional rent. Nothing contained in this Lease shall limit or prejudice the right of LESSOR to claim and obtain in proceedings for bankruptcy, insolvency or like proceedings by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which the damages are to be claimed or proved, whether or not the amount be greater, equal to or less than the amount of the loss or damages referred to above. 18A. DEFAULT OF LANDLORD AND MORTGAGE RIGHTS. LESSOR shall in no event be in default in the performance of any of LESSOR's obligations hereunder unless and until LESSOR shall have failed to perform such obligations within thirty (30) days or such 31 additional time as is reasonably required to correct any such default after receipt of written notice by LESSEE to LESSOR properly specifying wherein LESSOR has failed to perform any such obligation. LESSEE agrees to give any mortgagee, by registered mail, a copy of any notice of default served upon the LESSOR, provided that prior to such notice the LESSEE has been notified in writing of the identity and address (by way of Notice of Assignment of Rents and Leases, or otherwise) of the address of such mortgagee. The LESSEE further agrees that if the LESSOR shall have failed to cure such default within the time provided for in this Lease, then the mortgagee shall have an additional sixty (60) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within sixty (60) days the mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure) in which event this Lease shall not be terminated while such remedies are being so diligently pursued. 18B. BANKRUPTCY OR INSOLVENCY. (a) LESSEE's INTEREST NOT TRANSFERABLE. Neither LESSEE's interest in this Lease nor any estate hereby created in LESSEE nor any interest herein or therein shall pass to any trustee, except as may specifically be provided pursuant to the Bankruptcy Code (11 USC Sec. 101, et seq.) or to any receiver or assignee for the benefit of creditors or otherwise by operation of law. (b) TERMINATION OF LEASE. Notwithstanding anything to the contrary contained in this Lease, in the event the interest or estate created in LESSEE hereby shall be 32 taken in execution or by other process of law or if LESSEE or LESSEE's guarantor, if any, or LESSEE's executors, administrators or assigns, if any, shall be adjudicated insolvent or bankrupt pursuant to the provisions of any state law of an order for the relief of such entity shall be entered pursuant to the Bankruptcy Code, or if a receiver or trustee of the property of LESSEE or LESSEE's guarantor, if any, shall be appointed by reason of the insolvency or inability of LESSEE or LESSEE's guarantor, if any, to pay its debts or if any assignment shall be made of the property of LESSEE, or LESSEE's guarantor, if any, for the benefit of creditors, then and in any such events this Lease and all rights of LESSEE hereunder shall automatically cease and terminate with the same force and effect as though the date of such event were the date originally established herein and fixed for the expiration of the term and LESSEE shall vacate and surrender the Leased Premises but shall remain liable as herein provided. (c) LESSEE's OBLIGATION TO AVOID CREDITORS' PROCEEDINGS. LESSEE or LESSEE's guarantor, if any, shall not cause or give cause for the appointment of a trustee or receiver of the assets of LESSEE or LESSEE's guarantor, if any, and shall not make any assignment for the benefit of creditors or become or be adjudicated insolvent. The allowance of any petition under any insolvency law, except under the Bankruptcy Code or the appointment of a trustee or receiver of LESSEE or LESSEE's guarantor, if any, or of the assets of either of them, shall be conclusive evidence that LESSEE caused or gave cause therefor, unless such allowance of the petition or the appointment of a trustee or receiver is vacated within ninety (90) days after such allowance or appointment. Any act described in this paragraph shall be deemed a material breach of LESSEE's obligation hereunder and this Lease shall thereupon automatically 33 terminate. LESSEE does, in addition, reserve any and all other remedies provided in this Lease or in the law. (d) RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of a petition by or against LESSEE under the Bankruptcy Code, LESSEE, as debtor and as debtor-in-possession, and any trustee who may be appointed agree as follows: (i) to perform each and every obligation of LESSEE under this Lease including, but not limited to, the manner of-operation of this Lease, until such time as this Lease is either rejected or assumed by order of the United States Bankruptcy Court; (ii) to pay monthly, in advance, on the first day of each month, as reasonable compensation for use and occupancy of the Leased Premises, an amount equal to all fixed annual Base Rent, additional rent and other charges otherwise due pursuant to this Lease; (iii) to reject or assume this Lease within sixty (60) days of the appointment of such trustee under Chapter 7 of the Bankruptcy Code or within one hundred twenty (120) days (or such shorter term as LESSOR, in its sole discretion, may deem reasonable, so long as notice of such period is given) of the filing of a petition under any other chapter; (iv) to give LESSOR at least forty-five(45) days' prior written notice of any proceeding relating to any assumption of this Lease; (v) to give at least thirty (30) days' prior written notice of any abandonment of the Leased Premises, with any such abandonment to be deemed a rejection of this Lease and an abandonment of any property not previously removed from the Leased Premises; (vi) to do all other things of benefit to LESSOR otherwise required under the Bankruptcy Code; (vii) to be deemed to have rejected this Lease in the event of the failure to comply with any of the above: and (viii) to have consent to the entry of any order by an 34 appropriate United States Bankruptcy Court providing all of the above, waiving notice and hearing of the entry of same. No default of this Lease by LESSEE, either prior to or subsequent to the filing of such a petition, shall be deemed to have been waived unless expressly done so in writing by LESSOR. It is understood and agreed that this is a Lease of real property and that, therefore, Sec. 365(b) (3) of the Bankruptcy Code is applicable to any proposed assumption of this Lease in a bankruptcy case. Included within and in addition to any other conditions or obligations imposed upon LESSEE or its successor in the event of assumption and/or assignment are the following: (i) the cure of any monetary defaults and the reimbursement of pecuniary loss immediately upon entry of a court order providing for assumption and/or assignment; (ii) [intentionally omitted]; (iii) the use of the leased Premises as set forth in the reference data section of this Lease and the quality, quantity and/or lines of merchandise of any goods or services required to be offered for sale are unchanged; (iv) the payment of any sums which may then be due or which may thereafter become due under the provisions of this Lease; (v) the debtor, debtor-in-possession, trustee or assignee of such entity demonstrates in writing that it has sufficient background, including, but not limited to, substantial commercial experience in buildings of comparable size and financial ability to operate a commercial establishment out of the Leased Premises in the manner contemplated in this Lease, and meets all other reasonable criteria of LESSOR as did LESSEE upon execution of this Lease; (vi) the prior written consent of any mortgagee to which this Lease has been assigned as collateral security; and (vii) the Leased Premises at all times remains a 35 single store (if retail) and no physical changes of any kind may be made to the Leased Premises unless in compliance with the applicable provisions of this Lease. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall, upon demand, execute and deliver to LESSOR an instrument confirming such assumption in accordance with the terms of Paragraph 21 hereof. 19. NOTICE. Any notice from the LESSOR to the LESSEE relating to the Leased Premises or to the occupancy thereof shall be deemed duly served, if mailed, registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSEE, net.Genesis Corp., Attention: President at the Leased Premises and to JOHN D. PATTERSON, JR., ESQ. FOLEY HOAG & ELIOT LLP ONE POST OFFICE SQUARE BOSTON, MA 02109 Any notice from the LESSEE to the LESSOR relating to the Leased Premises or to the occupancy thereof, shall be deemed duly served, if mailed to the LESSOR by registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSOR at such address as the LESSOR may from time to time advise in writing. All rent and notices shall be paid and sent to the LESSOR at: ATHENAEUM REALTY NOMINEE TRUST c/o THE ATHENAEUM GROUP 215 FIRST STREET CAMBRIDGE, MASSACHUSETTS 02142-1268 36 20. RULES AND REGULATIONS. The LESSOR shall have the right to institute and to change from time to time, rules and regulations for the use of the Building by commercial office Lessees, and by commercial retail lessees, which shall be reasonable in all instances and shall be uniformly applicable to all commercial Lessees in the Building and the LESSEE agrees to abide thereby. 21. PARAGRAPH HEADINGS. The paragraph headings throughout this instrument are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. 22. SURRENDER. The LESSEE shall at the expiration or other termination of this Lease remove all LESSEE's goods and effects from the Leased Premises (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by the LESSEE, either inside or outside the Leased Premises). LESSEE shall deliver to the LESSOR the Leased Premises and all keys, locks thereto, and other fixtures connected therewith, and all alterations and additions made to or upon the Leased Premises, in the same condition as they were at the commencement of the term, or as they were put in during the term hereof, reasonable wear and tear and damage by fire or other casualty only excepted. In the event of the LESSEE's failure to remove any of the LESSEE's property from the Leased Premises, LESSOR is hereby authorized without liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE, to remove and store any of the property at LESSEE's expense or to retain the same under LESSOR's control or to sell at public or private sale, with reasonable notice any or all of 37 the property not so removed, and to apply the net proceeds of such sale to the payment of any sum due hereunder. 23. OPTION TO EXTEND. If the LESSEE is not then in default, LESSOR does hereby grant to LESSEE the option to extend this Lease for one (1) additional five (5) year term, commencing on the expiration of the Initial Term upon the same terms and conditions as herein contained except the annual Base Rent set forth in Paragraph 4 hereof shall be at the rate set forth below. LESSEE's desire to extend the Lease shall be communicated by written notice from LESSEE and received by LESSOR at least seven (7) months prior to the expiration of the Initial Term. LESSOR shall provide LESSEE at least six (6) months prior to the expiration of the initial term with its reasonable estimate of the then current market value for comparable space in Cambridge. LESSEE shall notify LESSOR at least four (4) months prior to the expiration of the Initial Term of its decision to accept or reject LESSOR's rent. 24. BROKER. The LESSOR and LESSEE each represent and warrant to the other that each has had no dealings with any Brokers other than William F. Baker of Thompson Doyle & Company concerning this Lease, and each party agrees to indemnify and hold the other harmless for any damages occasioned to the other by reason of a breach of this representation and warranty. LESSOR shall pay a commission to Thompson Doyle & Company. 25. ESTOPPEL CERTIFICATE. LESSOR and LESSEE each agree at any time from time to time, upon not less than ten (10) days prior notice to execute, acknowledge and deliver to the other, a statement in writing, certifying to the extent possible that this Lease is unmodified and in full force and effect, or if there have been modifications, that the same is in 38 full force and effect as modified and stating such modifications and otherwise certifying if there exists any default under the terms of this Lease and such other information as may be reasonably requested concerning this Lease by the other party or any other third party with a bona fide interest. Should either party fail to deliver to the other party any such statement within ten (10) days of receipt of a written notice requesting any such statement, the party failing to deliver any such statement shall pay to the requesting party, the sum of $500.00 per day (as liquidated damages and not as a penalty), for each day after such tenth (10th) day during which such failure continues. 26. SECURITY DEPOSIT. Waived. 27. MISCELLANEOUS. (a) Upon written request from LESSOR, LESSEE shall submit annual financial statements to the LESSOR including statements of cash flow. If the LESSEE is a publicly traded corporation it shall supply LESSOR, on a quarterly basis, with its 10-Q filings. (b) The LESSOR reserves the right to assign or transfer any and all of its right title and interest under the Lease, including but not limited to the benefit of all covenants of the LESSEE hereunder. Notwithstanding anything contained in this Lease to the contrary, it is specifically understood and agreed that the obligations imposed under the LESSOR hereunder shall be binding upon the LESSOR and LESSOR's successors in interest only with respect to breaches occurring during and prior to LESSOR's and LESSOR's successors' ownership of LESSOR's interest hereunder and LESSOR and its said successors in interest shall not be liable for acts and occurrences arising from and after the transfer of their interest as LESSOR 39 hereunder. (c) This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, as the same may from time to time exist. (d) This Lease contains all of the agreements of the parties with respect to the subject matter thereof and supersedes all prior oral and written negotiations and dealings between them with respect to such subject matter. The agreement of the parties contained in this Lease shall not be modified or amended unless such modification or amendment is in writing and signed by the parties. (e) The LESSEE acknowledges that LESSEE has not been influenced to enter into this Lease nor has it relied upon any warranties or representations not set forth or incorporated in this Lease or previously made in writing. (f) If any term or provision of this Lease or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such term or provisions to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law. The undersigned Trustees of the ATHENAEUM REALTY NOMINEE TRUST do hereby certify that they were each authorized by all of the beneficiaries of said Trust to acknowledge the within Lease on behalf of the Trustees. IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands and common seals this 23rd day of October, 1996. 40 LESSOR: ATHENAEUM REALTY NOMINEE TRUST /s/ Robert A. Jones, Trustee /s/ [Illegible Signature] - ----------------------------------- ------------------------------- NAME: Robert A. Jones, Trustee WITNESS OFFICE: Trustee Hereunto Duly Authorized. /s/ K. George Najarian, Trustee /s/ [Illegible Signature] - ------------------------------------ ------------------------------- NAME: K. George Najarian, Trustee WITNESS OFFICE: Trustee Hereunto Duly Authorized LESSEE net.Genesis Corp. /s/ Rajat Bhargava /s/ Marianne Cucotta - ----------------------------------- -------------------------------- NAME: Rajat Bhargava WITNESS OFFICE: President Hereunto Duly Authorized /s/ Rajat Bhargava /s/ Marianne Cucotta - ----------------------------------- -------------------------------- NAME: Rajat Bhargava WITNESS OFFICE: Treasurer Hereunto Duly Authorized EX-10.5 11 SUBLEASE 1 Exhibit 10.5 SUBLEASE SUBLEASE made as of the _ day of October, 1999, by and between NET.GENESIS CORP., a Delaware corporation having a place of business at 150 CambridgePark Drive, Cambridge, Massachusetts 02140, ATTN: John P. Delea, CFO ("Sublandlord") and WL-BOSTON, INC., a Delaware corporation having a place of business at 215 First Street, Cambridge, Massachusetts 02142-1268, ATTN: Mr. Ned Carboni ("Subtenant"). WITNESSETH: WHEREAS, by lease dated October 23, 1996 (the "Overlease"), a copy of which is attached hereto as Exhibit A, Beacon Capital Partners, as successors to Robert A. Jones and K. George Najarian, Trustees of the Athenaeum Realty Nominee Trust ("Landlord") leased to Sublandlord a portion of the building located at 215 First Street, Cambridge, Massachusetts (the "Building") more particularly described in the Overlease (the "Leased Premises"); and WHEREAS, Sublandlord and Subtenant have agreed to enter into an agreement pursuant to which Subtenant will occupy the Leased Premises comprised of a portion of the third floor of the Building and shown on the plan attached hereto as Exhibit B, containing approximately 16,000 rentable square feet (the "Sublet Premises"). 2 NOW, THEREFORE, the parties hereto agree as follows: 1. DEMISE Sublandlord hereby subleases the Sublet Premises to Subtenant and Subtenant hereby hires and sublets the Sublet Premises from Sublandlord, upon and subject to the terms and conditions hereinafter stated or incorporated herein by reference. Capitalized terms not otherwise defined herein shall have the meanings specified in the Overlease. 2. TERM The term of this Sublease ("Term") shall be twenty-seven (27) months, beginning on October 1, 1999 ("Commencement Date") and ending at midnight on December 31, 2001, unless sooner terminated as this Sublease provides; provided however, that, as provided in section 8.5 of this Sublease, in no event shall the obligation of any party arise until the Sublease has received the written approval of the Landlord. Subtenant shall have no option to extend the term of this Sublease or the term of the Overlease. Subtenant's use of the Sublet Premises shall be upon such terms (including the payment of Base Rent) as the parties shall agree. 3. USE Subtenant shall use and occupy the Sublet Premises solely for the purpose of general offices and related purposes. 4. RENT 4.1 Base Rent Subtenant shall pay to Sublandlord rent ("Base Rent") for the use and occupancy of the Sublet Premises at the rate of $32,000.00 per month ($24.00 per rentable square foot) for the Term. Such monthly rent shall be paid, in advance and without offset, on or before the first day of the month for each month during the Term. 4.2 Electricity and Other Utilities -2- 3 Subtenant shall pay to Sublandlord, as additional rent, on or before the first day of the month for each month during the Term, full reimbursement of the cost of providing electricity to the Sublet Premises, which are separately metered. Said payment shall be made within twenty (20) days after Sublandlord notifies (and, if requested by Subtenant, provides a copy of the bill to) Subtenant of the amount thereof. 4.3 Additional Rent To the extent that under the Overlease Sublandlord is obligated to pay additional rent as "Rent Adjustments" defined in Section 5 of the Overlease, whether such additional rent is to reimburse Landlord for taxes, operating expenses, common area maintenance charges or other expenses incurred by the Landlord in connection with the Building, Subtenant shall pay to Sublandlord, one hundred percent (100%) of such additional rent (to the extent such additional rent is attributable to events occurring during the term of this Sublease). Such payment shall be made in pro rata monthly installments due from Subtenant to Sublandlord no fewer than five (5) days prior to the date upon which Sublandlord's payment of such Additional Rent is due to the Landlord. Sublandlord agrees that if the amount of Additional Rent is not set forth in the Overlease, but is determined based on a notice from the Landlord, Sublandlord will promptly notify Subtenant of the amount due and Subtenant will promptly, but in event more than five (5) days, pay such Additional Rent. -3- 4 5. INCORPORATION OF OVERLEASE Except as otherwise expressly provided herein, all of the terms, covenants and conditions of the Overlease are incorporated herein by reference and made a part hereof with the same force and effect as if set forth in their entirety, provided that the terms and conditions hereof shall be controlling whenever the terms and conditions of the Overlease are contradictory to or inconsistent with terms and conditions hereof, and provided further that those incorporated provisions of the Overlease which are protective and for the benefit of Landlord shall in this Sublease be deemed to be protective and for the benefit of both Landlord and Sublandlord, that references therein to "LESSOR" and "LESSEE" shall be deemed to refer to "Sublandlord" and "Subtenant," respectively, that references therein to "this lease" shall be deemed to refer to this Sublease, and that references therein to the "Leased Premises" or "Premises" shall be deemed to refer to the Sublet Premises. 6. COVENANTS OF THE PARTIES 6.1 Performance of Overlease Subtenant covenants and agrees to faithfully observe and perform all of the terms, covenants and conditions of the Overlease on its part to be performed pursuant to the provisions hereof, and neither to do nor cause to be done, nor suffer, nor permit any act or thing to be done which would or might cause the Overlease or the rights of Sublandlord as tenant thereunder to be canceled, terminated, forfeited or surrendered, or which would or might make Sublandlord liable for any damages, claims or penalties. Sublandlord covenants and agrees that it will take no action, nor cause to be done, nor suffer, nor permit any act or thing to be done which would or might cause the Overlease or the rights of Sublandlord as tenant thereunder to be canceled, terminated, forfeited or surrendered or which would or might adversely affect Subtenant's rights hereunder. -4- 5 6.2 Indemnification To the maximum extent that this Sublease may be made effective according to law, Subtenant agrees that it will protect and indemnify Sublandlord and Landlord and save Sublandlord and Landlord harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by or asserted against Sublandlord or Landlord by reason of: (i) any accident, injury to or death of persons or damage to or loss of property, by theft or otherwise, occurring on or about the Sublet Premises or any part thereof, unless arising out of the negligence of Sublandlord or Sublandlord's agents or employees; and (ii) any failure on the part of Subtenant to perform, fulfil or observe any of Subtenant's representations, warranties or agreements set forth in this Sublease. In case any action, suit or proceeding is brought against Sublandlord by reason of any such occurrence, Subtenant, upon Sublandlord's request, shall at Subtenant's expense, cause such action, suit or proceeding to be resisted and defended by counsel designated by Subtenant's insurance carrier and reasonably acceptable to Sublandlord. 6.3 No Sublandlord Maintenance, etc. Obligation Notwithstanding anything contained in this Sublease to the contrary, Sublandlord shall not have any obligation to construct, maintain, alter or repair the Sublet Premises, the Building, or any parking area or other facility or improvement thereon or appurtenant thereto or to provide Subtenant with any service of any kind or description whatsoever, nor shall Sublandlord be responsible for the performance of Landlord's obligations under the Overlease or be liable in damages or otherwise for any negligence of Landlord or for any damage or injury suffered by Subtenant as a result of any act or failure to act by Landlord or any default by -5- 6 Landlord in fulfilling its obligations under the Overlease. If Landlord shall default in any of its obligations to Sublandlord, Sublandlord shall cooperate with Subtenant, upon request by Subtenant and at Subtenant's sole cost and expense, in enforcing Sublandlord's rights against Landlord under the Overlease. 6.4 Insurance Any insurance carried by Subtenant with respect to the Sublet Premises and property therein or occurrences thereon shall include a clause or endorsement denying to the insurer rights of subrogation against Sublandlord to the extent rights have been waived by Subtenant prior to the occurrence of injury or loss and shall name Sublandlord as an additional insured party. Subtenant, for itself, its successors and assigns, notwithstanding any provision of this Sublease to the contrary, hereby waives any rights of recovery against Sublandlord or its successors and assigns, for injury or loss due to hazards covered by insurance to the extent of the injury or loss covered thereby. 6.5 No Liability For Landlord Default Sublandlord will not incur any liability whatsoever to Subtenant for any injury, inconvenience, incidental or consequential damages incurred or suffered by Sublandlord as a result of the exercise by Landlord of any of the rights reserved to Landlord under the Overlease, nor shall such exercise constitute a constructive eviction or a default by Sublandlord hereunder, unless due to Sublandlord's breach of its covenants, obligations or representations herein. 6.6 Condition of Sublet Premises The Sublet Premises are being leased "as is." Any alteration to the Sublet Premises by the Subtenant must be approved by the Sublandlord and the Landlord prior to the -6- 7 start of any such work and such approval may be withheld in Sublandlord's and Landlord's discretion. 6.7 Defaults by Subtenant If Subtenant fails to pay Base Rent or additional rent under this Sublease or fails to perform or observe any of this Sublease's terms, conditions or covenants, then Sublandlord, in addition to and not in limitation of any rights otherwise available to it, shall have the same rights and remedies for such default as the Overlease gives Landlord for Tenant's defaults, with the same force and effect as though this Sublease contained all such provisions relating to any such default or defaults in full, and Subtenant shall have all Tenant's obligations under the Overlease, except as this Sublease modifies the Overlease, for such default. Without limiting the preceding, upon Subtenant's default, Sublandlord may terminate this Sublease by giving Subtenant written notice specifying a date, not less than five (5) days from the notice date, on which this Sublease shall terminate, and on such date this Sublease's Term shall end. As incorporated in this Sublease, the five (5) day period set forth in Overlease Section 18 shall be three (3) days and the thirty (30) day period set forth in Overlease Section 18 shall be twenty (20) days. 7. TERMINATION If the Overlease is terminated pursuant to the terms of the Overlease or otherwise: (i) this Sublease shall terminate simultaneously therewith; and (ii) any unearned rent paid in advance shall be refunded to Subtenant unless such termination was the result of a breach by Subtenant of any term, covenant or condition of this Sublease. 8. MISCELLANEOUS 8.1 Notices -7- 8 All notices, demands or other communications to be given, made or sent by either party to the other under this Sublease shall be deemed to have been fully given, made or sent when made in writing and mailed, by certified mail, return receipt requested, postage prepaid, addressed to the party at its address identified at the beginning of this Sublease, or to such other address or addresses as may from time to time hereafter be designated by the parties by like notice. A copy of notice to Subtenant shall also be given to Subtenant's attorney, James S. Altenbach, Esquire, c/o Minkin & Snyder, One Buckhead Plaza, 3060 Peachtree Road, Suite 1100, Atlanta, Georgia 30305; and a copy of notice to Sublandlord shall also be given to Sublandlord's attorney, Sandra Shapiro, Esq., c/o Foley, Hoag & Eliot LLP, One Post Office Square, Boston, MA 02109. 8.2 Effect This Sublease shall be binding upon the parties hereto and their respective successors and assigns. 8.3 Applicable Law This Sublease shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. 8.4 Modification, etc. Neither this Sublease nor any provision hereof may be waived, modified, amended, discharged or terminated, except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument. This Sublease constitutes the entire agreement of the parties hereto with respect to the subject matter hereof. -8- 9 8.5 Consent of Landlord The obligations of the parties hereto are conditional upon the written consent of Landlord to the subletting of the Sublet Premises to Subtenant. 8.6 Severability If any term or provision of this Sublease or the application thereof to any person or circumstance shall to any extent be held invalid or unenforceable, the remainder of this Sublease or the application of such term or provision to other persons or circumstances shall not be affected thereby, and each term and provision of this Sublease shall be valid and enforceable to the fullest extent permitted by law. 8.7 Waiver, etc. No failure by Sublandlord to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial rent during the continuance of such breach, shall constitute a waiver of any such breach or of any such term. Sublandlord's consent in one instance hereunder shall not relieve Subtenant of the requirement of obtaining Sublandlord's consent in any other instance. 8.8 No Broker Subtenant and Sublandlord hereby represent and warrant that neither has not dealt with any broker in connection with the transactions contemplated by this Sublease except The Staubach Company, as to Subtenant and CB Richard Ellis/Whittier Partners, as to Sublandlord both of whose commissions and/or consulting fees shall be paid by Sublandlord) and shall each indemnify the other for the failure of this representation and warranty. 8.9 Assignment and Sublease. -9- 10 Subtenant shall not assign, transfer or otherwise encumber this Sublease or any interest in this Sublease, by operation of law or otherwise, nor sublet or otherwise permit others to use all or part of the Sublet Premises, and any such assignment, transfer, encumbrance, sublease or other arrangement shall be void. Notwithstanding any other term in this Sublease, any transfer, hypothecation, assignment or change in control of Subtenant's stock, or the stock of its parent corporation, shall be deemed a sublease or assignment of this Sublease or an event giving Sublandlord the right to terminate this Sublease. 8.10 Warranties and Representations. Subtenant represents and warrants that in entering into this Sublease, Subtenant has not relied on any person's statements or representations concerning the Sublet Premises or any other matter concerning this Sublease, but has relied solely upon such investigations, examinations and inspections as Subtenant has chosen to make or have made. Subtenant acknowledges that Sublandlord has given Subtenant ample opportunity to fully investigate, examine and inspect the Sublet Premises and the building and land of which the Sublet Premises are a part. 8.11 Security Deposit. At the time of execution of this Sublease, Subtenant shall pay to Sublandlord a security deposit in the amount of Sixty-Four Thousand and No/100 Dollars ($64,000.00) as security for the performance of the obligations of the Subtenant to be performed in accordance with this Sublease. At the time of execution of this Sublease, Subtenant shall also pay to Sublandlord the first months rent. 8.12 Holding Over -10- 11 In the event Subtenant shall not immediately surrender the Sublet Premises on the expiration or earlier termination of the Sublease, Subtenant shall be obligated to pay monthly installments of Base Rent in an amount equal to one hundred fifty percent (150%) times the Base Rent. 9. PARKING Subtenant shall have the right to park twenty (20) passenger motor vehicles in the parking area adjacent to the Building, subject to the provisions of Section 2 of the Overlease. Subtenant shall pay the rental value of the parking spaces as determined by the Landlord. IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be executed under seal by their duly authorized officers as of date first above written. SUBLANDLORD: net.Genesis Corp. By: /s/ John Delea ------------------------------- Its Chief Financial Officer Hereunto duly authorized SUBTENANT: WL-Boston, Inc. By: /s/ Carl P. Helfrich ------------------------------- Its Carl P. Helfrich, its Vice President Hereunto duly authorized -11- EX-10.6 12 LEASE 8/15/99 1 EXHIBIT 10.6 DATE OF LEASE EXECUTION: ARTICLE I REFERENCE DATA 1.1 SUBJECTS REFERRED TO: Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Section 1.1: LANDLORD: BRE/CambridgePark Office II L.L.C., a Delaware limited liability company MANAGING AGENT: Spaulding and Slye Services Limited Partnership LANDLORD'S & MANAGING AGENTS ADDRESS: Spaulding and Slye Services Limited Partnership 125 CambridgePark Drive Cambridge, MA 02140 LANDLORD'S REPRESENTATIVE: John M. Kane TENANT: net.Genesis Corp., a corporation organized under the laws of the State of Delaware. TENANT'S ADDRESS (FOR NOTICE AND BILLING): net.Genesis Corp. 150 CambridgePark Drive Cambridge, Massachusetts 02140 TENANT'S REPRESENTATIVE: John P. Delea, CFO BUILDING: The building located at 150 CambridgePark Drive, Cambridge, Massachusetts. LOT: The parcel of land on which the Building is located and described in Exhibit A. PREMISES: The space located on the third (3rd) floor of the Building as shown on Exhibit B. RENTABLE FLOOR AREA OF THE PREMISES: approximately 24,554 square feet 1 2 TOTAL RENTABLE FLOOR AREA OF THE BUILDING: approximately 252,180 square feet SCHEDULED TERM COMMENCEMENT DATE: August 15,1999 LEASE TERM OR TERM: Commencing on the Term Commencement Date as defined in Section 3.1 hereof and continuing for five (5) years thereafter, plus the partial month at the beginning of the Term, if any, unless sooner terminated as provided herein ANNUAL RENT: $34.00 per square foot of Rentable Floor Area of the Premises, or $69,569.67 per calendar month, and proportionally at such rate for any partial month (net of Tenant's charges for electrical consumption in the Premises). BASE ANNUAL ELECTRICITY CHARGE: $1.00 per square foot of Rentable Floor Area of the Premises BASE ANNUAL OPERATING COSTS: All of Landlord's Operating Costs (other than real estate taxes) for calendar year 1999 (i.e., January 1, 1999 through December 31, 1999), together with all real estate taxes for fiscal year 2000 (i.e., July 1, 1999 through June 30, 2000). TENANT'S PROPORTIONATE SHARE: 9.74% PERMITTED USES: Office Uses COMMERCIAL GENERAL LIABILITY INSURANCE: $1,000,000 bodily injury, property damage combined single limit per occurrence, $2,000,000 annual aggregate. BROKER: Spaulding and Slye Services Limited Partnership and CB Richard Ellis/Whittier Partners SECURITY DEPOSIT: $280,000.00 TENANT'S PARKING ACCESS CARDS: 74 2 3 TENANT IMPROVEMENT ALLOWANCE: $351,783 (including architectural and engineering fees, and an amount not to exceed $2.00 per square foot of Rentable Floor Area of the Premises for network cabling). 1.2 EXHIBITS. The exhibits listed below in this section are incorporated in this Lease by reference and are to be construed as part of this Lease: EXHIBIT A Description of Lot EXHIBIT B Plan showing Premises. EXHIBIT C Landlord's Services EXHIBIT D Rules and Regulations 3 4 TABLE OF CONTENTS
PAGE ARTICLE II PREMISES AND TERM ................................................................................................. 7 2.1 DESCRIPTION OF PREMISES ....................................................................................... 7 2.2 TERM .......................................................................................................... 7 2.3 OPTION TO EXTEND .............................................................................................. 7 ARTICLE III CONSTRUCTION ...................................................................................................... 9 3.1 TERM COMMENCEMENT DATE ........................................................................................ 9 3.2 DELIVERY OF PREMISES .......................................................................................... 9 3.3 PREPARATION OF PREMISES FOR OCCUPANCY ......................................................................... 10 3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION ................................................................. 11 3.5 ALTERATIONS AND ADDITIONS ..................................................................................... 12 3.6 REPRESENTATIVES ............................................................................................... 13 ARTICLE IV RENT .............................................................................................................. 13 4.1 ANNUAL RENT ................................................................................................... 13 4.2 ANNUAL OPERATING COST ESCALATION .............................................................................. 13 4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION PAYMENT ....................................................................................................... 15 4.4 ELECTRICITY ................................................................................................... 16 4.5 CHANGE OF FISCAL YEAR ......................................................................................... 17 4.6 PAYMENTS ...................................................................................................... 17 ARTICLE V LANDLORD'S COVENANTS .............................................................................................. 17 5.1 LANDLORD'S COVENANTS DURING THE TERM .......................................................................... 17 5.1.1 Building Services ...................................................................................... 17 5.1.2 Additional Building Services ........................................................................... 18 5.1.3 Repairs ............................................................................................... 18 5.1.4 Tenant Directory ..................................................................................... 18 5.1.5 Food Service .......................................................................................... 18 5.1.6 Quiet Enjoyment ........................................................................................ 19 5.2 INTERRUPTIONS ................................................................................................. 19 ARTICLE VI TENANT'S COVENANTS ................................................................................................. 20 6.1 TENANT'S COVENANTS DURING THE TERM ............................................................................ 20
4 5 6.1.1 Tenant's Payments ...................................................................................... 20 6.1.2 Repairs and Yielding Up ................................................................................ 20 6.1.3 Occupancy and Use ...................................................................................... 21 6.1.4 Rules and Regulations .................................................................................. 22 6.1.5 Safety Appliances ...................................................................................... 22 6.1.6 Assignment and Subletting .............................................................................. 22 6.1.7 Indemnity .............................................................................................. 23 6.1.8 Tenant's Insurance ..................................................................................... 24 6.1.9 Tenant's Worker's Compensation Insurance ............................................................... 24 6.1.10 Landlord's Right of Entry ............................................................................. 24 6.1.11 Loading ............................................................................................... 25 6.1.12 Landlord's Costs ...................................................................................... 25 6.1.13 Tenant's Property ..................................................................................... 25 6.1.14 Labor or Materialmen's Liens .......................................................................... 25 6.1.15 Changes or Additions .................................................................................. 25 6.1.16 Holdover .............................................................................................. 26 6.1.17 Security .............................................................................................. 26 6.1.18 Tenant Financial Statements ........................................................................... 26 ARTICLE VII DAMAGE AND DESTRUCTION; CONDEMNATION .............................................................................. 26 7.1 FIRE OR OTHER CASUALTY ........................................................................................ 26 7.2 EMINENT DOMAIN ................................................................................................ 28 ARTICLE VII RIGHTS OF MORTGAGEE ............................................................................................... 29 8.1 PRIORITY OF LEASE ............................................................................................. 29 8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY ..................................................................................................... 30 8.3 MORTGAGEE'S ELECTION .......................................................................................... 31 8.4 NO PREPAYMENT OR MODIFICATION, ETC ............................................................................ 31 8.5 NO RELEASE OR TERMINATION ..................................................................................... 31 8.6 CONTINUING OFFER .............................................................................................. 32 8.7 MORTGAGEE'S APPROVAL .......................................................................................... 32 ARTICLE IX DEFAULT ........................................................................................................... 32 9.1 EVENTS OF DEFAULT ............................................................................................. 32 9.2 TENANTS OBLIGATIONS AFTER TERMINATION ......................................................................... 33 ARTICLE X MISCELLANEOUS ..................................................................................................... 34 10.1 NOTICE OF LEASE .............................................................................................. 34 10.2 (Intentionally Omitted) ...................................................................................... 35
5 6 10.3 NOTICES FROM ONE PARTY TO THE OTHER .......................................................................... 35 10.4 BIND AND INURE ............................................................................................... 35 10.5 NO SURRENDER ................................................................................................. 35 10.6 NO WAIVER, ETC ............................................................................................... 35 10.7 NO ACCORD AND SATISFACTION ................................................................................... 36 10.8 CUMULATIVE REMEDIES .......................................................................................... 36 10.9 LANDLORD'S RIGHT TO CURE ..................................................................................... 36 10.10 ESTOPPEL CERTIFICATE ........................................................................................ 37 10.11 WAIVER OF SUBROGATION ....................................................................................... 37 10.12 ACTS OF GOD ................................................................................................. 37 10.13 BROKERAGE ................................................................................................... 37 10.14 SUBMISSION NOT AN OFFER ..................................................................................... 38 10.15 APPLICABLE LAW AND CONSTRUCTION ............................................................................. 38 10.16 AUTHORITY OF TENANT ......................................................................................... 39 ARTICLE XI SECURITY DEPOSIT .................................................................................................. 39
6 7 ARTICLE II PREMISES AND TERM 2.1 DESCRIPTION OF PREMISES. Subject to and with the benefit of the provisions of this Lease, Landlord hereby leases to Tenant, and Tenant leases from Landlord, the Premises, excluding exterior faces of exterior walls, the common facilities area and building service fixtures and equipment serving exclusively or in common other parts of the Building. Tenant shall have, as appurtenant to the Premises, the right to use in common with others entitled thereto: (a) common walkways, driveways, hallways, lobbies, ramps, loading docks and stairways located in the Building or on the parcel on which the Building is located (the "Lot"), (b) building service fixtures and equipment serving the Premises including elevators, (c) the parking facility, if any, on a first-come, first-served basis in the location from time to time designated by Landlord, Tenant's use not to exceed the number of Tenant's Parking Access Cards, and (d) if the Premises include less than the entire Rentable Floor Area of any floor, the common toilets in the central core area of such floor. Such rights shall be always subject to the Rules and Regulations set forth in Exhibit E, attached hereto and incorporated herein by reference, as the same may be amended by the Landlord from time to time and such other reasonable Rules and Regulations from time to time established by the Landlord by suitable notice to Tenant, and to the right of the Landlord to designate and change from time to time such areas, facilities, fixtures and equipment. 2.2 TERM. To have and to hold for a period (the "Term") commencing on the Term Commencement Date (as defined in Section 3.1 hereof) and continuing for the Term, unless sooner terminated as provided herein. 2.3 OPTION TO EXTEND. Tenant shall have the right and option to extend the Term for one (1) additional period of five (5) years (the "Extension Term") commencing upon the expiration of the original Term referred to in Section 1.1 (the "Original Term"), provided that Tenant shall give Landlord notice of Tenant's exercise of such option at least nine (9) months prior to the expiration of the Original Term and provided further that no event of default by Tenant exists hereunder, and no condition exists which with the giving of notice or the passage of time, or both, would constitute an event of default hereunder, at either the time of giving such notice or at the time of the commencement of such Extension Term. Prior to the exercise by Tenant of such option, the expression "Term" shall mean the Original Term, and after the exercise by Tenant of such option, the expression "Term" shall mean the Original Term as it has 7 8 been extended by the Extension Term. Except as expressly otherwise provided in the following paragraph and except for this Section 2.3 hereof, all the terms, covenants, conditions, provisions and agreements in the Lease contained shall be applicable to the Extension Term. If Tenant shall give notice of its exercise of said option to extend in the manner and within the time period provided aforesaid, the Term shall be extended upon the giving of such notice without the requirement of any further action on the part of either Landlord or Tenant. If Tenant shall fail to give timely notice of the exercise of any such option as aforesaid, Tenant shall have no right to extend the Term of this Lease, time being of the essence of the foregoing provisions. The Annual Base Rent payable during the Extension Term shall be the amount being the greater of (i) the Annual Base Rent in effect for the Lease Year immediately preceding the commencement of the Extension Term or (ii) the Fair Market Rent for the Premises, as determined below, as of the commencement of the Extension Term. If for any reason the Annual Base Rent payable during the Extension Term has not been determined as of the commencement of the Extension Term, Tenant shall pay the Annual Base Rent payable during the Original Term until the Annual Base Rent for the Extension Term is determined, at which time, an appropriate adjustment, if any, shall be made. For purposes here, the Fair Market Rent shall mean the fair rent for the Premises as of the commencement of the Extension Term under market conditions then existing. Fair Market Rent shall be determined by agreement between Landlord and Tenant, but if Landlord and Tenant are unable to agree upon the Fair Market Rent at least six (6) months prior to the date upon which the Fair Market Rent is to take effect, then the Fair Market Rent shall be determined by appraisal made as hereinafter provided by a board of three (3) reputable independent commercial real estate consultants, appraisers, or brokers, each of whom shall have at least ten years of experience in the north suburban Boston office rental market and each of whom is hereinafter referred to as "appraiser". Tenant and Landlord shall each appoint one such appraiser and the two appraisers so appointed shall appoint the third appraiser. The cost and expenses of each appraiser appointed separately by Tenant and Landlord shall be borne by the party who appointed the appraiser. The cost and expenses of the third appraiser shall be shared equally by Tenant and Landlord. Landlord and Tenant shall appoint their respective appraisers at least five (5) months prior to commencement of the period for which Fair Market Rent is to be determined and shall designate the appraisers so appointed by notice to the other party. The two (2) appraisers so appointed and designated shall appoint the third appraiser at least four (4) months prior to the commencement of such period and shall designate such appraisers by notice to Landlord and Tenant. The board of three (3) appraisers shall determine the Fair Market Rent of the space in question as of the commencement of the period to which the Fair Market Rent shall apply and shall notify Landlord and Tenant of their determinations at least sixty (60) days prior to the commencement of such period. If the determinations of the Fair Market Rent of any two (2) or all three 8 9 (3) appraisers shall be identical in amount, said amount shall be deemed to be the Fair Market Rent of the subject space. If the determinations of all three (3) appraisers shall be different in the amount, the average of the two values nearest in amount shall be deemed the Fair Market Rent. The Fair Market Rent of the subject space determined in accordance with the provisions of this Section shall be binding and conclusive on Tenant and Landlord. Time is of the essence of the foregoing provisions. ARTICLE III CONSTRUCTION 3.1 TERM COMMENCEMENT DATE. The Term of this Lease shall commence on, and the Term Commencement Date shall be, the earliest of (a) the date on which the Premises shall be deemed ready for occupancy in accordance with Section 3.3. below, or (b) the date on which Tenant commences beneficial use of the Premises, or (c) the Scheduled Term Commencement Date, subject to extension for the period of any delay caused by Landlord. In no event shall Landlord be deemed to have caused a delay by withholding its approval to Tenant's proposed Plans or Contractor (as those terms are defined in Section 3.3 below), so long as Landlord has responded to Tenant within the time periods set forth in Section 3.3 hereof. As soon as may be convenient after the Term Commencement Date has been determined, Landlord and Tenant agree to join with each other in the execution, in recordable form, of a written Declaration in which the Term Commencement Date and specified term of this Lease shall be stated. 3.2 DELIVERY OF PREMISES. Tenant acknowledges that Tenant has had an opportunity to inspect the Premises. Except as set forth hereinafter, the Premises, shall be delivered to Tenant As Is, Where Is with all faults and without representation, warranty or guaranty of any kind by Landlord to Tenant. Landlord agrees to give Tenant, and its Architect, Contractor and subcontractors reasonable access to the Premises to permit Tenant to prepare drawings and obtain permits and approvals with respect to Tenant's Work (as defined below). Tenant's access to and use and occupancy of the Premises prior to the Term Commencement Date shall be subject to all of the provisions of this Lease, other than the payment of Annual Rent and electricity changes. 9 10 3.3 PREPARATION OF PREMISES FOR OCCUPANCY. Subject to the provisions hereof, Tenant shall undertake all work to prepare the Premises for Tenant's use and occupancy in accordance with Plans approved as set forth below ("Tenant's Work") at Tenant's sole cost and expense, except that Landlord shall reimburse Tenant in an amount not to exceed the Tenant Improvement Allowance, which amount shall include an amount with respect to network cabling not to exceed $2.00 per square foot of Rentable Floor Area of the Premises. Provided that Tenant is not then in default under any provision of this Lease or, if Tenant is in default, that Tenant cures the same within the applicable cure period, if any, the Tenant Improvement Allowance shall be payable by Landlord to Tenant to reimburse Tenant for architectural fees payable to Tenant's architect (the "Architect"), upon notice to Tenant accompanied by the Architect's invoice therefor and to pay the Contractor (as defined hereinafter) directly upon notice to Landlord from time to time, accompanied by invoices from the Contractor which have been approved by the Architect. After the entire amount of the Tenant Improvement Allowance has been paid out by Landlord, Tenant shall bear all additional costs to complete Tenant's Work at Tenant's sole cost and expense; provided, however, that Tenant may elect to have Landlord fund an additional amount of the cost of Tenant's Work not to exceed $5.00 per square foot of Rentable Floor Area of the Premises by written notice given to Landlord no later than the commencement of Tenant's Work specifying the additional amount to be funded (the "Additional Allowance"), in which event such additional amount shall be amortized over the Original Term of the Lease, together with interest thereon at the rate of twelve percent (12%) per annum, and added to the Annual Rent payable by Tenant to Landlord hereunder. If any portion of the Tenant Improvement Allowance or Additional Allowance remains after the completion of Tenant's Work, it shall not be payable or credited to Tenant in any manner whatsoever. Tenant's contractor (the "Contractor") shall be subject to the prior approval of Landlord, such approval not to be unreasonably withheld, and to be given or withheld within ten (10) business days of Tenant's notice to Landlord stating the name and address of the proposed Contractor and requesting Landlord's approval of the same. The Premises shall be deemed ready for occupancy on the date on which Tenant's Work has been substantially completed as reasonably determined by Landlord. In any event, Tenant's Work shall be deemed to have been substantially completed when Tenant has obtained a Certificate of Occupancy therefor or other authorization from the City of Cambridge to occupy the Premises for the Permitted Uses. For purposes hereof, Tenant shall submit a complete set of proposed plans and specifications (collectively, "Plans") showing Tenant's Work to Landlord. No later than five (5) business days thereafter, Landlord shall either approve or disapprove the Plans, specifying by notice to Tenant in reasonable detail the respects in which the Plans are disapproved. If Landlord disapproves the Plans, Tenant shall submit to 10 11 Landlord revised Plans which respond to the items of disapproval specified in Landlord's notice no later than five (5) days from Landlord's notice of disapproval. Thereafter, Landlord shall have five (5) days from Tenant's submission of the Plans to Landlord to approve or disapprove the revised Plans in accordance with the foregoing and, in case of disapproval, Tenant shall have an additional five (5) days to submit revised Plans responding to the items of disapproval specified in Landlord's notices. The parties shall work diligently and in good faith to agree upon approved Plans. Landlord will not approve any construction, alterations, or additions requiring unusual expense to readapt the Premises to normal office use on lease termination or increasing the cost of construction, insurance or taxes on the Building or of Landlord's services called for by Section 5.1 unless Tenant first gives assurances acceptable to Landlord that such readaptation will be made prior to such termination without expense to Landlord and makes provisions acceptable to Landlord for payment of such increased cost. Landlord will also disapprove any alterations or additions requested by Tenant which will delay completion of the Premises. Tenant's construction, installation of furnishings, and later changes or additions shall be coordinated with any work being performed by Landlord in such manner as to maintain harmonious labor relations and not to damage the Building or Lot or interfere with Building operations. 3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION. All construction work required or permitted by this Lease, whether by Landlord or by Tenant, shall be done in a good and workmanlike manner and in compliance with all applicable laws and all lawful ordinances, regulations and orders of governmental authority and insurers of the Building and the Lot. Either party may inspect the work of the other at reasonable times and promptly shall give notice of observed defects. Landlord's obligations under Sections 3.2 and 3.3, if any, shall be deemed to have been performed when Tenant commences to occupy any portion of the Premises for the Permitted Uses except for items which are incomplete or do not conform with the requirements of Section 3.1 and as to which Tenant shall in either case have given written notice to Landlord within three (3) weeks after such commencement, unless the particular item is used only during a season other than the season in which the Term Commencement Date occurs, in which case such notice shall given within three (3) weeks from commencement of use of such item in the first applicable season following the Term Commencement Date. If Tenant shall not have commenced to occupy the Premises for the Permitted Uses within thirty (30) days after the Term Commencement Date, a certificate of completion by a licensed architect or registered engineer shall be conclusive evidence that Landlord has performed all such obligations except for items stated in such certificate to be incomplete or not in conformity with such requirements. Tenant acknowledges that the Building may be undergoing substantial renovation during the Term of the Lease. 11 12 Tenant acknowledges that its quiet enjoyment and access to the Demised Premises during the Term may be disturbed by the noise, dust, vibrations and other effects of demolition in the Building, provided, however, that Landlord shall use reasonable and diligent efforts to avoid undue interference with Tenant's use of the Premises. 3.5 ALTERATIONS AND ADDITIONS. This Section 3.5 shall apply before and during the Term. Tenant shall not make any alterations and additions to the Premises except in accordance with plans and specifications first approved by Landlord. In no event shall any alterations or additions be considered or approved by Landlord which (a) involve or might affect any structural or exterior element of the Building or building mechanical, electrical or plumbing systems, including the common facilities of the Building, or (b) will require unusual expense to readapt the Premises to normal office use on Lease termination or increase the cost of construction or of insurance or taxes on the Building or the Lot. All alterations and additions shall become a part of the Premises, unless and until Landlord, at its option, shall specify the same for removal at the time of Landlord's approval of the alterations and additions pursuant to Section 6.1.2. All of Tenant's alterations and additions and installation and delivery of telephone systems, furnishings, and equipment shall be coordinated with any work being performed by Landlord and shall be performed in such manner, and by such persons as shall maintain harmonious labor relations and not cause any damage to the Building or interference with Building construction or operation and, except for installation of furnishings, equipment and telephone systems, and except as otherwise expressly set forth herein, shall be performed by general contractors first approved by Landlord. Before commencing any work Tenant shall: secure all licenses and permits necessary therefor; deliver to Landlord a statement of the names of all its contractors and subcontractors (the identity of which must have been previously approved by Landlord as hereinabove contemplated) and the estimated cost of all labor and material to be furnished by them; and cause each contractor to carry (i) worker's compensation insurance in statutory amounts covering all the contractor's and subcontractor's employees and (ii) comprehensive public liability insurance with such limits as Landlord may reasonably require, but in no event less than a combined single limit of $1,500,000 (all such insurance to be written in companies approved by Landlord and insuring Landlord and Tenant as well as the contractors), and to deliver to Landlord certificates of all such insurance. Tenant agrees to pay promptly when due, and to defend and indemnify Landlord from and against, the entire cost of any work done on the Premises by Tenant, its agents, employees or independent contractors, and not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the Building or the Lot and immediately to discharge any such liens which may so attach. Tenant shall pay within fourteen (14) days after being billed therefor by Landlord, as additional rent, one hundred percent (100%) of any increase in real estate taxes on the Premises not otherwise billed to Tenant which shall at any time after the commencement of the 12 13 Term, result from any alteration, addition or improvement to the Premises made by or on behalf of Tenant. In connection with the installation of telecommunication equipment by Tenant, such installation shall occur only in such locations and in such a manner as approved in writing by the Landlord and none of such wires, ducts or equipment shall be located in areas outside the Premises (provided, however, that Tenant may install wires and cables in risers and ducts outside the Premises which are in existence on the date of this Lease and for which there exists, in Landlord's sole discretion, adequate space for Tenant's wires and cables). Telephone switches, antennae, electronic distribution boxes and similar equipment shall only be located within the Premises. Landlord shall not be liable for any loss, damage or interruption of service related to such facilities. 3.6 REPRESENTATIVES. Each party authorizes the other to rely in connection with their respective rights and obligations under this Article III upon approval and other actions on the party's behalf by Landlord's Representative in the case of Landlord or Tenant's Representative in the case of Tenant or by any person designated in substitution or addition by notice to the other party. ARTICLE IV RENT 4.1 ANNUAL RENT. Tenant agrees to pay rent to Landlord without any offset or reduction whatever (except as made in accordance with the express provisions of this Lease), the Annual Rent in equal monthly installments in advance on the first day of each calendar month included in the Term after the Term Commencement Date; and for any portion of a calendar month at the beginning or end of the Term, at the proportionate rate payable for such portion, in advance. 4.2 ANNUAL OPERATING COST ESCALATION. In addition to Annual Rent, Tenant shall pay to Landlord as additional rent, Tenant's Proportionate Share of Annual Operating Costs (as hereinafter defined) which is in excess of Base Annual Operating Costs ("Tenant's Escalation Payment"). Tenant's Proportionate Share of Annual Operating Costs shall be determined by multiplying Annual Operating Costs by a fraction, the numerator of which is the Rentable Floor Area of the Premises and the denominator of which is the Total Rentable Floor Area of the Building. In the event that the Building is not fully 13 14 occupied, such Annual Operating Costs shall be adjusted to reflect the costs which would be incurred if the Building were 95% occupied. Annual Operating Costs shall mean the actual expenses paid or incurred by Landlord in the operation, maintenance and management of the Building and Lot and all real estate taxes and assessments, general or special, ordinary or extraordinary, foreseen or unforeseen, imposed upon the Building and Lot and any future improvement of whatever kind thereto or thereon. Annual Operating Costs shall include without limitation: (a) real estate taxes on the Building and Lot and off-site parking areas; (b) installments and interest on assessments for public betterment or public improvements; (c) expenses of any proceedings for abatement of taxes and assessments with respect to any fiscal year or fraction of a fiscal year; (d) service, repair, replacement and other maintenance to the Building and Lot and components thereof; (e) wages and salaries (and taxes and other charges imposed upon employers with respect to such wages and salaries) and fringe benefits and worker's compensation insurance premiums paid to persons employed by the Landlord for rendering service in the operation, maintenance, and repair of the Building and Lot and related facilities and off-site parking areas and amenities; (f) cost of independent contractors hired for the operation, maintenance and repair of the Building and Lot and related facilities and amenities (which payments may be to affiliates of Landlord provided the same are at reasonable rates consistent with the type of occupancy and the services rendered); (g) costs of electricity, steam, water, fuel, heating, lighting, air conditioning, sewer, and other utilities chargeable to the operation and maintenance of the Building and Lot net of tenant's electric; (h) cost of insurance including insurance deductible for and relating to the Building and the Lot, including fire and extended coverage (or such greater coverages as Landlord may elect to carry), elevator, boiler, sprinkler leakage, water damage, public liability and property damage, plate glass, and rent protection; (i) costs of supplies; (j) costs of window cleaning, janitorial services, security services, landscaping, snow and ice removal and painting; (k) sales or use taxes on supplies and services; (l) consulting, accounting fees, legal, tax appeal, engineering and other professional fees and expenses; (m) management fees not to exceed five percent (5%) of gross revenues generated by the Building; (n) contributions, costs or expenses related to common areas or facilities and off-site parking areas of any office park or development of which the Building or Lot are a part, (o) alterations and improvements to the Building and Lot which are not capital in nature made by reason of any requirement of any insurance underwriters or any federal, state, or local statutes, regulations, ordinances, or any other duly constituted public authorities having jurisdiction over the Building and Lot; and (p) all Expense of Operation of the Food Services as defined in section 5.1.5 and (q) without limiting any of the foregoing, any other expense or charge which, in accordance with sound accounting and management principles generally accepted, would be construed as an operating expense. The term Operating Costs shall not 14 15 include the interest and amortization on mortgages for the Building and Lot or leasehold interests therein; any charge for depreciation; leasing commissions or legal fees for the negotiation and enforcement of leases; and the cost of special services rendered to tenants (including Tenant) for which a special charge is made. In the event Landlord shall make a capital expenditure for Essential Capital Improvements, as hereinafter defined, during any year, the annual amortization of such expenditure (determined by dividing the amount of the expenditure by the useful life of the improvement, as determined by Landlord), together with interest at the greater of the Prime Rate prevailing plus 2% or Landlord's actual borrowing rate for such Essential Capital Improvements shall be deemed part of Annual Operating Costs for each year of such useful life. As used herein, "Essential Capital Improvement" means any of the following: (i) a labor saving device, energy saving device or other installation, improvement or replacement which reduces Operating Costs as referred to above, whether or not voluntary or required by governmental mandate; or (ii) an installation, change, improvement, addition, alteration, or removal of any architectural barriers, whether or not the foregoing are structural in nature, made by reason of any governmental requirement whether or not such governmental requirement exists on the date of the execution of this Lease if such governmental requirement is or will be applicable generally to similar office buildings; or (iii) an installation or improvement which directly enhances the health or safety of tenants in the Building generally, whether or not voluntary or required by governmental mandate (as for example, without limitation, for life safety or security); or (iv) costs or expenditures incurred in replacing compressors and refrigeration equipment in order to comply with regulations regarding ozone depleting refrigerants or resulting from the excessive cost of or inability to obtain such materials. 4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION PAYMENT. If, with respect to any fiscal year or fraction thereof during the Term, Landlord estimates that Tenant will be obligated to pay Tenant's Escalation Payment, then Tenant shall pay, as additional rent, on the first day of each month of such fiscal year and each ensuing fiscal year thereafter, an estimate equal to 1/12th of Tenant's Escalation Payment for the respective fiscal year ("Estimated Monthly Operating Expense Cost Payments"), with an appropriate additional payment or refund to be made within 30 days after Landlord's Statement (as hereafter defined) is delivered to Tenant. Landlord may adjust such Estimated Monthly Annual Operating Cost 15 16 Payment from time to time and at any time during a fiscal year, and Tenant shall pay, as additional rent, on the first day of each month following receipt of Landlord's notice thereof, the adjusted Estimated Monthly Annual Operating Cost Payment. As soon as practicable after the end of each fiscal year ending during the Term and after lease termination, Landlord shall render a statement ("Landlord's Statement") in reasonable detail and according to usual accounting practices certified by Landlord and showing for the preceding fiscal year or fraction thereof, as the case may be, Landlord's Annual Operating Costs, Tenant's Proportionate Share thereof, and Tenant's Escalation Payment, as defined above. 4.4 ELECTRICITY. Tenant will be billed for electricity for Tenant's lights and outlet consumption on a monthly basis based on an annual estimate of $1.00 per rentable square foot. Should the actual average expense to Landlord per square foot for Tenant's electricity be different, an additional charge or a credit will be made at the end of each year's occupancy to be paid with or credited against the next monthly charge for Tenant's electricity. Notwithstanding the foregoing, Landlord reserves the right to assess Tenant's charge for electricity based on an engineer's survey of Tenant's electrical usage conducted from time to time or on the sub-metering of all or part of the Premises. Such charges for Tenant's electricity shall be paid by Tenant as additional rent at the same time and in the same manner as payments of Annual Rent. Tenant covenants and agrees that its use of electric current shall not exceed 4.0 watts per square foot of usable floor area and that its total connected lighting load will not exceed the maximum load from time to time permitted by applicable governmental regulations. In the event Tenant introduces into the Premises personnel or equipment which overloads the capacity of the Building's electrical system or in any other way interferes with the system's ability to perform properly, supplementary systems including check meters may, if and as needed, at Landlord's option, be provided by Landlord, at Tenant's expense. Landlord shall not in any way be liable or responsible to Tenant for any loss or damage or expense which Tenant may sustain or incur if, during the Term of this Lease, either the quantity or character of electric current is changed or electric current is no longer available or suitable for Tenant's requirements due to a factor or cause beyond Landlord's control. Landlord reserves the exclusive right to provide electric and other utility service to the Building. Tenant may request permission from Landlord (which consent may be withheld in its sole discretion) to arrange electric and other utility service exclusively serving the Premises. Should such permission be granted, however, such service shall be installed only in such locations and in such manner as shall be specifically approved by Landlord in its reasonable discretion, Tenant shall be responsible for restoration of any damage caused by such installation and Tenant 16 17 shall be responsible for removal of such installations at the termination of this Lease. Landlord may limit Tenant's choice of electrical or other utility providers in order to avoid proliferation of such services to the Building or for any other reason. In no event, however, shall Landlord be responsible for any damages or inconvenience caused by interruption in or poor quality of electricity or other utility services provided to the Building or the Premises unless such damages are caused by the negligence of Landlord, its agents or employees. 4.5 CHANGE OF FISCAL YEAR. Landlord shall have the right from time to time to change the periods of accounting under Section 4.2 to any annual period other than a calendar year, and upon any such change all items referred to in Section 4.2 shall be appropriately apportioned. In all Landlord's Statements rendered under Section 4.2, amounts for periods partially within and partially without the accounting periods shall be appropriately apportioned, and any items which are not determinable at the time of a Landlord's Statement shall be included therein on the basis of Landlord's estimate, and with respect thereto Landlord shall render promptly after determination a supplemental Landlord's Statement, and appropriate adjustment shall be made according thereto. All Landlord's Statements shall be prepared on an accrual basis of accounting. 4.6 PAYMENTS. All payments of Annual Rent and additional rent shall be made to Managing Agent, or to such other person as Landlord may from time to time designate. If any installment of Annual Base Rent or additional rent or payments due on account of leasehold improvements is paid more than 10 days after the due date thereof, at Landlord's election, it shall bear interest at a rate equal to the average prime commercial rate from time to time established by the three largest national banks in Boston, Massachusetts plus 4% per annum from such due date, which interest shall be immediately due and payable as further additional rent. ARTICLE V LANDLORD'S COVENANTS 5.1 LANDLORDS COVENANTS DURING THE TERM. Landlord covenants during the Term: 5.1.1 Building Services - To furnish during normal working hours heat, air-conditioning, elevator service and hot and chilled water service and after normal working hours on business days cleaning service as shown in Exhibit D. "Normal working hours" shall mean the hours of 8:00 a.m. through 6:00 p.m. Monday through 17 18 Friday and the hours of 8:00 a.m. through 1:00 p.m. on Saturdays, and no hours on legal holidays and Sundays; provided, however, that Tenant shall have access to the Building 24 hours a day, 365 days a year, by means of a key or other access device to the main lobby of the Building to be provided to Tenant by Landlord. Tenant shall pay when due all amounts and charges for such services during hours other than normal working hours and shall indemnify and hold harmless Landlord from and against any and all claims, liabilities, damages, losses, costs and expenses (including reasonable attorneys' fees) in connection therewith. Landlord is not and shall not be required to furnish to Tenant or any other occupant of the Premises telephone or other communication service. 5.1.2 Additional Building Services - To furnish, through Landlord's employees or independent contractors, reasonable additional Building operation services upon reasonable advance request of Tenant at equitable rates including an administrative fee from time to time established by Landlord to be paid by Tenant; 5.1.3 Repairs - Except as otherwise provided in Article VII, to make such repairs to the roof, exterior walls, floor slabs, other structural components and common facilities of the Building as may be necessary to keep them in serviceable condition; and 5.1.4 Tenant Directory - To include Tenant's name on the Tenant directory maintained by Landlord in the main lobby of the Building and on the floor of the Building on which the Premises are located, and to provide a Building standard sign on or adjacent to the entrance door to the Premises. 5.1.5 Food Service - Landlord (or any affiliate or agent designated by Landlord) may provide, within the Building or any building in the office park in which the Building is located known as CambridgePark (an "Office Park Building"), a food service of a size, type, location and serving capacity as Landlord shall deem suitable, in its sole discretion. All losses incurred by Landlord in operating the food service facility during any fiscal year and properly allocable to the Building and other Office Park Buildings (the "Food Service Losses") shall be added to the Landlord's Annual Operating Costs for the year in which such losses were incurred for the purpose of calculating the Tenant's Escalation Payment pursuant to Section 4.2. All profits realized by the Landlord in operating the food service facility during any fiscal year and properly allocable to the Building and other Office Park Buildings (the "Food Service Profits") shall be credited against the Landlord's Annual Operating Costs for the Building and other Office Park Buildings for such year. For the purposes of this Section 5.1.5, the Food Service Profits of Losses for any year shall be calculated by deducting from the Gross Receipts of the Food Service (as hereinafter defined) all Expenses of Operation (as hereinafter defined). Gross Receipts of the Food Service as used herein are defined to mean the total amount in dollars of the actual prices charged, in cash, for food and beverages served at the facility, excluding 18 19 sums collected for any sales tax or excise tax. The Expenses of Operation of the food service shall mean all expenses of operating the food service facility, including without limitation, salaries, wages, employment taxes and fringe benefits, food service administration costs, food costs, concessionaire's costs, operating costs, equipment maintenance and repair costs, if any, plus an annual return to the Landlord upon its investment in establishing the food service facility (including without limitation the cost of furniture, equipment, furnishings, and related mechanical systems) equal to fifteen percent (15%) of its investment or $50,000, whichever is less. If during any six-month period, the mathematical average of the number of luncheon meals served by the food service facility per day is fewer than 300, or the Food Service Losses incurred by the Landlord in operating the food service facility during such six-month period exceed $25,000, then the Landlord shall have the right and option, in its sole discretion, to take any steps necessary to reduce or eliminate the losses (including without limitation, modification or termination of the food service), unless one hundred percent (100%) of the tenants occupying the Building agree that the Landlord's Annual Operating Costs hereunder for the purpose of calculating the Annual Operating Expense Escalation shall include one hundred percent (100%) of the Food Service Losses, without limitation. Landlord reserves the right to approve Tenant's use of a food service operator other than the Landlord's food service operator, if any. Such approval will not be unreasonably withheld. 5.1.6 Quiet Enjoyment - That Landlord has the right to make this Lease and that Tenant on paying the rent and performing its obligations hereunder shall peacefully and quietly have, hold and enjoy the Premises throughout the Term without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject however to all the terms and provisions hereof. 5.2 INTERRUPTIONS. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance, injury, death or for loss of business arising from power or other utility losses or shortages, air pollution or contamination, or from the necessity of Landlord's entering the Premises for any of the purposes in this Lease authorized, or for repairing the Premises or any portion of the Building or the Lot or for any interruption or termination (by reason of any cause reasonably beyond Landlord's control, including without limitation, loss of any applicable license or government approval) of the food service provided by Landlord pursuant to Section 5.1.5. In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any service or performing any other covenant or duty to be performed on Landlord's part, by reason of any cause beyond 19 20 Landlord's reasonable control, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided in Article VII, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant's favor that such failure constitutes actual or constructive total or partial, eviction from the Premises. Landlord reserves the right to stop any service or utility system when necessary by reason of accident or emergency or until necessary repairs have been completed. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof. Landlord also reserves the right to institute such policies, programs and measures as may be necessary, required or expedient for the conservation or preservation of energy or energy services or as may be necessary or required to comply with applicable codes, rules, regulations or standards. ARTICLE VI TENANT'S COVENANTS 6.1 TENANT'S COVENANTS DURING THE TERM. Tenant covenants during the Term and such further time as Tenant occupies any part of the Premises: 6.1.1 Tenant's Payments - To pay when due (a) all Annual Rent, (b) all taxes which may be imposed on Tenant's personal property in the Premises (including, without limitation, Tenant's fixtures and equipment) regardless to whomever assessed, (c) as additional rent, Tenant's Escalation Payments, (d) all charges by public utilities for electricity, telephone (including service inspections therefor) and other services rendered to the Premises not otherwise required hereunder to be furnished by Landlord without charge and not consumed in connection with any services required to be furnished by Landlord without charge, (e) as additional rent, all costs for Landlord's Work attributable to change orders and any work performed in the Premises by Landlord or Tenant in excess of Landlord's Work, and (f) as additional rent, all charges to Landlord for services rendered pursuant to Section 5.1.2 hereof 6.1.2 Repairs and Yielding Up - Except as otherwise provided in Article VII and Section 5.1.3, to keep the Premises in good order, repair and condition, reasonable wear only excepted, including making repairs to the HVAC and electrical systems resulting from the design or construction of such systems as part of Tenant's Work; and at the expiration or termination of this Lease peaceably to yield up the 20 21 Premises and all alterations and additions therein, including all telephone and data wiring installed by or at the request of tenant, in such order, repair and condition, first removing all goods and effects of Tenant and any alterations and additions, the removal of which is required by agreement or specified to be removed by Landlord by notice to Tenant at the time of approval of the alterations and additions, and repairing all damage caused by such removal and restoring the Premises and leaving them clean and neat. 6.1.3 Occupancy and Use - Continuously from the Commencement Date, to use and occupy the Premises only for the Permitted Uses; not to injure or deface the Building or the Lot; to keep the Premises clean and in a neat and orderly condition; and not to permit in the Premises any use thereof which is improper, offensive, contrary to law or ordinances, or liable to create a nuisance or to create an unsafe or hazardous condition, or to invalidate or increase the premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building; not to dump, flush, or in any way introduce any Hazardous Materials or any other toxic substances into the septic, sewage or other waste disposal system serving the Premises, not to generate, store or dispose of Hazardous Materials in or on the Premises, or the Lot or dispose of Hazardous Materials from the Premises to any other location without the prior written consent of Landlord and then only in compliance with the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq., and all other applicable laws, ordinances and regulations; to notify Landlord of any incident which would require the filing of a notice under applicable federal, state, or local law; not to use, store or dispose of Hazardous Materials on the Premises without first submitting to Landlord a list of all such Hazardous substances and all permits required therefor and thereafter providing to Landlord on an annual basis Tenant's certification that all such permits have been renewed with copies of such renewed permits; and to comply with the orders and regulations of all governmental authorities with respect to zoning, building, fire, health and other codes, regulations, ordinances or laws applicable to the Premises. As used herein, "Hazardous Materials" shall mean and include, but shall not be limited to, any petroleum product and all hazardous or toxic substances or wastes including any asbestos-containing materials, waste oils, solvents and chlorinated oils, polychlorinated biphenyls (PCBs), or substances which are included under or regulated by any federal, state or local law, rule or regulation (whether now existing or hereafter enacted or promulgated, as they may be amended from time to time) pertaining to the environment, contamination or clean-up (all such laws, rules and regulations being referred to collectively as the "Environmental Laws"), including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 and regulations adopted pursuant to said Act. Notwithstanding the foregoing, Tenant may store and use cleaning fluids, copier toner and other materials customarily used incidental to normal office use in usual amounts, provided the same are stored, used and disposed of in strict compliance with all Environmental Laws. 21 22 6.1.4 Rules and Regulations - To comply with the Rules and Regulations set forth in Exhibit E and all other reasonable Rules and Regulations hereafter made by Landlord, of which Tenant has been given notice, for the care and use of the Building and the Lot and their facilities and approaches, it being understood that Landlord shall not be liable to Tenant for the failure of other tenants of the Building to conform to such Rules and Regulations. 6.1.5 Safety Appliances - To keep the Premises equipped with all safety appliances required by law or ordinance or any other regulation of any public authority because of any use made by Tenant and to procure all licenses and permits so required because of such use and, if requested by Landlord, to do any work so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant's Permitted Uses. 6.1.6 Assignment and Subletting. Not without the prior written consent of Landlord to assign, mortgage, pledge, encumber, sell or transfer this Lease, in whole or in part, to make any sublease, or to permit occupancy of the Premises or any part thereof by anyone other than Tenant, voluntarily or by operation of law (it being understood that in no event shall Landlord consent to any such assignment, sublease or occupancy if the same is on terms more favorable to the successor occupant than to the then occupant); as additional rent, to reimburse Landlord promptly for reasonable legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting; no assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee); no consent to any of the foregoing in a specific instance shall operate as a waiver in any subsequent instance. Landlord's consent to any proposed assignment or subletting shall not be unreasonably withheld, but is required both as to the terms and conditions thereof, and as to the creditworthiness of the proposed assignee or subtenant and the consistency of the proposed assignee's or subtenant's business with other uses and tenants in the Building. In the event that any assignee or subtenant pays to Tenant any amounts in excess of the Annual Rent and additional rent then payable hereunder, or pro rata portion thereof on a square footage basis for any portion of the Premises, Tenant shall promptly pay fifty percent (50%) of said excess to Landlord as and when received by Tenant. If Tenant requests Landlord's consent to assign this Lease or sublet more than thirty-five (35%) of the Premises, Landlord shall have the option, exercisable by written notice to Tenant given within ten (10) days after receipt of such request, to terminate this Lease as of a date specified in such notice which shall be not less than thirty (30) or more than sixty (60) days after the date of such notice. Landlord may, in its sole discretion, withhold consent to any proposed assignment or subletting to another tenant of the Building or an affiliate of such tenant or an entity (or affiliate of any 22 23 entity) with which Landlord was negotiating for space in the Building during the preceding eighteen (18) months. If, at any time during the Term of this Lease, Tenant is: (i) a corporation, limited liability company or a trust (whether or not having shares of beneficial interest) and there shall occur any change in the identity of a majority of the persons then having power to participate in the election or appointment of the directors, trustees or other persons exercising like functions and managing the affairs of Tenant; or (ii) a partnership or association or otherwise not a natural person (and is not a corporation, limited liability company or a trust) and there shall occur any change in the identity of a majority of the persons who then are members of such partnership or association or who comprise Tenant; Tenant shall so notify Landlord and Landlord may terminate this Lease by notice to Tenant given within ninety (90) days thereafter if, in Landlord's reasonable judgment, the credit of Tenant is thereby materially impaired. This paragraph shall not apply if the initial Tenant named herein is a corporation and the outstanding voting stock thereof is listed on a recognized securities exchange. 6.1.7 Indemnity - To defend, with counsel approved by Landlord, all actions against Landlord, Managing Agent, any partner, member, trustee, stockholder, officer, director, employee or beneficiary of Landlord or Managing Agent, holders of mortgages secured by the Premises or the Building and Lot and any other party having an interest in the Premises ("Indemnified Parties") with respect to, and to pay, protect, indemnify and save harmless, to the extent permitted by law, all Indemnified Parties from and against, any and all liabilities, losses damages, costs, expenses (including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands or judgments of any nature arising from or related to (i) injury to or death of any person, or damage to or loss of property, on the Premises or connected with the use, condition or occupancy of the Premises, unless caused by the negligence of Landlord or its servants or agents, (ii) violation of this Lease, or (iii) any act, fault, omission, or other misconduct of Tenant or its agents, employees, contractors, licensees, sublessees or invitees or (iv) the use, generation, storage or disposal of Hazardous Materials by Tenant or its agents, employees or invitees on the Premises, the Building or Lot or any portion thereof or any surrounding area, including, without limitation, any and all liabilities, losses, damages, costs, expenses (including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands or judgments of any nature arising from or related to removal or other remediation of any Hazardous Materials or precautions required to protect against the release of Hazardous Materials by Tenant or its agents, employees, contractors, licensees, 23 24 sublessees or invitees into the environment to the extent required by any Environmental Laws (as defined below). 6.1.8 Tenant's Insurance - To maintain (a) all risk property insurance in amounts sufficient to fully cover Tenant's improvements and all property in the Premises which is not owned by Landlord and (b) commercial general liability insurance on the Premises, with Landlord named as an additional insured, indemnifying Landlord and Tenant against all claims and demands for (i) injury to or death of any person or damage to or loss of property, on the Premises or adjoining walks, streets or ways, or connected with the use, condition or occupancy of any of the foregoing unless caused by the negligence of Landlord or its servants or agents, (ii) violation of this Lease, or (iii) any act, fault or omission, or other misconduct of Tenant or its agents, employees, contractors, licensees, sublessees or invitees, in amounts which shall, at the beginning of the Term, be at least equal to the limits set forth in Section 1.1, and from time to time during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Premises are located on property similar to the Premises and used for similar purposes, and shall be written on the "Occurrence Basis," and to furnish Landlord with certificates thereof. Such insurance shall be effected under valid and enforceable policies with insurers authorized to do business in Massachusetts as stock or mutual companies that are rated in the current edition of Best's Key Rating Guide, Property and Casualty as A and as Class VII or higher. Such policies shall name Landlord and Tenant as the insureds as their respective interests may appear. Not later than the first to occur of (a) the Commencement Date or (b) the commencement of any activities by Tenant in or about the Premises and thereafter not less than thirty (30) days prior to the expiration dates of the expiring policies theretofore furnished pursuant to this Section 6.1.8, Tenant shall deliver to Landlord certificates of insurance issued by the insurers evidencing all such policies in form satisfactory to Landlord, accompanied by evidence satisfactory to Landlord of payment of the first installment of the premiums. Each such policy shall provide that it may not be canceled and that its form, terms or conditions may not be changed without at least thirty (30) days' prior written notice to each insured named therein. 6.1.9 Tenant's Worker's Compensation Insurance - To keep all of Tenant's employees working in the Premises covered by worker's compensation insurance in statutory amounts and to furnish Landlord with certificates thereof. 6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's agents entry after prior oral or written notice (provided that no notice shall be required in the event of an emergency): to examine the Premises at reasonable times and, if Landlord shall so elect, to make repairs or replacements; to remove, at Tenant's expense, any changes, additions, signs, curtains, blinds, shades, awnings, aerials, or the like not consented to in writing; and to show the Premises to prospective tenants 24 25 during the twelve (12) months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times. 6.1.11 Loading - Not to place Tenant's Property, as defined in Section 6.1.13, upon the Premises so as to exceed a rate of fifty (50) pounds of live load per square foot and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such manner and at such times as Landlord shall in each instance approve; Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other leased space in the Building shall be placed and maintained by Tenant in settings of cork, rubber, spring, or other types of vibration eliminators sufficient to eliminate such vibration or noise. 6.1.12 Landlord's Costs - In case Landlord shall be made party to any litigation commenced by or against Tenant or by or against any parties in possession of the Premises or any part thereof claiming under Tenant, to pay, as additional rent, all costs including, without implied limitation, reasonable counsel fees incurred by or imposed upon Landlord in connection with such litigation to the extent Landlord prevails in such litigation and, as additional rent, also to pay all such costs and fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease. 6.1.13 Tenant's Property - All the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in the Building or on the Lot shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft, or from any other cause, no part of said loss or damage is to be charged to or to be borne by Landlord unless due to the gross negligence of Landlord. 6.1.14 Labor or Materialmen's Liens - To pay promptly when due the entire cost of any work done on the Premises by Tenant, its agents, employees, or independent contractors; not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the Premises; and immediately to discharge any such liens which may so attach. 6.1.15 Changes or Additions - Not to make any changes or additions to the Premises without Landlord's prior written consent and only in accordance with Article III hereto, provided that Tenant shall reimburse Landlord for all costs incurred by Landlord in reviewing Tenant's proposed changes or additions, and provided further that, in order to protect the functional integrity of the Building, all 25 26 changes and additions shall be performed by contractors selected from a list of approved contractors prepared by Landlord from time to time. 6.1.16 Holdover - To pay to Landlord the greater of twice (a) the then fair market rent as conclusively determined by Landlord or (b) the total of the Annual Rent and all additional rent then applicable for each month or portion thereof Tenant shall retain possession of the Premises or any part thereof after the termination of this Lease, whether by lapse of time or otherwise, and also to pay all damages sustained by Landlord on account thereof; the provisions of this subsection shall not operate as a waiver by Landlord of the right of reentry provided in this Lease. At the option of Landlord exercised by a written notice given to Tenant while such holding over continues, such holding over shall constitute an extension of this Lease for a period of one year. 6.1.17 Security - To indemnify, and save Landlord harmless from any claim for injury to person or damage to property asserted by any personnel, employee, guest, invitee or agent of Tenant which is suffered or occurs in or about the Premises or in or about the Building or the Lot by reason of the act of any intruder or any other person in or about the Premises, the Building or the Lot. 6.1.18 Tenant Financial Statements - Tenant shall provide Landlord with audited financial statements on an annual basis, within ninety (90) days of the end of Tenant's fiscal year. Except to the extent required by law or compelled by legal authority, Landlord agrees to keep such statements confidential and not to disclose the contents thereof to any party other than consultants engaged by or working with Landlord who shall also be required to keep such statements confidential. ARTICLE VII DAMAGE AND DESTRUCTION; CONDEMNATION 7.1 FIRE OR OTHER CASUALTY. 7.1.1 Subject to the provisions of Section 7.1.2 hereof, in the event during the Term hereof the Premises shall be partially damaged (as distinguished from "substantially damaged" as such term is hereinafter defined) by fire, explosion, casualty or any other occurrence covered or as may be required to be covered, as herein provided, by Landlord's insurance or by such casualty plus required demolition, or by action taken to reduce the impact of any such event, Landlord shall forthwith proceed to repair such damage and restore the Premises, or so much thereof as was originally constructed or delivered by Landlord to substantially its condition at the time of such fire, explosion, casualty or occurrence, provided that Landlord shall not be obligated to expend for such repair an amount in excess of the insurance proceeds recovered as a result of such damage and, further provided that 26 27 Tenant is not then in default of any of its obligations under this Lease beyond any applicable cure period. Landlord shall not be responsible for any delay which may result from any cause beyond Landlord's reasonable control. 7.1.2 If, however, (i) the Premises should be damaged or destroyed (a) by fire or other casualty (1) to the extent of twenty-five percent (25%) or more of the cost of replacement, or (2) so that twenty-five (25%) or more of the principal area contained in the Premises shall be rendered untenantable, or (b) by any casualty other than those covered by insurance policies required to be maintained by Landlord under this Lease (hereinafter "substantially damaged"), or (ii) the Premises shall be damaged in whole or in part during the last year of the Term, or (iii) there shall be damage to the Premises of a character as cannot reasonably be expected to be repaired within nine (9) months from the date of casualty, or (iv) such restoration involves the demolition of or repair of damage to twenty-five percent (25%) or more of the Premises, or (v) applicable law requires the demolition of the Building or forbids the rebuilding of the damaged portion of the Building, or (vi) such restoration requires repairs in an amount in excess of the insurance proceeds recovered or recoverable, or (vii) Landlord's mortgagee shall require that the insurance proceeds from such damage or destruction be applied against the principal balance due on any mortgage, Landlord may, at its option, either terminate this Lease or elect to repair the Premises and Landlord shall notify Tenant as to its election within ninety (90) days after such fire or casualty. If Landlord elects to terminate this Lease, the Term hereof shall end on the date specified in the notice (which shall be the end of a calendar month and not sooner than thirty (30) days after such election was made). If Landlord does not elect to terminate this Lease, then Landlord shall perform such repairs set forth in Section 7.1.3 hereof and Tenant shall perform such repairs in the Building as set forth in Section 7.1.4 hereof, and the Term shall continue without interruption and this Lease shall remain in full force and effect. If Landlord has not elected to terminate this Lease and if there shall be damage to the Premises of a character as cannot (in the judgment of Landlord's engineer) reasonably be expected to be repaired within nine (9) months from the date of casualty, then Tenant may, at its option, terminate this Lease provided that Tenant's election shall be made by notice to Landlord within thirty (30) days of Landlord's delivery of the estimate of Landlord's engineer as to the time period required for restoration. 7.1.3 If Landlord does not elect to terminate this Lease as provided in Section 7.1.2 hereof and if Tenant is not then in default of any of its obligations under the Lease beyond any applicable cure period provided for herein, Landlord shall, provided any third party mortgagee of the Building makes insurance proceeds available for restoration, reconstruct as much of the Premises as was originally constructed by Landlord (it being understood by Tenant that Landlord shall not be responsible for any reconstruction of leasehold improvements, which reconstruction is 27 28 the sole responsibility of Tenant) to substantially its condition at the time of such damage, but Landlord shall not be responsible for any delays which may result from any cause beyond Landlord's reasonable control. 7.1.4 If Landlord does not elect to terminate this Lease as provided in Section 7.1.2 hereof; Tenant shall, at its own cost and expense, repair and restore the Premises in accordance with the provisions of Section 6.1.15 hereof to the extent not required to be repaired by Landlord pursuant to the provisions of this Section 7.1, including, but not limited to, the repairing and/or replacement of its merchandise, trade fixtures, furnishings and equipment in a manner and to at least a condition equal to that prior to its damage or destruction. Tenant agrees to commence the performance of its work when notified by Landlord that the work to be performed by Tenant can, in accordance with good construction practices, then be commenced and Tenant shall complete such work as promptly thereafter as is practicable, but in no event more than 90 days thereafter. 7.1.5 All proceeds payable from Landlord's insurance policies with respect to the Premises shall belong to and shall be payable to Landlord. If Landlord does not elect to terminate this Lease as provided in Section 7.1.2 hereof, Landlord shall disburse and apply so much of any insurance recovery as shall be necessary against the cost to Landlord of restoration and rebuilding of Landlord's work referred to in Section 7.1.3 hereof, subject to the prior rights of any lessor under a ground or underlying lease covering the Building and/or the holder of any mortgage liens against the Building. 7.1.6 In the event that the provisions of Section 7.1.1 or Section 7.1.2 shall become applicable, the Annual Rent and additional rent shall be abated or reduced proportionately during any period in which, by reason of such damage or destruction, Tenant is not able to reasonably use the Premises for the Permitted Uses, and such abatement or reduction shall continue for the period commencing with such destruction or damage and ending with the completion by Landlord of such work of repair and/or reconstruction as Landlord is obligated to do. 7.2 EMINENT DOMAIN. If, after the execution and before termination of this Lease, the entire Premises shall be taken by eminent domain or destroyed by the action of any public or quasi-public authority, or in the event of conveyance in lieu thereof, the Term shall cease as of the day possession shall be taken by such authority, and Tenant shall pay rent up to that date with a pro-rata refund by Landlord of such rent and additional rent as shall have been paid in advance for a period subsequent to the date of the taking of possession. 28 29 If less than twenty-five percent (25%) of the Premises shall be so taken or conveyed, this Lease shall cease only with respect to the parts so taken or conveyed, as of the day possession shall be taken, and Tenant shall pay rent up to that day, with an appropriate refund by Landlord of such rent as may have been paid in advance for a period subsequent to the date of the taking of possession, and thereafter the Annual Rent shall be equitably adjusted. Pending agreement of such rental adjustment, Tenant agrees to pay to Landlord the Annual Rent and additional rent in effect immediately prior to the taking by eminent domain. Landlord shall at its expense make all necessary repairs or alterations so as to constitute the remaining premises a complete architectural unit. If more than twenty-five percent (25%) of the Premises shall be so taken or conveyed, then the Term shall cease only as respects the part so taken or conveyed, from the day possession shall be taken, and Tenant shall pay rent to that date with an appropriate refund by Landlord of such rent as may have been paid in advance for a period subsequent to the date of the taking of possession, but Landlord shall have the right to terminate this Lease upon notice to Tenant in writing within thirty (30) days after such taking of possession. If Landlord does not elect to terminate the Lease, all of the terms herein provided shall continue in effect except that the Annual Rent shall be equitably adjusted, and Landlord shall make all necessary repairs or alterations so as to constitute the remaining premises a complete architectural unit. All compensation awarded for any such taking or conveyance, whether for the whole or a part of the Premises, shall be the property of Landlord, whether such damages shall be awarded as compensation for diminution in the value of the leasehold or of the fee of or underlying leasehold interest in the Premises, and Tenant hereby assigns to Landlord all of Tenant's right, title and interest in and to any and all such compensation; provided, however, that Tenant shall be entitled to seek a separate award for Tenant's stock, trade fixtures and relocation expense. In the event of any taking of the Premises or any part thereof for temporary use, this Lease shall be and remain unaffected thereby and rent shall not abate. ARTICLE VIII RIGHTS OF MORTGAGEE 8.1 PRIORITY OF LEASE. This Lease is and shall continue to be subject and subordinate to any presently existing mortgage or deed of trust of record covering the Lot or Building or both (the "mortgaged premises"). The holder of any such presently existing mortgage or deed of trust shall have the election to subordinate the same to the rights and interests of Tenant under this Lease exercisable by filing with the appropriate recording office a 29 30 notice of such election, whereupon the Tenant's rights and interests hereunder shall have priority over such mortgage or deed of trust. Unless the option provided for in the next following sentence shall be exercised, this Lease shall be superior to and shall not be subordinate to, any mortgage, deed of trust or other voluntary lien hereafter placed on the mortgaged premises. The holder of any such mortgage, deed of trust or other voluntary lien shall have the option to subordinate this Lease to the same, provided that such holder enters into an agreement with Tenant by the terms of which the holder will agree to recognize the rights of Tenant under this Lease and to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise and Tenant will agree to recognize the holder of such mortgage as Landlord in such event, which agreement shall be made to expressly bind and inure to the benefit of the successors and assigns of Tenant and of the holder and upon anyone purchasing the mortgaged premises at any foreclosure sale. Any such mortgage to which this Lease shall be subordinated may contain such terms, provisions and conditions as the holder deems usual or customary. 8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY. The word "mortgage" as used herein includes mortgages, deeds of trust or other similar instruments evidencing other voluntary liens or encumbrances, and modifications, consolidations, extensions, renewals, replacements and substitutes thereof. The word "holder" shall mean a mortgagee, and any subsequent holder or holders of a mortgage. Until the holder of a mortgage shall enter and take possession of the Premises for the purpose of foreclosure, such holder shall have only such rights of Landlord as are necessary to preserve the integrity of this Lease as security. Upon entry and taking possession of the Premises for the purpose of foreclosure, such holder shall have all the rights of Landlord. Notwithstanding any other provision of this Lease to the contrary, including without limitation Section 10.4, no such holder of a mortgage shall be liable, either as mortgagee or as assignee, to perform, or be liable in damages for failure to perform any of the obligations of Landlord unless and until such holder shall enter and take possession of the Premises for the purpose of foreclosure, and such holder shall not in any event be liable to perform or for failure to perform the obligations of Landlord under Section 3.2. Upon entry for the purpose of foreclosure, such holder shall be liable to perform all of the obligations of Landlord (except for the obligations under Section 3.2), subject to and with the benefit of the provisions of Section 10.4, provided that a discontinuance of any foreclosure proceeding shall be deemed a conveyance under said provisions to the owner of the equity of the Premises. 30 31 8.3 MORTGAGEE'S ELECTION. Notwithstanding any other provision to the contrary contained in this Lease, if prior to substantial completion of Landlord's obligations under Article III, any holder of a first mortgage on the mortgaged premises enters and takes possession thereof for the purpose of foreclosing the mortgage, such holder may elect, by written notice given to Tenant and Landlord at any time within ninety (90) days after such entry and taking of possession, not to perform Landlord's obligations under Article III, and in such event such holder and all persons claiming under it shall be relieved of all obligations to perform, and all liability for failure to perform, said Landlord's obligations under Article III, and Tenant may terminate this Lease and all its obligations hereunder by written notice to Landlord and such holder given within thirty (30) days after the day on which such holder shall have given its notice as aforesaid. 8.4 NO PREPAYMENT OR MODIFICATION, ETC. Tenant shall not pay Annual Rent, additional rent, or any other charge more than ten (10) days prior to the due date thereof. No prepayment of Annual Rent, additional rent or other charge, no assignment of this Lease and no agreement to modify so as to reduce the rent, change the Term, or otherwise materially change the rights of Landlord under this Lease, or to relieve Tenant of any obligations or liability under this Lease, shall be valid unless consented to in writing by Landlord's mortgagees of record, if any. 8.5 NO RELEASE OR TERMINATION. No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Landlord's act or failure to act to Landlord's mortgagees of record, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant's rights and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter, but nothing contained in this Section 8.5 shall be deemed to impose any obligation on any such mortgagee to correct or cure any such condition. "Reasonable time" as used above means and includes a reasonable time to obtain possession of the mortgaged premises, if the mortgagee elects to do so, and a reasonable time to correct or cure the condition if such condition is determined to exist. 31 32 8.6 CONTINUING OFFER. The covenants and agreements contained in this Lease with respect to the rights, powers and benefits of a mortgagee (particularly, without limitation thereby, the covenants and agreements contained in this Article VIII) constitute a continuing offer to any person, corporation or other entity, which by accepting or requiring an assignment of this Lease or by entry or foreclosure assumes the obligations herein set forth with respect to such mortgagee; such mortgagee is hereby constituted a party to this Lease as an obligee hereunder to the same extent as though its name were written hereon as such; and such mortgagee shall be entitled to enforce such provisions in its own name. Tenant agrees on request of Landlord to execute and deliver from time to time any agreement which may reasonably be deemed necessary to implement the provisions of this Article VIII. 8.7 MORTGAGEE'S APPROVAL. Landlord's obligation to perform its covenants and agreements hereunder is subject to the condition precedent that this Lease be approved by the holder of any mortgage of which the Premises are a part and by the issuer of any commitment to make a mortgage loan which is in effect on the date hereof. ARTICLE IX DEFAULT 9.1 EVENTS OF DEFAULT. If any default by Tenant continues, in case of Annual Rent, additional rent or any other monetary obligation to Landlord for more than five (5) business days after notice (provided that in the event Tenant defaults in a monetary obligation twice in any twelve (12) month period, notice shall not thereafter be required), or if Tenant fails to provide an estoppel certificate in accordance with Section 10.10 hereof, or if any default by Tenant continues in any other case for more than thirty (30) days after notice and such additional time, if any, as is reasonably necessary to cure the default if the default is of such a nature that it cannot reasonably be cured in thirty (30) days and Tenant promptly commences to cure such default and diligently pursues such cure without interruption to completion; or if Tenant becomes insolvent, fails to pay its debts as they fall due, files a petition under any chapter of the U.S. Bankruptcy Code, 11 U.S.C. 101 et seq., as it may be amended (or any similar petition under any insolvency law of any jurisdiction), or if such petition is filed against Tenant; or if Tenant proposes any dissolution, liquidation, composition, financial reorganization or recapitalization with creditors, makes an assignment or trust mortgage for benefit of creditors, or if a receiver, trustee, custodian or similar agent is appointed or takes possession with respect to any property of Tenant; or if the leasehold hereby created 32 33 is taken on execution or other process of law in any action against Tenant; then, and in any such case, Landlord and the agents and servants of Landlord may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter while such default continues and without further notice, at Landlord's election, do any one or more of the following: (1) give Tenant written notice stating that the Lease is terminated, effective upon the giving of such notice or upon a date stated in such notice, as Landlord may elect, in which event the Lease shall be irrevocably extinguished and terminated as stated in such notice without any further action, or (2) with or without process of law, in a lawful manner enter and repossess the Premises as of Landlord's former estate, and expel Tenant and those claiming through or under Tenant, and remove its and their effects, without being guilty of trespass, in which event the Lease shall be irrevocably extinguished and terminated at the time of such entry, or (3) pursue any other rights or remedies permitted by law. Any such termination of the Lease shall be without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and in the event of such termination Tenant shall remain liable under this Lease as hereinafter provided. Tenant hereby waives all statutory rights (including, without limitation, rights of redemption, if any) to the extent such rights may be lawfully waived, and Landlord, without notice to Tenant, may store Tenant's effects and those of any person claiming through or under Tenant at the expense and risk of Tenant and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant. 9.2 TENANT'S OBLIGATIONS AFTER TERMINATION. In the event that this Lease is terminated under any of the provisions contained in Section 9.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as compensation, (i) the excess of the total rent reserved for the residue of the Term over the rental value of the Premises for said residue of the Term and (ii) the unamortized portion of the actual out-of-pocket costs and expenses incurred by Landlord in completing Landlord's Work and fees and commissions paid to the Broker, amortized on a straight-line reduction basis from 100% to 0% over the Term of the Lease set forth in Section 1.1 hereof. In calculating the rent reserved, there shall be included, in addition to the Annual Rent and all additional rent, the value of all other consideration agreed to be paid or performed by Tenant for said residue. Tenant further covenants as an additional and cumulative obligation after any such ending to pay punctually to Landlord all the sums and perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the next foregoing covenant, Tenant shall be credited with any amount paid to Landlord as compensation as provided in the first sentence of this Section 9.2 and also with the net proceeds of any 33 34 rents obtained by Landlord by reletting the Premises, after deducting all Landlord's expenses in connection with such reletting, including, without implied limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or any part or parts thereof for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid. So long as at least twelve (12) months of the Term remain unexpired at the time of such termination, in lieu of any other damages or indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 9.2, Landlord may by written notice to Tenant, at any time after this Lease is terminated under any of the provisions contained in Section 9.1, or is otherwise terminated for breach of any obligation of Tenant and before such full recovery, elect to recover and Tenant shall thereupon pay, as liquidated damages, an amount equal to the aggregate of the Annual Rent and additional rent accrued under Article IV in the 12 months ended next prior to such termination plus the amount of Annual Rent and additional rent of any kind accrued and unpaid at the time of termination and less the amount of any recovery by Landlord under the foregoing provisions of this Section 9.2 up to the time of payment of such liquidated damages. Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. ARTICLE X MISCELLANEOUS 10.1 NOTICE OF LEASE. Upon request of either party, both parties shall execute and deliver, after the Term begins, a notice of this Lease in form appropriate for recording or registration, and if this Lease is terminated before the Term expires, an instrument in such form acknowledging the date of termination. 34 35 10.2 (Intentionally Omitted) 10.3 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or permitted hereunder shall be in writing and addressed, if to the Tenant, at Tenant's Address or such other address as Tenant shall have last designated by notice in writing to Landlord and, if to Landlord, at Landlord's Address or such other address as Landlord shall have last designated by notice in writing to Tenant. Any notice shall have been deemed duly given if mailed to such address postage prepaid, registered or certified mail, return receipt requested, when deposited with the U.S. Postal Service, or if delivered to such address by hand, when so delivered. 10.4 BIND AND INURE. The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Landlord named herein and each successive owner of the Premises shall be liable only for the obligations accruing during the period of its ownership. The obligations of Landlord shall be binding upon the assets of Landlord which comprise the Building and the Lot but not upon other assets of Landlord. No individual partner, member, trustee, stockholder, officer, director, employee or beneficiary of Landlord shall be personally liable under this Lease and Tenant shall look solely to Landlord's interest in the Building and the Lot in pursuit of its remedies upon an event of default hereunder, and the general assets of the individual partners, trustees, stockholders, officers, employees or beneficiaries of Landlord shall not be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Tenant. 10.5 NO SURRENDER. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises. 10.6 NO WAIVER, ETC. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Lease or any of the Rules and Regulations referred to in Section 6.1.4, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation, nor shall the failure of Landlord to enforce any of said Rules and Regulations against any other tenant in the Building be deemed a 35 36 waiver of any such Rules or Regulations. The receipt by Landlord of Annual Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach by Landlord, unless such waiver be in writing and signed by Landlord. No consent or waiver, express or implied, by Landlord to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 10.7 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a lesser sum than the Annual Rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed as accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided. 10.8 CUMULATIVE REMEDIES. The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions. 10.9 LANDLORD'S RIGHT TO CURE. If Tenant shall at any time default in the performance of any obligation under this Lease, Landlord shall have the right, but shall not be obligated, to enter upon the Premises and to perform such obligation, notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act. All sums so paid by Landlord (together with interest at the rate of 4% per annum in excess of the then prime commercial rate of interest being charged by the three largest national banks in Boston, Massachusetts) and all necessary incidental costs and expenses in connection with the performance of any such act by Landlord, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 36 37 10.10 ESTOPPEL CERTIFICATE. Tenant agrees, from time to time, upon not less than 15 days' prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect; that Tenant has no defenses, offsets or counterclaims against its obligations to pay the Annual Rent and additional rent and to perform its other covenants under this Lease; that there are no uncured defaults of Landlord or Tenant under this Lease (or, if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications, and, if there are any defenses, offsets, counterclaims, or defaults, setting them forth in reasonable detail); and the dates to which the Annual Rent, additional rent and other charges have been paid. Any such statement delivered pursuant to this Section 10.10 shall be in a form reasonably acceptable to and may be relied upon by any prospective purchaser or mortgagee of premises which include the Premises or any prospective assignee of any such mortgagee. 10.11 WAIVER OF SUBROGATION. Any insurance carried by either party with respect to the Premises and property therein or occurrences thereon shall include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occurrences of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by insurance containing such clause or endorsement to the extent of the indemnification received thereunder. 10.12 ACTS OF GOD. In any case where either party hereto is required to do any act, delays caused by or resulting from Acts of God, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, unusually severe weather, or other causes beyond such party's reasonable control shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time or a "reasonable time," and such time shall be deemed to be extended by the period of such delay. 10.13 BROKERAGE. Tenant and Landlord represent and warrant that they dealt with no brokers in connection with this transaction other than the Broker and agree to defend, with counsel approved by the other, indemnify and save the other harmless from and against any and all cost, expense or liability for any compensation, commissions or 37 38 charges claimed by a broker or agent, other than the Broker in connection with this Lease. Landlord hereby agrees to pay the brokerage fees to the Broker in connection with the execution and delivery of this Lease. 10.14 SUBMISSION NOT AN OFFER. The submission of a draft of this Lease or a summary of some or all of its provisions does not constitute an offer to lease or demise the Premises, it being understood and agreed that neither Landlord nor Tenant shall be legally bound with respect to the leasing of the Premises unless and until this Lease has been executed by both Landlord and Tenant and a fully executed copy has been delivered to each of them. 10.15 APPLICABLE LAW AND CONSTRUCTION. This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. If any term, covenant, condition or provision of this Lease or the application thereof to any person or circumstances shall be declared invalid or unenforceable by the final ruling of a court of competent jurisdiction having final review, the remaining terms, covenants, conditions and provisions of this Lease and their application to persons or circumstances shall not be affected thereby and shall continue to be enforced and recognized as valid agreements of the parties, and in the place of such invalid or unenforceable provision, there shall be substituted a like, but valid and enforceable provision which comports to the findings of the aforesaid court and most nearly accomplishes the original intention of the parties. There are no oral or written agreements between Landlord and Tenant affecting this Lease. This Lease may be amended, and the provisions hereof may be waived or modified, only by instruments in writing executed by Landlord and Tenant. The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Lease. Unless repugnant to the context, the words "Landlord" and "Tenant" appearing in this Lease shall be construed to mean those named above and their respective heirs, executors, administrators, successors and assigns, and those claiming through or under them respectively. If there be more than one tenant, the obligations imposed by this Lease upon Tenant shall be joint and several. 38 39 10.16 AUTHORITY OF TENANT. Tenant represents and warrants to Landlord (which representations and warranties shall survive the delivery of this Lease) that: (a) Tenant (i) is duly organized, validly existing and in good standing under the laws of its state of incorporation, (ii) has the corporate power and authority to carry on businesses now being conducted and is qualified to do business in every jurisdiction where such qualification is necessary and (iii) has the corporate power to execute and deliver and perform its obligations under this Lease and (b) the execution, delivery and performance by Tenant of its obligations under this Lease have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the corporate charter or by-laws of the Tenant or any indenture, agreement or other instrument to which it is a party or by which it is bound. ARTICLE XI SECURITY DEPOSIT Simultaneously with Tenant's delivery of the executed Lease to Landlord, Tenant will deliver the Security Deposit (as defined hereinafter) to Landlord, to be held by Landlord, as security, without interest, for and during the Term, which deposit shall be returned to Tenant at the termination of this Lease, after Landlord applies the Security Deposit to any then existing defaults in accordance herewith. At Tenant's election, Tenant shall provide to Landlord a cash deposit in the amount of the Security Deposit, or an irrevocable and unconditional standby documentary letter of credit in the amount of the Security Deposit (in either case, the "Security Deposit") issued by a bank or other institution satisfactory to Landlord in its reasonable discretion, naming Landlord, its successors and assigns as the beneficiary, expiring no less than one (1) year from the Term Commencement Date and renewing automatically each year (or at the end of the applicable term thereof) unless the issuing bank has given Landlord notice at least forty-five (45) days prior to the expiration that the same will not be renewed, and otherwise in form and substance reasonably acceptable to Landlord (a "Letter of Credit"). Landlord shall be permitted to draw upon the Letter of Credit in the event of (i) default by Tenant in any of its obligations hereunder after the giving of any required notice and the expiration of any applicable cure period, in which event Landlord may draw upon all or a portion of the Letter of Credit and apply the proceeds as described below, or (ii) failure by Tenant to provide to Landlord either a cash deposit in the amount of the Security Deposit or a replacement or substitute Letter of Credit in the amount of the Security Deposit, as the same shall be reduced as set forth below, and otherwise subject to the conditions set forth above, no less than thirty (30) days prior to the expiration date of the Letter of Credit then held by Landlord, in which event Landlord may draw upon 39 40 all of the Letter of Credit and, in such event, shall hold the cash proceeds thereof as the Security Deposit hereunder. Notwithstanding the foregoing, on the fourth (4th) anniversary of the Term Commencement Date, the Security Deposit shall be reduced to $70,000, provided that no event of default by Tenant then exists hereunder, and no condition exists which with the giving of notice or the passage of time, or both, would constitute an event of default. If the Security Deposit is held in cash by Landlord, such reduction shall be accomplished by the return by Landlord to Tenant of the difference between the Security Deposit then held by Landlord and $70,000 within fifteen (15) days after the fourth (4th) anniversary date. If the Security Deposit is held as a Letter of Credit, such reduction shall be accomplished by automatic reduction, if the terms of the Letter of Credit delivered to Landlord in accordance with the provisions set forth above so provides, or, if such Letter of Credit does not so provide, by the delivery by Tenant to Landlord of either a replacement Letter of Credit in the amount of $70,000 which complies with the provisions set forth above or a cash Security Deposit in the amount of $70,000. The Security Deposit is being delivered by Tenant to Landlord as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease. It is understood and agreed that if any default by Tenant occurs hereunder and continues after the giving of any required notice and the expiration of any applicable cure period, Landlord may use, apply or retain the whole or any part of the Security Deposit so deposited to the extent required to cure such default or for payment of any sum as to which Tenant is in such default, if any, or for any sum which Landlord may expend or may be required to expend by reason of any such default by Tenant hereunder, if any. It is agreed that Landlord shall always have the right to apply the Security Deposit or any part thereof, as aforesaid, without prejudice to any other remedy or remedies which Landlord may have, or Landlord may pursue any other such remedy or remedies in lieu of applying the Security Deposit. If all or any part of the Security Deposit is so applied to an obligation of Tenant hereunder, Tenant shall immediately upon request by Landlord restore the Security Deposit to its original amount. Tenant shall not have the right to call upon Landlord to apply all or any part of the Security Deposit to cure any default or fulfill any obligation of Tenant, but such use shall be solely in the discretion of Landlord. Upon any conveyance by Landlord of its interest under this Lease, the Security Deposit may be delivered by Landlord to Landlord's grantee or transferee. Upon any delivery, Tenant hereby releases Landlord herein named of any and all liability with respect to look solely to such grantee or transferee. It is further understood that this provision shall also apply to subsequent grantees and transferees. 40 41 EXECUTED as a sealed instrument in two or more counterparts on the day and year first above written. LANDLORD: BRE/CAMBRIDGEPARK OFFICE II L.L.C., a Delaware limited liability company By: illegible ------------------- TENANT: NET.GENESIS CORP. By:/s/ Lawrence Bohn -------------------- Name: Lawrence Bohn Title: President Hereunto duly authorized 41 42 EXHIBIT A Description of the Lot That certain parcel of land with buildings thereon situated in Cambridge, Middlesex County, Massachusetts, shown as Lot A on a plan entitled "Subdivision Plan of Land Cambridge, Mass." Scale 1" = 60', dated February 27, 1985, prepared by Harry R. Feldman, Inc. recorded with Middlesex South Registry of Deeds as Plan No. 1038 of 1985 more particularly bounded and described as follows: Northerly by CambridgePark Drive, four hundred seventy-three and 70/100 (473.70) feet; Easterly by Lot B as shown on said plan, two hundred sixty-two and 50/100 (262.50) feet; Southerly by said Lot B, sixteen and 70/100 (16.70) feet; Easterly again by said Lot B, one hundred ten (110.00) feet; Southerly again by said Lot B, by three lines of two hundred twenty-two and 24/100 (222.24) feet, two hundred eighteen and 12/100 (218.12) feet and twenty-three and 28/100 (23.28) feet; and Westerly by said Lot B, two hundred ninety-five and 15/100 (295.15) feet. Containing according to said plan 158,215 square feet. 43 EXHIBIT B Plan Showing the Premises [GRAPHIC OF 10TH FLOOR MAP] [Spaulding & Slye LOGO] [150 CambridgePark LOGO] 44 EXHIBIT C LANDLORD'S SERVICES I. CLEANING A. GENERAL 1. All cleaning work will be performed between 8 a.m. and 12 midnight, Monday through Friday, unless otherwise necessary for stripping, waxing, etc. 2. Abnormal waste removal (e.g., computer installation paper, bulk packaging, wood or cardboard crates, refuse from cafeteria operation, etc.) shall be Tenant's responsibility. B. DAILY OPERATIONS (5 TIMES PER WEEK) 1. Tenant Areas a. Empty and clean all waste receptacles; wash receptacles as necessary. b. Vacuum all rugs and carpeted areas. c. Empty, damp-wipe and dry all ashtrays. 2. Lavatories a. Sweep and wash floors with disinfectant. b. Wash both sides of toilet seats with disinfectant. c. Wash all mirrors, basins, bowls, urinals. d. Spot clean toilet partitions. e. Empty and disinfect sanitary napkin disposal receptacles. f. Refill toilet tissue, towel, soap, and sanitary napkin dispensers. 3. Public Areas a. Wipe down entrance doors and clean glass (interior and exterior). b. Vacuum elevator carpets and wipe down doors and walls. c. Clean water coolers. C-1 45 C. OPERATIONS AS NEEDED (BUT NOT LESS THAN EVERY OTHER DAY) 1. Tenant and Public Areas a. Buff all resilient floor areas. D. WEEKLY OPERATIONS 1. Tenant Areas, Lavatories, Public Areas a. Hand-dust and wipe clean all horizontal surfaces with treated cloths to include furniture, office equipment, window sills, door ledges, chair rails, baseboards, convector tops, etc., within normal reach. b. Remove finger marks from private entrance doors, light switches, and doorways. c. Sweep all stairways. E. MONTHLY OPERATIONS 1. Tenant and Public Areas a. Thoroughly vacuum seat cushions on chairs, sofas, etc. b. Vacuum and dust grillwork. 2. Lavatories a. Wash down interior walls and toilet partitions. F. AS REQUIRED AND WEATHER PERMITTING 1. Entire Building a. Clean inside of all windows. b. Clean outside of all windows. G. YEARLY 1. Public Areas a. Strip and wax all resilient tile floor areas. C-2 46 II. HEATING, VENTILATING, AND AIR CONDITIONING 1. Heating, ventilating, and air conditioning as required to provide reasonably comfortable temperatures for normal business day occupancy (excepting holidays); Monday through Friday from 8:00 a.m. to 6:00 p.m. and Saturday from 8:00 a.m. to 1:00 p.m. 2. Maintenance of any additional or special air conditioning equipment and the associated operating cost will be at Tenant's expense, which is estimated at $50 per hour. III. WATER Hot water for lavatory purposes and cold water for drinking, lavatory and toilet purposes, and cold water for Tenant's kitchen and Tenant's hot water heater (Tenant is to supply hot water heater). IV. ELEVATORS (IF BUILDING IS ELEVATORED) Elevators for the use of all tenants and the general public for access to and from all floors of the Building. Programming of elevators (including, but not limited to, service elevators) shall be as Landlord from time to time determines best for the Building as a whole. V. RELAMPING OF LIGHT FIXTURES Tenant will reimburse Landlord for the cost of lamps, ballasts and starters and the cost of replacing same within the Premises. VI. CAFETERIA AND VENDING INSTALLATIONS 1. Any space to be used primarily for lunchroom or cafeteria operation shall be Tenant's responsibility to keep clean and sanitary, it being understood that Landlord's approval of such use must be first obtained in writing. 2. Vending machines or refreshment service installations by Tenant must be approved by Landlord in writing and shall be restricted in use to employees and business callers. All cleaning necessitated by such installations shall be at Tenant's expense. C-3 47 VII. ELECTRICITY A. Landlord, at Landlord's expense, shall furnish electrical energy required for lighting, electrical facilities, equipment, machinery, fixtures, and appliances used in or for the benefit of the Premises, in accordance with the provisions of the Lease of which this Exhibit is part. B. Tenant shall not, without prior written notice to Landlord in each instance, connect to the Building electric distribution system any fixtures, appliances or equipment other than normal office machines such as personal computers, desk-top calculators and typewriters, or any fixtures, appliances or equipment which Tenant on a regular basis operates beyond normal building operating hours. In the event of any such connection, Tenant agrees to an increase in the ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES and a corresponding increase in Annual Rent by an amount which will reflect the cost to Landlord of the additional electrical service to be furnished by Landlord, such increase to be effective as of the date of any such installation. If Landlord and Tenant cannot agree thereon, such amount shall be conclusively determined by a reputable independent electrical engineer or consulting firm to be selected by Landlord and paid equally by both parties, and the cost to Landlord will be included in Landlord's Operating Costs provided in Section 4.2 hereof. C. Tenant's use of electrical energy in the Premises shall not at any time exceed the capacity of any of the electrical conductors or equipment in or otherwise serving the Premises. In order to insure that such capacity is not exceeded and to avert possible adverse effect upon the Building electric service, Tenant shall not, without prior written notice to Landlord in each instance, connect to the Building electric distribution system any fixtures, appliances or equipment which operate on a voltage in excess of 120 volts nominal or make any alteration or addition to the electric system of the Premises. Unless Landlord shall reasonably object to the connection of any such fixtures, appliances or equipment, all additional risers or other equipment required therefor shall be provided by Landlord, and the cost thereof shall be paid by Tenant upon Landlord's demand. In the event of any such connection, Tenant agrees to an increase in the ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES such increase to be effective as of the date of any such connection. If Landlord and Tenant cannot agree thereon, such amount shall be conclusively determined by a reputable independent electrical engineer or consulting firm to be selected by Landlord and paid equally by both parties, and the cost to Landlord will be included in Landlord's Operating Costs provided in Section 4.2 hereof. C-4 48 D. If at any time after the date of this Lease, the rates at which Landlord purchases electrical energy from the public utility supplying electric service to the Building, or any charges incurred or taxes payable by Landlord in connection therewith, shall be increased or decreased, the ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES shall be increased or decreased, as the case may be, by an amount equal to the estimated increase or decrease, as the case may be, in Landlord's cost of furnishing the electricity referred to in Paragraph A above as a result of such increase or decrease in rates, charges, or taxes. If Landlord and Tenant cannot agree thereon, such amount shall be conclusively determined by a reputable independent electrical engineer or consulting firm to be selected by Landlord and paid equally by both parties, and the cost to Landlord will be included in Landlord's Operating Costs as provided in Section 4.2 hereof. Any such increase or decrease shall be effective as of the date of the increase or decrease in such rate, charge or taxes. E. Landlord may, at any time, elect to discontinue the furnishing of electrical energy. In the event of any such election by Landlord: (1) Landlord agrees to give reasonable advance notice of any such discontinuance to Tenant; (2) Landlord agrees to permit Tenant to receive electrical service directly from the public utility supplying service to the Building and to permit the existing feeders, risers, wiring and other electrical facilities serving the Premises to be used by Tenant and/or such public utility for such purpose to the extent they are suitable and safely capable; (3) Landlord agrees to pay such charges and costs, if any, as such public utility may impose in connection with the installation of Tenant's meters and to make or, at such public utility's election, to pay for such other installations as such public utility may require, as a condition of providing comparable electrical service to Tenant; and (4) Tenant shall thereafter pay, directly to the utility furnishing the same, all charges for electrical services to the Premises. C-5 49 EXHIBIT D RULES AND REGULATIONS The following rules and regulations have been formulated for the safety and well-being of all tenants of the Building and to insure compliance with governmental and other requirements. Strict adherence to these rules and regulations is necessary to guarantee that each and every tenant will enjoy a safe and undisturbed occupancy of its premises in the Building. Any continuing violation of these rules and regulations by Tenant shall constitute a default by Tenant under the Lease. Landlord may, upon request of any tenant, waive the compliance by such tenant of any of the following rules and regulations, provided that (i) no waiver shall be effective unless signed by Landlord's authorized agent, (ii) any such waiver shall not relieve such tenant from the obligation to comply with such rule or regulation in the future unless otherwise agreed to by Landlord, (iii) no waiver granted to any tenant shall relieve any other tenant from the obligation of complying with these rules and regulations, unless such other tenant has received a similar written waiver from the Landlord, and (iv) any such waiver shall not relieve Tenant from any liability to Landlord for any loss or damage occasioned as a result of Tenant's failure to comply with any rule or regulation. 1. The entrances, lobbies, passages, corridors, elevators, halls, courts, sidewalks, vestibules, and stairways shall not be encumbered or obstructed by Tenant, Tenant's agents, servants, employees, licensees or visitors or used by them for any purposes other than ingress or egress to and from the Premises. Landlord shall have the right to control and operate portions of the Building and the facilities furnished for common use of the tenants in such manner as Landlord deems best for the benefit of the tenants generally. 2. The moving in or out of all safes, freight, furniture, or bulky matter of any description shall take place during the hours which Landlord may determine from time to time. Landlord reserves the right to inspect all freight and bulky matter to be brought into the Building and to exclude from the Building all freight and bulky matter which violates any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. Landlord reserves the right to have Landlord's structural engineer review Tenant's floor loads on the Premises at Tenant's expense. 3. Tenant, or the employees, agents, servants, visitors or licensees of Tenant shall not at any time place waste or discard any rubbish, paper, D-1 50 articles, or objects of any kind whatsoever outside the doors of the Premises or in the corridors or passageways of the Building. No animals or birds shall be brought or kept in or about the Building. Bicycles shall not be permitted in the Building. 4. Tenant shall not place objects against glass partitions or doors or windows or adjacent to any common space which would be unsightly from the Building corridors or from the exterior of the Building and will promptly remove the same upon notice from Landlord. 5. Tenant shall not make noises, cause disturbances, create vibrations, odors (other than ordinarily acceptable tenant kitchen odors in the building) or noxious fumes or use or operate any electric or electrical devices or other devices that emit sound waves or are dangerous to other tenants and occupants of the Building or that would interfere with the operation of any device or equipment or radio or television broadcasting or reception from or within the Building or elsewhere, or with the operation of roads or highways in the vicinity of the Building, and shall not place or install any projections, antennae, aerials, or similar devices inside or outside of the Premises, without the prior written approval of Landlord. 6. Tenant may not (without Landlord's approval therefor, which approval will be signified on Tenant's Plans submitted pursuant to the Lease) and Tenant shall not permit or suffer anyone to: (a) cook in the Premises except as accessory to the use of a coffee room/kitchenette containing a microwave oven; (b) place vending or dispensing machines of any kind in or about the Premises; (c) at any time sell, purchase or give away, or permit the sale, purchase, or gift of food in any form. 7. Tenant shall not: (a) use the Premises for lodging, manufacturing or for any immoral or illegal purposes; (b) use the Premises to engage in the manufacture or sale of, or permit the use of spirituous, fermented, intoxicating or alcoholic beverages on the Premises; or (c) use the Premises to engage in the manufacture or sale of, or permit the use of, any illegal drugs on the Premises. Notwithstanding the foregoing, provided that host liquor liability insurance is maintained naming Landlord as an additional insured and otherwise complying with the requirements of Section 6.1.8 of the Lease, Tenant may (i) serve alcoholic beverages on the Premises at seasonal celebrations, not more often than quarterly, after notice to Landlord, and (ii) serve wine and beer at weekly staff parties in the Premises. D-2 51 8. No awning or other projections (including antennae) shall be attached to the outside walls or windows. No curtains, blinds, shades, screens or signs other than those furnished by Landlord shall be attached to, hung in, or used in connection with any window or door of the Premises without prior written consent of Landlord. 9. No signs, advertisement, object, notice or other lettering shall be exhibited, inscribed, painted or affixed on any part of the outside or inside of the Premises if visible from outside of the Premises. Interior signs on doors shall be painted or affixed for Tenant by Landlord or by sign painters first approved by Landlord at the expense of Tenant and shall be of a size, color and style acceptable to Landlord. 10. Tenant shall not use the name of the Building or use pictures or illustrations of the Building in advertising or other publicity without prior written consent of Landlord. Landlord shall have the right to prohibit any advertising by Tenant which, in Landlord's opinion, tends to impair the reputation of the Building or its desirability for offices, and upon written notice from Landlord, Tenant will refrain from or discontinue such advertising. 11. Door keys for doors in the Premises will be furnished at the Commencement of the Lease by Landlord. Tenant shall not affix additional locks on doors and shall purchase duplicate keys only from Landlord and will provide to Landlord the means of opening of safes, cabinets, or vaults left on the Premises. In the event of the loss of any keys so furnished by Landlord, Tenant shall pay to Landlord the cost thereof. Each tenant shall, upon the termination of its tenancy, restore to Landlord all keys of offices, storage and toilet rooms either furnished to, or otherwise procured by, such tenant. 12. Tenant shall cooperate and participate in all security programs affecting the Building. 13. Tenant assumes full responsibility for protecting its space from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed and secured. 14. Tenant shall not make any room-to-room canvass to solicit business from other tenants in the Building, and shall not exhibit, sell or offer to sell, use, rent or exchange any item or services in or from the Premises unless ordinarily embraced within Tenant's use of the Premises as specified in its Lease. Canvassing, soliciting and peddling in the Building are prohibited and Tenant shall cooperate to prevent the same. D-3 52 Peddlers, solicitors and beggars shall be reported to the Management Office. 15. Tenant shall not mark, paint, drill into, or in any way deface any part of the Building or Premises. No boring, driving of nails or screws (except for picture hanging, etc.), cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. Tenant shall not construct, maintain, use or operate within their respective premises any electrical device, wiring or apparatus in connection with a loud speaker system or other sound system, except as reasonably required as part of a communication system approved in writing by Landlord, prior to the installation thereof. Tenant shall not install any resilient tile or similar floor covering in the Premises except with the prior written approval of Landlord. The use of cement or other similar adhesive material is expressly prohibited. 16. Tenant shall not waste electricity or water and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors dosed except when being used for access. 17. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damage resulting from misuse of said fixtures shall be borne by the tenant who, or whose servant, employees, agents, licensees, invitees, customers or guests shall have caused the same. 18. Building employees shall not be required to perform, and shall not be requested by any tenant or occupant to perform, any work outside of their regular duties, unless under specific instructions from the office of the Managing Agent of the Building. The requirements of tenants will be attended to only upon application to Landlord, and any special requirements shall be billed to Tenant (and paid when the next installment of rent is due) in accordance with the schedule of charges maintained by Landlord from time to time or at such charge as is agreed upon in advance by Landlord and Tenant. 19. Tenant may request heating and/or air conditioning during other periods in addition to normal working hours by submitting its request in writing to the office of the Managing Agent of the Building no later than 2:00 p.m. the preceding work day (Monday through Friday) on D-4 53 forms available from the office of the Managing Agent. The request shall clearly state the start and stop hours of the "off-hour" service. Tenant shall submit to the Building Manager a list of personnel authorized to make such request. The Tenant shall be charged for such operation in the form of additional rent; such charges are to be determined by the Managing Agent and shall be fair and reasonable and reflect the additional operating costs involved. 20. Tenant covenants and agrees that its use of the Premises shall not cause a discharge of more than the gallonage per foot of Premises Design Floor Area per day of sanitary (non-industrial) sewage allowed under the sewage discharge permit for the Building. Discharges in excess of that amount, and any discharge of industrial sewage, shall only be permitted if Tenant, at its sole expense, shall have obtained all necessary permits and licenses therefor, including without limitation permits from state and local authorities having jurisdiction thereof. Tenant shall submit to Landlord on December 31 of each year of the Term of this Lease a statement, certified by an authorized officer of Tenant, which contains the following information: name of all chemicals, gases, and hazardous substances, used, generated, or stored on the Premises; type of substance (liquid, gas or granular); quantity used, stored or generated per year; method of disposal; permit number, if any, attributable to each substance, together with copies of all permits for such substances; and permit expiration date for each substance. No flammable, combustible or explosive fluid, chemical or substance shall be brought into or kept upon the Premises, the Building or the Lot (other than those fluids or chemicals customarily used by tenants of other first-class office buildings in connection with office purposes and then only those types and quantities permitted under Landlord's policies of insurance for the Building). 21. Landlord reserves the right to exclude from the Building at all times any person who is not known or does not properly identify himself to the Building management. Landlord may, at its option, require all persons admitted to or leaving the Building between the hours of 6:00 p.m. and 8:00 a.m., Monday through Friday, and at any hour on Saturdays, Sundays and legal holidays, to register. Each tenant shall be responsible for all persons for whom it authorizes entry into the Building, and shall be liable to Landlord for all acts or omissions of such persons. 22. Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of these rules and regulations. There shall not be used in any space or in the common halls of the Building, either by any tenant or by jobbers D-5 54 or others in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. D-6 EX-10.7 13 SUBORDINATED LOAN AND SECURITY AGREEMENT 1 EXHIBIT 10.7 SUBORDINATED LOAN AND SECURITY AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of January 6, 1999, is entered into by and between net.Genesis Corp., a Delaware corporation, with its chief executive office, and principal place of business located at 215 First Street, Cambridge, Massachusetts 02142 (the "Borrower") and Comdisco, Inc., a Delaware corporation, with its principal place of business located at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes, "Comdisco"). In consideration of the mutual agreements contained herein, the parties hereto agree as follows: RECITALS WHEREAS, Borrower has requested Lender to make available to Borrower a loan in the aggregate principal amount of Four Million and 00/100 Dollars ($4,000,000.00) in two tranches; Three Million Dollars ($3,000,000.00) available immediately ("Loan I") and One Million Dollars ($1,000,000.00) available upon the closing of an equity financing (the "Financing") of at least Eight Million Dollars ($8,000,000.00) in which Borrower's existing venture investors invest their pro rata portions ("Loan II") each available as further set forth herein (as the same may from time to time be amended, modified, supplemented or revised, the "Loan"), which would be evidenced by Subordinated Promissory Note(s) executed by Borrower substantially in the form of Exhibit A hereto (as the same may from time to time be amended, modified, supplemented or restated the "Note(s)"). WHEREAS, Lender is willing to make the Loan on the terms and conditions set forth in this Agreement, and WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate to Senior Debt (as defined herein) to the extent set forth in the Subordination Agreement (as defined herein). AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, Borrower and Lender hereby agree as follows: SECTION 1. DEFINITIONS Unless otherwise defined herein, the following capitalized terms shall have the following meanings (such meanings being equally applicable to both the singular and plural form of the terms defined); 1.1 "ACCOUNT" means any "account," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by Borrower or from any other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation, any such obligation which may be characterized as an account or contract right under the UCC) and all of Borrower's rights in, to and under all 1 2 purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. 1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined in Section 9105(l)(a) of the UCC. 1.3 "ADVANCE" means each installment made by the Lender to Borrower pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral. 1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan. 1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance under the Loan, each to be substantially in the form of Exhibit C attached hereto, as submitted by Borrower to Lender from time to time. 1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined in Section 9105(l)(b) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.7 "CLOSING DATE" means the date hereof. 1.8 "COLLATERAL" shall have the meaning assigned to such term in Section 3 of this Agreement. 1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Borrower may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. 1.10 "COPYRIGHTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any state thereof or any other country; (iii) any continuations, renewals or extensions thereof; and (iv) any registrations to be issued in any pending applications. 1.11 "COPYRIGHT LICENSE" means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 2 3 1.12 "DOCUMENTS" means any "documents," as such term is defined in Section 9105(l)(f) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.13 "EQUIPMENT" means any "equipment," as such term is defined in Section 9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. 1.14 "EXCLUDED AGREEMENTS" means (i) any Warrant Agreement(s) executed hereunder, and any other warrants (including without limitation, the warrant agreement dated as of January 6, 1999) to acquire, or agreements governing the rights of the holders of, any equity security of Borrower, (ii) any stock of the Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the Master Lease Agreement dated as of January 6, 1999 (the "Lease") between Borrower, as lessee, and Lender, as lessor, including, without limitation, any Equipment Schedules and Summary Equipment Schedules to the Lease executed or delivered by Borrower pursuant thereto and any other modifications or amendments thereof, whereby Borrower (as lessee) leases equipment, software, or goods from Lender (as lessor) to Borrower (as lessee). 1.15 "FACILITY FEE" means with respect to Loan I, one percent (1.00%) of the principal amount of Loan I and with respect to Loan II, one percent (1.00%) of the principal amount of Loan II. 1.16 "FIXTURES" means any "fixtures," as such term is defined in Section 9313(l)(a) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, now or hereafter attached or affixed to or constituting a part of, or located in or upon, real property wherever located, together with all right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all conversions of the security constituted thereby, immediately upon any acquisition or release thereof or any such conversion, as the case may be. 1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest which Borrower may now or hereafter have in or under any contract, all customer lists, Copyrights, Trademarks, Patents, rights to Intellectual Property, interests in partnerships, joint ventures and other business associations, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, cash and other forms of money or currency, deposit accounts (including as defined in Section 9105(e) of the UCC), rights to sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification. 3 4 1.18 "INSTRUMENTS" means any "instrument," as such term is defined in Section 9105(l)(i) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.19 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials and records. 1.20 "INVENTORY" means any "inventory," as such term is defined in Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business, or the processing, packaging, promotion, delivery or shipping of the same, and all furnished goods whether or not such inventory is listed on any schedules, assignments or reports furnished to Lender from time to time and whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Borrower or is held by Borrower or by others for Borrower's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of Borrower or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons. 1.21 "LICENSE" means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof. 1.22 "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. 1.23 "LOAN DOCUMENTS" shall mean and include this Agreement, the Note(s), and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Loan --------- Documents shall not include any of the Excluded Agreements. --- 1.24 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon: (i) the business, operations, properties, assets or conditions (financial or otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender to enforce, the Secured Obligations. 1.25 "MATURITY DATE" means the date thirty-six (36) months from the Advance Date of each installment of the Loan. 4 5 1.26 "PATENT LICENSE" means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.27 "PATENTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) letters patent of, or rights corresponding thereto in, the United States or any other county, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents to issue in any such applications. 1.28 "PERMITTED LIENS" means any and all of the following: (i) liens in favor of Lender, (ii) liens related to, or arising in connection with, Senior Debt. 1.29 "PROCEEDS" means "proceeds," as such term is defined in Section 9306(1) of the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Borrower from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of Borrower against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 1.30 "RECEIVABLES" shall mean and include all of the Borrowers Accounts, Instruments, Documents, Chattel Paper and General Intangibles whether secured or unsecured, whether now existing or hereafter created or arising, and whether or not specifically sold or assigned to Lender hereunder. 1.31 "SECURED OBLIGATIONS" shall mean and include all principal, interest, fees, costs, or other liabilities or obligations for monetary amounts owed by Borrower to Lender, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind of nature, present or future, arising under this Agreement, the Note(s), or any of the other Loan Documents, whether or not evidenced by any Note(s), Agreement or other instrument, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Secured Obligations shall not include any indebtedness or obligations of Borrower arising under or in connection with the Excluded Agreements. 1.32 "SENIOR CREDITOR" means a bank, insurance company, pension fund, or other institutional lender to be determined, or a syndication of such institutional lenders that provides Senior Debt financing to Borrower; provided, -------- that Senior Creditor shall not include any officer, 5 6 director, shareholder, venture capital investor, or insider of Borrower, or any affiliate of the foregoing persons, except upon the express written consent of Lender. 1.33 "SENIOR DEBT" means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to a Senior Creditor under any Senior Loan Documents, including, but not limited to such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization by or against Borrower provided, that Senior Debt shall not include the following indebtedness or obligations: (a) obligations incurred after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower, and (b) debt exceeding One Million Dollars ($1,000,000.00) outstanding at any one time. 1.34 "SENIOR LOAN DOCUMENTS" means any loan agreement between Borrower and a Senior Creditor and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of Senior Creditor pursuant to or in connection with the Senior Debt or the loan agreement, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced. 1.35 "SUBORDINATION AGREEMENT" means the Subordination Agreement of even date herewith, entered into between Borrower and Lender for the benefit of Senior Creditor. 1.36 "TRADEMARK LICENSE" means any written agreement granting any right to use any Trademark or Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.37 "TRADEMARKS" means any of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) any and all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) any reissues, extensions or renewals thereof. 1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Illinois. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC. 1.39 "WARRANT AGREEMENT(S)" shall mean those agreements entered into in connection with the Loan, substantially in the form attached hereto as Exhibit B-1 and B-2 pursuant to which Borrower granted Lender the right to purchase that number of shares of Preferred Stock of Borrower as more particularly set forth therein. 6 7 SECTION 2. THE LOAN 2.1 (a) LOAN I (AVAILABLE IMMEDIATELY): In consideration for Loan I, Borrower will deliver to Lender a note or notes substantially in the form of Exhibit A attached hereto (the "Loan I Note(s)") providing that the outstanding principal amount of the Loan I, together with interest thereon precomputed at the rate of thirteen and one half (13.5%) percent per annum, shall be due and payable in nine (9) monthly payments of interest only, followed by twenty-seven (27) equal monthly installments of principal and interest, payable on the first day of each month, to and including the Maturity Date (each, a "Payment Date"). If any payment under the Loan I Note(s) shall be payable on a day other than a business day, then such payment shall be due and payable on the next succeeding business day. (b) LOAN II (AVAILABLE UPON BORROWER'S COMPLETION OF AN EQUITY FINANCING OF AT LEAST EIGHT MILLION DOLLARS ($8,000,000.00): In consideration for Loan II, Borrower shall deliver to Lender a note or notes in substantially the form of Exhibit A hereto (the "Loan II Note(s)", and collectively, with the Loan I Notes(s), and as the same may from time to time be amended, modified, supplemented or restated, the "Note(s)") providing that the outstanding principal amount of the Loan II, together with interest thereon precomputed at the rate of thirteen and one half (13.5%) percent per annum, shall be due and payable in nine (9) monthly payments of interest only, followed by twenty-seven (27) equal monthly installments of principal and interest, payable on the first day of each month, to and including the Maturity Date (each, a "Payment Date"). If any payment under the Loan II Note(s) shall be payable on a day other than a business day, then such payment shall be due and payable on the next succeeding business day. In consideration further of Loan II, Borrower shall issue Lender a Warrant, in the form of Exhibit B-2 attached hereto, to purchase such number of shares of preferred stock of the series of Preferred Stock issued in connection with the Financing equal to $150,000 divided by the Exercise Price, as defined in the Warrant Agreement attached hereto as Exhibit B-2. 2.2 Borrower shall have the option to prepay the Loan, in whole or in part, after twelve (12) months from the Closing Date by paying the principal amount thereon together with all accrued and unpaid interest with respect to such principal amount, as of the date of such prepayment, without premium. In the event Borrower prepays the Note(s) within twelve (12) months from the Closing Date hereof, Borrower shall pay the principal amount together with all accrued and unpaid interest and a prepayment premium equal to one percent (1%) of the then outstanding principal amount (the "Prepayment Penalty"). Notwithstanding the foregoing, in the event Borrower prepays the Loan in conjunction with an initial public offering of Borrowers equity securities, the Prepayment Penalty shall not apply. 2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or any other Loan Document, it is not the parties' intent to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law which a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the 7 8 "Maximum Rate"). If the Borrower actually pays Lender an amount of interest, chargeable on the total aggregate principal Secured Obligations of Borrower under this Agreement and the Note(s) (as said rate is calculated over a period of time from the date of this Agreement through the end of time that any principal is outstanding on the Note(s)), which amount of interest exceeds interest calculated at the Maximum Rate on said principal chargeable over said period of time, then such excess interest actually paid by Borrower shall be applied first, to the payment of principal outstanding on the Note(s); second, after all principal is repaid, to the payment of Lender's out of pocket costs, expenses, and professional fees which are owed by Borrower to Lender under this Agreement or the Loan Documents; and third, after all principal, costs, expenses, and professional fees owed by Borrower to Lender are repaid, the excess (if any) shall be refunded to Borrower, and the effective rate of interest will be automatically reduced to the Maximum Rate. (b) In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.1. (c) Upon and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.1. plus five percent (5%) per annum ("Default Rate"). 2.4 If the Borrower has not repaid the outstanding principal amount under the Loan in its entirety by the Maturity Date (as defined in the applicable Note(s)), then for each additional month, or portion thereof, thereafter that the outstanding principal is not paid, Lender shall have the right to purchase from the Borrower, at the Exercise Price (adjusted, as set forth and defined in the Warrant Agreement), an additional number of shares of Preferred Stock which number shall be determined by (i) multiplying the outstanding principal amount which is due but unpaid by one (1%) and (ii) dividing the product thereof by the Exercise Price. SECTION 3. SECURITY INTEREST As security for the prompt, complete and indefeasible payment when due (whether at stated payment dates or otherwise) of all the Secured Obligations and in order to induce Lender to make the Loan upon the terms and subject to the conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender for security purposes only, and hereby grants to Lender a security interest in, all of Borrower's right, title and interest in, to and under each of the following (all of which being hereinafter collectively called the "Collateral"): (a) All Receivables; (b) All Equipment; (c) All Fixtures; (d) All General Intangibles; (e) All Inventory; 8 9 (f) All other goods and personal property of Borrower whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; and (g) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER The Borrower represents, warrants and agrees that; 4.1 Borrower owns all right title and interest in and to the Collateral, free of all liens, security interests, encumbrances and claims whatsoever, except for Permitted Liens. 4.2 Borrower has the full power and authority to, and does hereby grant and convey to the Lender, a perfected security interest in the Collateral as security for the Secured Obligations, free of all liens, security interests, encumbrances and claims, other than Permitted Liens and shall execute such Uniform Commercial Code financing statements in connection herewith as the Lender may reasonably request. Except as set forth herein, no other lien, security interest, adverse claim or encumbrance has been created by Borrower or is known by Borrower to exist with respect to any Collateral. 4.3 Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified would have a material adverse effect. 4.4 Borrower's execution, delivery and performance of the Note(s), this Agreement, all financing statements, all other Loan Documents required to be delivered or executed in connection herewith, and the Warrant Agreement(s) have been duly authorized by all necessary corporate action of Borrower, the individual or individuals executing the Loan Documents and the Warrant Agreement(s) were duly authorized to do so; and the Loan Documents and the Warrant Agreement(s) constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws generally affecting the enforcement of the rights of creditors. 4.5 This Agreement, the other Loan Documents and the Warrant Agreement(s) do not and will not violate any provisions of Borrower's Certificate of Incorporation, bylaws or any contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which the Borrower is subject, or result in the creation or imposition of any lien, security interest or other encumbrance upon the Collateral, other than those created by this Agreement. 4.6 The execution, delivery and performance of this Agreement, the other Loan Documents and the Warrant Agreement(s) do not require the consent or approval of any other person or entity including, without limitation, any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof. 9 10 4.7 No event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. 4.8 No fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute a default under any loan agreement between Borrower and any Senior Creditor. 4.9 Borrower has filed all federal, state and local tax returns, , which it is required to file and has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties), which have or may become due pursuant to such returns or pursuant to any assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings). SECTION 5. INSURANCE 5.1 So long as there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained comprehensive general liability insurance against risks customarily insured against in Borrower's line of business. Such risks shall include, without limitation, the risks of death, bodily injury and property damage. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral and Borrower's business, covering casualty, hazard and such other property risks customarily insured against in Borrower's line of business. Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU 438 or equivalent) naming Lender as loss payee or additional insured, as appropriate. Borrower shall use commercially reasonable efforts to cause all policies evidencing such insurance to provide for at least thirty (30) days prior written notice by the underwriter or insurance company to Lender in the event of cancellation or expiration. Such policies shall be issued by such insurers and in such amounts as are reasonably acceptable to Lender. 5.2 Borrower shall and does hereby indemnify and hold Lender, its agents and shareholders harmless from and against any and all claims, costs, expenses, damages and liabilities (including, without limitation, such claims, costs, expenses, damages and liabilities based on liability in tort, including without limitation, strict liability in tort), including reasonable attorneys' fees, arising out of the Borrower's disposition or utilization of the Collateral, other than claims arising at or caused by Lender's gross negligence or willful misconduct. SECTION 6. COVENANTS OF BORROWER Borrower covenants and agrees as follows at all times while any of the Secured Obligations remain outstanding: 6.1 Borrower shall furnish to Lender the financial statements listed hereinafter, each prepared in accordance with generally accepted accounting principles consistently applied (the "Financial Statements"): (a) as soon as practicable (and in any event within thirty (30) days) after the end of each month, unaudited interim financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that could reasonably be 10 11 expected to have a Material Adverse Effect, all certified by Borrower's Chief Executive Officer or Chief Financial Officer to be true and correct; (b) as soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Lender, accompanied by any management report from such accountants; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; and (d) promptly, any additional information, financial or otherwise (including, but not limited, to tax returns and names of principal creditors) as Lender reasonably believes necessary to evaluate Borrower's continuing ability to meet its financial obligations. 6.2 Borrower shall permit any authorized representative of Lender and its attorneys and accountants on reasonable notice to inspect, examine and make copies and abstracts of the books of account and records of Borrower at reasonable times during normal business hours. In addition, such representative of Lender and its attorneys and accountants shall have the right to meet with management and officers of the Company to discuss such books of account and records. 6.3 Borrower will from time to time execute, deliver and file, alone or with Lender, any financing statements, security agreements or other documents; procure any instruments or documents as may be requested by Lender; and take all further action that may be necessary or desirable, or that Lender may request, to confirm, perfect, preserve and protect the security interests intended to be granted hereby, and in addition, and for such purposes only, Borrower hereby authorizes Lender to execute and deliver on behalf of Borrower and to file such financing statements, security agreement and other documents without the signature of Borrower either in Lender's name or in the name of Borrower as agent and attorney-in-fact for Borrower. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. 6.4 Borrower shall protect and defend Borrower's title as well as the interest of the Lender against all persons claiming any interest adverse to Borrower or Lender and shall at all times keep the Collateral free and clear from any legal process, liens or encumbrances whatsoever (except any placed thereon by Lender) and shall give Lender immediate written notice thereof. 6.5 Without Lender's prior written consent, Borrower shall not (a) grant any material extension of the time of payment of any of the Receivables, (b) to any material extent, compromise, compound or settle the same for less than the full amount thereof, (c) release to 11 12 any material extent, wholly or partly, any Person liable for the payment thereof, or allow any material credit or material discount thereon other than trade discounts granted in the ordinary course of business of Borrower. 6.6 Borrower shall maintain and protect its properties, assets and facilities, including without limitation, its Equipment and Fixtures, in good order and working repair and condition (taking into consideration ordinary wear and tear) and from time to time make or cause to be made all necessary and proper repairs, renewals and replacements thereto and shall competently manage and care for its property in accordance with prudent industry practices. 6.7 Borrower shall not merge with and into any other entity; or sell or convey all or substantially all of its assets or stock to any other person or entity without notifying Lender a minimum of thirty (30) days prior to the closing date and requesting Lender's consent to the assignment of all of Borrower's Secured Obligations hereunder to the successor entity in form and substance satisfactory to Lender. In the event Lender does not consent to such assignment the parties agree Borrower shall prepay the Loan in accordance with Section 2.2 hereof. 6.8 Borrower shall not, without the prior written consent of Lender, such consent not to be unreasonably withheld, declare or pay any cash dividend or make a distribution on any class of stock, other than pursuant to employee repurchase plans upon an employee's death or termination of employment or transfer, sell, lease, lend or in any other manner convey, other than to a Senior Creditor any equitable, beneficial or legal interest in any material portion of the assets of Borrower (except inventory sold in the normal course of business). 6.9 Upon the request of Lender, Borrower shall, during business hours, make the Inventory and Equipment available to Lender for inspection at the place where it is normally located and shall make Borrower's log and maintenance records pertaining to the Inventory and Equipment available to Lender for inspection. Borrower shall take all action necessary to maintain such logs and maintenance records in a correct and complete fashion. 6.10 Borrower covenants and agrees to pay when due, all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Lender or the Collateral or upon Borrower's ownership, possession, use, operation or disposition thereof or upon Borrower's rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor. 6.11 Borrower shall not relocate any item of the Collateral (other than sale of inventory in the ordinary course of business) except: (i) with the prior written consent of the Lender not to be unreasonably withheld; and (ii) if such relocation shall be within the continental United States. If permitted to relocate Collateral pursuant to the foregoing sentence, unless otherwise agreed in writing by Lender, Borrower shall first (a) cause to be filed and/or delivered to the Lender all Uniform Commercial Code financing statements, certificates or other documents or instruments necessary to continue in effect the perfected security interest of the Lender in the Collateral, and (b) have given the Lender no less than thirty (30) days prior written notice of such relocation. 12 13 6.12 Borrower agrees that Lender may invest up to Two Hundred Fifty Thousand Dollars ($250,000.00) in Borrower's next round of equity financing and shall promptly notify Lender of the terms, conditions and timing of such financing. SECTION 7. CONDITIONS PRECEDENT TO LOAN The obligation of Lender to fund the Loan on each Advance Date shall be subject to Lender's satisfactory completion of its due diligence and approval process, and satisfaction by Borrower or waiver by Lender, in Lender's sole discretion, of the following conditions: 7.1 (a) The Advance Date occurs on or before July 6, 1999 (b) Borrower shall have entered into a lease with Lender in the minimum amount of Seven Hundred Fifty Thousand Dollars ($750,000.00). 7.2 DOCUMENT DELIVERY. Borrower, on or prior to the Closing Date, shall have delivered to Lender the following: (a) executed originals of the Agreement, the Warrant Agreement attached hereto as Exhibit B-1, and any documents reasonably required by Lender to effectuate the liens of Lender, with respect to all Collateral; (b) a certified copy of resolutions of Borrower's board of directors evidencing approval of the borrowing and other transactions evidenced by the Loan Documents and the Warrant Agreement(s); (c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower; (d) certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; (e) payment of the Facility Fee for Loan I; (f) such other documents as Lender may reasonably request. 7.3 ADVANCE REQUEST. Borrower shall: WITH RESPECT TO LOAN I: (a) deliver to Lender, at least forty-eight (48) hours prior to the Advance Date, written notice in the form of an Advance Request, or as otherwise specified by Lender from time to time, specifying the date and amount of such Advance. (b) deliver the executed original Loan I Note(s) as set forth in SECTION 2. (c) at the time of the request, Borrower shall have achieved at least seventy-five (75%) or more of its cumulative net income projections or 125% or 13 14 less of its cumulative net loss projections, as the case may be, as set forth in its financial projections dated December 3, 1998 for the prior three (3) month period, attached hereto as Exhibit D. (d) such other documents as Lender may reasonably request. WITH RESPECT TO LOAN II: (a) deliver to Lender, at least forty-eight (48) hours prior to the Advance Date, written notice in the form of an Advance Request, or as otherwise specified by Lender from time to time, specifying the date and amount of such Advance. (b) deliver the executed original Loan II Note(s) as set forth in SECTION 2; (c) pay the Facility Fee for Loan II; (d) deliver an executed Warrant Agreement as set forth in SECTION 2; (e) at the time of the request, have achieved at least seventy-five (75%) or more of its cumulative net income projections 125% or less of its cumulative net loss projections, as the case me be, as set forth in its financial projections dated December 3, 1998 for the prior three (3) month period, attached hereto as Exhibit D. (f) at the time of the initial request hereunder, provide documentation verifying the completion of the Financing. (g) deliver such other documents as Lender may reasonably request. 7.4 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused to be taken such actions requested by Lender to grant Lender a first priority perfected security interest in the Collateral, subject only to Permitted Liens. Such actions shall include, without limitation, the delivery to Lender of all appropriate financing statements, executed by Borrower, as to the Collateral granted by Borrower for all jurisdictions as may be necessary or desirable to perfect the security interest of Lender in such Collateral. 7.5 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date and each Advance Date, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement or any of the Loan Documents and no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute a default under the Senior Loan Documents between Borrower and Senior Creditor. 7.6 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance Date, no event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. 14 15 SECTION 8. DEFAULT The occurrence of any one or more of the following events (herein called "Events of Default") shall constitute a default hereunder and under the Note(s) and other Loan Documents: 8.1 Borrower defaults in the payment of any principal, interest or other Secured Obligation involving the payment of money under this Agreement, the Note(s) or any of the other Loan Documents, and such default continues for more than five (5) days after the due date thereof; or 8.2 Borrower defaults in the performance of any other covenant or Secured Obligation of Borrower hereunder or under the Note(s) or any of the other Loan Documents, and such default continues for more than twenty (20) days after Lender has given notice of such default to Borrower. 8.3 Any representation or warranty made herein by Borrower shall prove to have been false or misleading in any material respect; or 8.4 Borrower shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition in bankruptcy, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (33-1/3% or more) of the properties of Borrower; or Borrower or its directors or majority shareholders shall take any action initiating the dissolution or liquidation of Borrower; or 8.5 Sixty (60) days shall have expired after the commencement of an action by or against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or 8.6 Sixty (60) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or 8.7 The default by Borrower under any Excluded Agreement(s), any other promissory note or agreement for borrowed money, or any other agreement between Borrower and Lender; or 8.8 The occurrence of any default under any lease or other agreement or obligation of Borrower involving an amount in excess of $100,000.00 or having a Material Adverse Effect; or the entry of any judgment against Borrower involving an award in excess of $100,000.00 that would have a Material Adverse Effect, that has not been bonded or stayed on appeal within thirty (30) days; or 15 16 8.9 The occurrence of any material default under any Senior Loan Documents. SECTION 9. REMEDIES Upon the occurrence of any one or more Events of Default, Lender, at its option, may declare the Note(s) and all of the other Secured Obligations to be accelerated and immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described in Sections 8.4 or 8.5, the Note(s) and all of the other Secured Obligations shall automatically be accelerated and made due and payable without any further act), whereupon the unpaid principal of and accrued interest on such Note(s) and all other outstanding Secured Obligations shall become immediately due and payable, and shall thereafter bear interest at the Default Rate set forth in, and calculated according to, Section 2.3 (c) of this Agreement. Lender may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under applicable law, including the right to release, hold or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. Upon the happening and during the continuance of any Event of Default, Lender may then, or at any time thereafter and from time to time, apply, collect, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Lender may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon five (5) calendar days' prior written notice to Borrower. Lender may require Borrower to assemble the Collateral and make it available to Lender at a place designated by Lender which is reasonably convenient to Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by Lender in the following order of priorities: First, to Lender in an amount sufficient to pay in full Lender's costs and professionals' and advisors' fees and expenses; Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations in such order and priority as Lender may choose in its sole discretion; and Finally, upon payment in full of all of the Secured Obligations, to Borrower or its representatives or as a court of competent jurisdiction may direct. Lender shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under Section 9207 of the UCC. Lender's rights and remedies hereunder are subject to the terms of the Subordination Agreement. SECTION 10. MISCELLANEOUS 10.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement and the grant of a security interest hereunder shall remain in full force and effect and all the rights, powers and remedies of Lender hereunder shall continue to exist until the Secured Obligations 16 17 are paid in full as the same become due and payable and until Lender has executed a written termination statement (which Lender shall execute within a reasonable time after full payment of the Secured Obligations hereunder), reassigning to Borrower, without recourse, the Collateral and all rights conveyed hereby and returning possession of the Collateral to Borrower. The rights, powers and remedies of Lender hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Lender. 10.2 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 10.3 NOTICE. Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows: (a) IF TO LENDER: COMDISCO, INC. Legal Department Attention: General Counsel 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5088 WITH A COPY TO: COMDISCO, INC./COMDISCO VENTURES 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5465 (b) IF TO BORROWER: NET.GENESIS CORP. Attention: John Delea 215 First Street Cambridge, MA 02142 Facsimile: (617) 577-9850 Phone: (617) 577-9800 17 18 WITH COPY TO: FOLEY, HOAG & ELIOT LLP Attention: John D. Patterson, Jr. One Post Office Square Boston, MA 02109 Facsimile: (617) 832-7000 Telephone: (617) 832-1000 or to such other address as each party may designate for itself by like notice. 10.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the other Loan Documents, and the Warrant Agreement(s) constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including, without limitation, Lender's proposal letter dated November 24, 1998), all of which are merged herein and therein. None of the terms of this Agreement, the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be amended except by an instrument executed by each of the parties hereto. 10.5 HEADINGS. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof. 10.6 NO WAIVER. The powers conferred upon Lender by this Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. No omission, or delay, by Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Lender is entitled, nor shall it in any way affect the right of Lender to enforce such provisions thereafter. 10.7 SURVIVAL. All agreements, representations and warranties contained in this Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) or in any document delivered pursuant hereto or thereto shall be for the benefit of Lender and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement. 10.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement, the other Loan Documents and the Warrant Agreement(s) shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement, the Note(s), any of the other Loan Documents or the Warrant Agreement(s), without Lender's express written consent, and any such attempted assignment shall be void and of no effect. Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents or Warrant Agreement(s) without prior notice to Borrower, and all of such rights shall inure to the benefit of Lender's successors and assigns. 10.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable 18 19 with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. 10.10 GOVERNING LAW. This Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) have been negotiated and delivered to Lender in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the State of Illinois. This Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 10.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising in or under or related to this Agreement, the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be brought in any state or federal court of competent jurisdiction located in the State of Illinois. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Cook County, State of Illinois; (b) waives any objection as to jurisdiction or venue in Cook County, State of Illinois; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Note(s), the other Loan Documents or Warrant Agreement(s). Service of process on any party hereto in any action arising out of or relating to this agreement shall be effective if given in accordance with the requirements for notice set forth in Section 10.3, above and shall be deemed effective and received as set forth in Section 10.3, above. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction. 10.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including, without limitation, Claims which involve persons or entities other than Borrower and Lender; Claims which arise out of or are in any way connected to the relationship between Borrower and Lender; and any Claims for damages, breach of contract arising, out of this Agreement, any other Loan Document or any of the Excluded Agreements, specific performance, or any equitable or legal relief of any kind. 10.13 CONFIDENTIALITY. Lender acknowledges that certain items of Collateral, including, but not limited to trade secrets, source codes, customer lists and certain other items of Intellectual Property, and any Financial Statements provided pursuant to Section 6 hereof, constitute proprietary and confidential information of the Borrower (the "Confidential Information"). Accordingly, Lender agrees that any Confidential Information it may obtain in the course of acquiring, perfecting or foreclosing on the Collateral or otherwise provided under this Agreement, provided such Confidential Information is marked as confidential by Borrower at the time of disclosure, shall be received in the strictest confidence and will not be disclosed to any other person or entity in any manner whatsoever, in whole or in part, without the prior written consent of the Borrower, unless and until Lender has acquired indefeasible title thereto. 19 20 10.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered this Agreement as of the day and year first above written. BORROWER: NET.GENESIS CORP. Signature: /s/ John P. Delea ----------------------------- Print Name: John P. Delea ----------------------------- Title: V.P. Finance & Administration ----------------------------- ACCEPTED IN ROSEMONT, ILLINOIS: LENDER: COMDISCO, INC. Signature: /s/ James P. Labe ----------------------------- Print Name: James P. Labe ---------------------------- President Title: Comdisco Ventures Division -------------------------- 20 21 EXHIBIT A SUBORDINATED PROMISSORY NOTE $ DATE: DUE: FOR VALUE RECEIVED, net.Genesis Corp., a Delaware corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of ______ and 00/100 Dollars ($______) together with interest at thirteen and one half percent (13.5%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such principal and interest to be paid in 9 monthly installments of interest only, commencing ______ and on the same day of the month thereafter to and including ______, followed by 27 equal monthly installments of $______ each, commencing ______ and on the same day of each month thereafter to and including ______, such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is one of the Note(s) referred to in, and is executed and delivered in connection with, that certain Subordinated Loan and Security Agreement dated January 6, 1998 by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. -1- 22 This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: NET.GENESIS CORP. 215 FIRST STREET CAMBRIDGE, MA 02142 Signature: ___________________________ . Print Name: ____________________________ Title: ____________________________ -2- EX-10.8 14 MASTER LEASE AGREEMENT 1 EXHIBIT 10.8 MASTER LEASE AGREEMENT MASTER LEASE AGREEMENT (the "Master Lease") dated January 6, 1999 by and between COMDISCO, INC. ("Lessor") and NET.GENESIS CORP. ("Lessee"). IN CONSIDERATION of the mutual agreements described below, the parties agree as follows (all capitalized terms are defined in Section 14.18): 1. Property Leased. Lessor leases to Lessee all of the Equipment described on each Summary Equipment Schedule. In the event of a conflict, the terms of the applicable Schedule prevail over this Master Lease. 2. Term. On the Commencement Date, Lessee will be deemed to accept the Equipment, will be bound to its rental obligations for each item of Equipment and the term of a Summary Equipment Schedule will begin and continue through the Initial Term and thereafter until terminated by either party upon prior written notice received during the Notice Period. No termination may be effective prior to the expiration of the Initial Term. 3. Rent and Payment. Rent is due and payable in advance on the first day of each Rent Interval at the address specified in Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment is not made when due, Lessee will pay a Late Charge on the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay Lessor the Advance specified on the Schedule. The Advance will be credited towards the final Rent payment if Lessee is not then in default. No interest will be paid on the Advance. 4. Selection; Warranty and Disclaimer of Warranties. 4.1 Selection. Lessee acknowledges that it has selected the Equipment and disclaims any reliance upon statements made by the Lessor, other than as set forth in the Schedule. 4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and peaceful possession, and unrestricted use of the Equipment. To the extent permitted by the manufacturer, Lessor assigns to Lessee during the term of the Summary Equipment Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR 1 2 PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or expense of any kind (including strict liability in tort) caused by the Equipment except for any loss or damage caused by the willful misconduct or negligent acts of Lessor. In no event is Lessor responsible for special, incidental or consequential damages. 5. Title; Relocation or Sublease; and Assignment 5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and file in Lessee's name precautionary Uniform Commercial Code financing statements showing the interest of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to insert serial numbers in Summary Equipment Schedules as appropriate. Lessee will, at its expense, keep the Equipment free and clear from any liens or encumbrances of any kind (except any caused by Lessor) and will indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless from and against any loss caused by Lessee's failure to do so, except where such is caused by Lessor. 5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate Equipment to any location within the continental United States provided (i) the Equipment will not be used by an entity exempt from federal income tax, and (ii) all additional costs (including any administrative fees, additional taxes and insurance coverage) are reconciled and promptly paid by Lessee. Lessee may sublease the Equipment upon the reasonable consent of the Lessor and the Secured Party. Such consent to sublease Will be granted if: (i) Lessee meets the relocation requirements set out above, (ii) the sublease is expressly subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its rights in the sublease to Lessor and the Secured Party as additional collateral and security, (iv) Lessee's obligation to maintain and insure the Equipment is not altered, (v) all financing statements required to continue the Secured Party's prior perfected security interest are filed, and (vi) Lessee executes sublease documents acceptable to Lessor. No relocation or sublease will relieve Lessee from any of its obligations under this Master Lease and the relevant Schedule. 5.3 Assignment by Lessor. The terms and conditions of each Schedule have been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its interest or grant a security interest in each Schedule and/or the Equipment to a Secured Party or Assignee. In that event, the term Lessor will mean the Assignee and any Secured Party. However, any assignment, sale, or other transfer by Lessor will not relieve Lessor of its obligations to Lessee and will not materially change Lessee's duties or materially increase the burdens or risks imposed on Lessee. The Lessee consents to and will acknowledge such assignments in a written notice given to Lessee. Lessee also agrees that: 2 3 (a) The Secured Party will be entitled to exercise all of Lessor's rights, but will not be obligated to perform any of the obligations of Lessor. The Secured Party will not disturb Lessee's quiet and peaceful possession and unrestricted use of the Equipment so long as Lessee is not in default and the Secured Party continues to receive all Rent payable under the Schedule; and (b) Lessee will pay all Rent and all other amounts payable to the Secured Party, despite any defense or claim which it has against Lessor. Lessee reserves its right to have recourse directly against Lessor for any defense or claim; (c) Subject to and without impairment of Lessee's leasehold rights in the Equipment, Lessee holds the Equipment for the Secured Party to the extent of the Secured Party's rights in that Equipment. 6. Net Lease; Taxes and Fees. 6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease. Lessee's obligation to pay Rent and all other amounts due hereunder is absolute and unconditional and is not subject to any abatement, reduction, set-off, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. 6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes, fees or any other charges (together with any related interest or penalties not arising from the negligence of Lessor) accrued for or arising during the term of each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any governmental authority (except only Federal, state, local and franchise taxes on the capital or the net income of Lessor). Lessor will file all personal property tax returns for the Equipment and pay all such property taxes due. Lessee will reimburse Lessor for property taxes within thirty (30) days of receipt of an invoice. 7. Care, Use and Maintenance; Inspection by Lessor. 7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good operating order and appearance, protect the Equipment from deterioration, other than normal wear and tear, and will not use the Equipment for any purpose other than that for which it was designed. If commercially available and considered common business practice for each item of Equipment, Lessee will maintain in force a standard maintenance contract with the manufacturer of the Equipment, or another party acceptable to Lessor, and will provide Lessor with a complete copy of that contract. If Lessee has the Equipment maintained by a party other than the manufacturer or self maintains, Lessee agrees to pay any costs necessary for the manufacturer to bring the Equipment to then current release, revision and engineering change levels, and to re-certify the Equipment as eligible for manufacturer's maintenance at the expiration of the lease term, 3 4 provided re-certification is available and is required by Lessor. The lease term will continue upon the same terms and conditions until recertification has been obtained. 7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during reasonable business hours and subject to Lessee's security requirements, will make the Equipment and its related log and maintenance records available to Lessor for inspection. 8. Representations and Warranties of Lessee. Lessee hereby represents, warrants and covenants that with respect to the Master Lease and each Schedule executed hereunder: (a) The Lessee is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to do business in each jurisdiction (including the jurisdiction where the Equipment is, or is to be, located) where its ownership or lease of property or the conduct of its business requires such qualification, except for where such lack of qualification would not have a material adverse effect on the Company's business; and has full corporate power and authority to hold property under the Master Lease and each Schedule and to enter into and perform its obligations under the Master Lease and each Schedule. (b) The execution and delivery by the Lessee of the Master Lease and each Schedule and its performance thereunder have been duly authorized by all necessary corporate action on the part of the Lessee, and the Master Lease and each Schedule are not inconsistent with the Lessee's Articles of Incorporation or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Master Lease and each Schedule constitute legal, valid and binding agreements of the Lessee, enforceable in accordance with their terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law concerning equitable remedies. (c) There are no actions, suits, proceedings or patent claims pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Lessee to perform its obligations under the Master Lease and each Schedule. (d) The Equipment is personal property and when subjected to use by the Lessee will not be or become fixtures under applicable law. (e) The Lessee has no material liabilities or obligations, absolute or contingent (individually or in the aggregate), except the liabilities and obligations of the Lessee as set forth in the Financial Statements and liabilities and obligations which have occurred in the ordinary course 4 5 of business, and which have not been, in any case or in the aggregate, materially adverse to Lessee's ongoing business. (f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has access to, or can become licensed on reasonable terms under all patents, patent applications, trademarks, trade names, inventions, franchises, licenses, permits, computer software and copyrights necessary for the operations of its business as now conducted, with no known infringement of, or conflict with, the rights of others. (g) All material contracts, agreements and instruments to which the Lessee is a party are in full force and effect in all material respects, and are valid, binding and enforceable by the Lessee in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally, and rules of law concerning equitable remedies. 9. Delivery and Return of Equipment Lessee hereby assumes the full expense of transportation and in-transit insurance to Lessee's premises and installation thereat of the Equipment. Upon termination (by expiration or otherwise) of each Summary Equipment Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense (including, without limitation, expenses of transportation and in-transit insurance), return the Equipment to Lessor in the same operating order, repair, condition and appearance as when received, less normal depreciation and wear and tear. Lessee shall return the Equipment to Lessor at 6111 North River Road, Rosemont, Illinois 60018 or at such other address within the continental United States as directed by Lessor, provided, however, that Lessee's expense shall be limited to the cost of returning the Equipment to Lessor's address as set forth herein. During the period subsequent to receipt of a notice under Section 2, Lessor may demonstrate the Equipment's operation in place and Lessee will supply any of its personnel as may reasonably be required to assist in the demonstrations. 10. Labeling. Upon request, Lessee will mark the Equipment indicating Lessor's interest with labels provided by Lessor. Lessee will keep all Equipment free from any other marking or labeling which might be interpreted as a claim of ownership. 11. Indemnity. With regard to bodily injury and property damage liability only, Lessee will indemnify and hold Lessor, any Assignee and any Secured Party harmless from and against any and all claims, costs, expenses, damages and liabilities, including reasonable attorneys' fees, arising out of the ownership (for strict liability in tort only), selection, possession, leasing, operation, control, use, 5 6 maintenance, delivery, return or other disposition of the Equipment during the term of this Master Lease or until Lessee's obligations under the Master Lease terminate. However, Lessee is not responsible to a party indemnified hereunder for any claims, costs, expenses, damages and liabilities occasioned by the negligent acts of such indemnified party. Lessee agrees to carry bodily injury and property damage liability insurance during the term of the Master Lease in amounts and against risks customarily insured against by the Lessee on equipment owned by it. Any amounts received by Lessor under that insurance will be credited against Lessee's obligations under this Section. 12. Risk of Loss. Effective upon delivery and until the Equipment is returned, Lessee relieves Lessor of responsibility for all risks of physical damage to or loss or destruction of the Equipment. Lessee will carry casualty insurance for each item of Equipment in an amount not less than the Casualty Value. All policies for such insurance will name the Lessor and any Secured Party as additional insured and as loss payee, and will provide for at least thirty (30) days prior written notice to the Lessor of cancellation or expiration, and will insure Lessor's interests regardless of any breach or violation by Lessee of any representation, warranty or condition contained in such policies and will be primary without right of contribution from any insurance effected by Lessor. Upon the execution of any Schedule, the Lessee will furnish appropriate evidence of such insurance acceptable to Lessor. Lessee will promptly repair any damaged item of Equipment unless such Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss, Lessee will provide written notice of that loss to Lessor and Lessee will, at Lessee's option, either (a) replace the item of Equipment with Like Equipment and marketable title to the Like Equipment will automatically vest in Lessor or (b) pay the Casualty Value and after that payment and the payment of all other amounts due and owing with respect to that item of Equipment, Lessee's obligation to pay further Rent for the Rem of Equipment will cease. 13. Default, Remedies and Mitigation. 13.1 Default. The occurrence of any one or more of the following Events of Default constitutes a default under a Summary Equipment Schedule: (a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if that failure continues for five (5) business days after written notice; or (b) Lessee's failure to perform any other term or condition of the Schedule or the material inaccuracy of any representation or warranty made by the Lessee in the Schedule or in any 6 7 document or certificate furnished to the Lessor hereunder if that failure or inaccuracy continues for ten (10) business days after written notice; or (c) An assignment by Lessee for the benefit of its creditors, the failure by Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee or the filing against Lessee of any petition under any bankruptcy or insolvency law or for the appointment of a trustee or other officer with similar powers, the adjudication of Lessee as insolvent, the liquidation of Lessee, or the taking of any action for the purpose of the foregoing; or (d) The occurrence of an Event of Default under any Schedule, Summary Equipment Schedule or other agreement between Lessee and Lessor or its Assignee or Secured Party. 13.2 Remedies. Upon the occurrence of any of the above Events of Default, Lessor, at its option, may: (a) enforce Lessee's performance of the provisions of the applicable Schedule by appropriate court action in law or in equity; (b) recover from Lessee any damages and or expenses, including Default Costs; (c) with notice and demand, recover all sums due and accelerate and recover the present value of the remaining payment stream of all Rent due under the defaulted Schedule (discounted at the same rate of interest at which such defaulted Schedule was discounted with a Secured Party plus any prepayment fees charged to Lessor by the Secured Party or, if there is no Secured Party, then discounted at 6%) together with all Rent and other amounts currently due as liquidated damages and not as a penalty; (d) with notice and process of law and in compliance with Lessee's security requirements, Lessor may enter on Lessee's premises to remove and repossess the Equipment without being liable to Lessee for damages due to the repossession, except those resulting from Lessor's, its assignees', agents' or representatives' negligence; and (e) pursue any other remedy permitted by law or equity. The above remedies, in Lessor's discretion and to the extent permitted by law, are cumulative and may be exercised successively or concurrently. 13.3 Mitigation. Upon return of the Equipment pursuant to the terms of Section 13.2, Lessor will use its best efforts in accordance with its normal business procedures (and without obligation to give any priority to such Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY 7 8 RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of the Equipment at a public or private sale for cash or credit with the privilege of purchasing the Equipment. The proceeds from any sale, lease or other disposition of the Equipment are defined as either: (a) if sold or otherwise disposed of, the cash proceeds less the Fair Market Value of the Equipment at the expiration of the Initial Term less the Default Costs; or (b) if leased, the present value (discounted at 3 percent (3%) over the U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the rentals for a term not to exceed the Initial Term, less the Default Costs. Any proceeds will be applied against liquidated damages and any other sums due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may recover, the amount by which the proceeds are less than the liquidated damages and other sums due to Lessor from Lessee. 14. Additional Provisions. 14.1 Board Attendance. One representative of Lessor will have the right to attend Lessee's corporate Board of Directors meetings and Lessee will give Lessor reasonable notice in advance of any special Board of Directors meeting, which notice will provide an agenda of the subject matter to be discussed at such board meeting. Lessee will provide Lessor with a certified copy of the minutes of each Board of Directors meeting within thirty (30) days following the date of such meeting held during the term of this Master Lease. 14.2 Financial Statements. As soon as practicable at the end of each month (and in any event within thirty (30) days), Lessee will provide to Lessor the same information which Lessee provides to its Board of Directors, but which will include not less than a monthly income statement, balance sheet and statement of cash flows prepared in accordance with generally accepted accounting principles, consistently applied (the "Financial Statements"). As soon as practicable at the end of each fiscal year, Lessee will provide to Lessor audited Financial Statements setting forth in comparative form the corresponding figures for the fiscal year (and in any event within ninety (90) days), and accompanied by an audit report and opinion of the independent certified public accountants selected by Lessee. Lessee will promptly furnish to Lessor any additional information (including, but not limited to, tax returns, income statements, balance sheets and names of principal creditors) as Lessor reasonably believes necessary to evaluate Lessee's continuing ability to meet financial obligations. After the effective date of the initial registration statement covering a public offering of Lessee's securities, the term "Financial 8 9 Statements" will be deemed to refer to only those statements required by the Securities and Exchange Commission. 14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee, Lessor will not be obligated to lease any Equipment which would have a Commencement Date after said notice if: (i) Lessee is in default under this Master Lease or any Schedule; (ii) Lessee is in default under any loan agreement, the result of which would allow the lender or any secured party to demand immediate payment of any material indebtedness; (iii) there is a material adverse change in Lessee's credit standing; or (iv) Lessor determines (in reasonable good faith) that Lessee will be unable to perform its obligations under this Master Lease or any Schedule. 14.4 Merger and Sale Provisions. Lessee will notify Lessor of any proposed Merger at least sixty (60) days prior to the closing date. Lessor may, in its discretion, either (i) consent to the assignment of the Master Lease and all relevant Schedules to the successor entity, or (ii) terminate the Lease and all relevant Schedules. If Lessor elects to consent to the assignment, Lessee and its successor will sign the assignment documentation provided by Lessor. If Lessor elects to terminate the Master Lease and all relevant Schedules, then Lessee will pay Lessor all amounts then due and owing and a termination fee equal to the present value (discounted at 6%) of the remaining Rent for the balance of the Initial Term(s) of all Schedules, and will return the Equipment in accordance with Section 9. Lessor hereby consents to any Merger in which the acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially acceptable equivalent measure of creditworthiness as reasonably determined by Lessor. 14.5 Entire Agreement. This Master Lease and associated Schedules and Summary Equipment Schedules supersede all other oral or written agreements or understandings between the parties concerning the Equipment including, for example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED. 14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to constitute a waiver of compliance with any representation, warranty or covenant contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach of any provision of this Master Lease or a Schedule will not operate or be construed as a waiver of any subsequent breach. 14.7 Binding Nature. Each Schedule is binding upon, and inures to the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS. 14.8 Survival of Obligations. All agreements, obligations including, but not limited to those arising under Section 6.2, representations and warranties contained in this Master Lease, any Schedule, Summary Equipment Schedule or in any document delivered in connection with those 9 10 agreements are for the benefit of Lessor and any Assignee or Secured Party and survive the execution, delivery, expiration or termination of this Master Lease. 14.9 Notices. Any notice, request or other communication to either party by the other will be given in writing and deemed received upon the earlier of (1) actual receipt or (2) three days after mailing if mailed postage prepaid by regular or airmail to Lessor (to the attention of "the Comdisco Venture Group") or Lessee, at the address set out in the Schedule, (3) one day after it is sent by courier or (4) on the same day as sent via facsimile transmission, provided that the original is sent by personal delivery or mail by the sending party. 14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE. 14.11 Severability. If any one or more of the provisions of this Master Lease or any Schedule is for any reason held invalid, illegal or unenforceable, the remaining provisions of this Master Lease and any such Schedule will be unimpaired, and the invalid, illegal or unenforceable provision replaced by a mutually acceptable valid, legal and enforceable provision that is closest to the original intention of the parties. 14.12 Counterparts. This Master Lease and any Schedule may be executed in any number of counterparts, each of which will be deemed an original, but all such counterparts together constitute one and the same instrument. If Lessor grants a security interest in all or any part of a Schedule, the Equipment or sums payable thereunder, only that counterpart Schedule marked "Secured Party's Original" can transfer Lessor's rights and all other counterparts will be marked "Duplicate." 14.13 Licensed Products. Lessee will obtain no title to Licensed Products which will at all times remain the property of the owner of the Licensed Products. A license from the owner may be required and it is Lessee's responsibility to obtain any required license before the use of the Licensed Products. Lessee agrees to treat the Licensed Products as confidential information of the owner, to observe all copyright restrictions, and not to reproduce or sell the Licensed Products. 14.14 Secretary's Certificate. Lessee will, upon execution of this Master Lease, provide Lessor with a secretary's certificate of incumbency and authority. Upon the execution of each Schedule with a purchase price in excess of $1,000,000, Lessee will provide Lessor with an opinion from 10 11 Lessee's counsel in a form acceptable to Lessor regarding the representations and warranties in Section 8. 14.15 Electronic Communications. Each of the parties may communicate with the other by electronic means under mutually agreeable terms. 14.16 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in a form satisfactory to Lessor. 14.17 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees that Lessor shall not, by virtue of its entering into this Master Lease, be required to remit any payments to any manufacturer or other third party until Lessee accepts the Equipment subject to this Master Lease. 14.18 Definitions. Advance - means the amount due to Lessor by Lessee upon Lessee's execution of each Schedule. Assignee - means an entity to whom Lessor has sold or assigned its rights as owner and Lessor of Equipment. Casualty Loss - means the irreparable loss or destruction of Equipment. Casualty Value - means the greater of the aggregate Rent remaining to be paid for the balance of the lease term or the Fair Market Value of the Equipment immediately prior to the Casualty Loss. However, if a Casualty Value Table is attached to the relevant Schedule its terms will control. Commencement Date - is defined in each Schedule. Default Costs - means reasonable attorney's fees and remarketing costs resulting from a Lessee default or Lessor's enforcement of its remedies. Delivery Date - means date of delivery of Inventory Equipment to Lessee's address. Equipment - means the property described on a Summary Equipment Schedule and any replacement for that property required or permitted by this Master Lease or a Schedule. Event of Default - means the events described in Subsection 13.1. 11 12 Fair Market Value - means the aggregate amount which would be obtainable in an arm's-length transaction between an informed and willing buyer/user and an informed and willing seller under no compulsion to sell. Initial Term - means the period of time beginning on the first day of the first full Rent Interval following the Commencement Date for all items of Equipment and continuing for the number of Rent Intervals indicated on a Schedule. Interim Rent - means the pro-rata portion of Rent due for the period from the Commencement Date through but not including the first day of the first full Rent Interval included in the Initial Term. Late Charge - means the lesser of five percent (5%) of the payment due or the maximum amount permitted by the law of the state where the Equipment is located. Licensed Products - means any software or other licensed products attached to the Equipment. Like Equipment - means replacement Equipment which is lien free and of the same model, type, configuration and manufacture as Equipment. Merger - means any consolidation or merger of the Lessee with or into any other corporation or entity, any sale or conveyance of all or substantially all of the assets or stock of the Lessee by or to any other person or entity in which Lessee is not the surviving entity. Notice Period - means not less than ninety (90) days nor more than twelve (12) months prior to the expiration of the lease term. Owner - means the owner of Equipment. Rent - means the rent Lessee will pay for each item of Equipment expressed in a Summary Equipment Schedule either as a specific amount or an amount equal to the amount which Lessor pays for an item of Equipment multiplied by a lease rate factor plus all other amounts due to Lessor under this Master Lease or a Schedule. Rent Interval - means a full calendar month or quarter as indicated on a Schedule, Schedule - means either an Equipment Schedule or a Licensed Products Schedule which incorporates all of the terms and conditions of this Master Lease, Secured Party - means an entity to whom Lessor has granted a security interest for the purpose of securing a loan. 12 13 Summary Equipment Schedule - means a certificate provided by Lessor summarizing all of the Equipment for which Lessor has received Lessee approved vendor invoices, purchase documents and/or evidence of delivery during a calendar quarter which will incorporate all of the terms and conditions of the related Schedule and this Master Lease and will constitute a separate lease for the equipment leased thereunder. IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as of the day and year first above written. NET.GENESIS CORP. COMDISCO, INC. as Lessee as Lessor By: /s/ John Delea By: /s/ James P. Labe ------------------------------- ------------------------------- Title: V.P. Finance & Administration Title: James P. Labe President Comdisco Ventures Division 14 Duplicate Original ADDENDUM TO THE MASTER LEASE AGREEMENT DATED AS OF JANUARY 6,1998 BETWEEN NET.GENESIS CORP., AS LESSEE AND COMDISCO, INC., AS LESSOR The undersigned hereby agree that the terms and conditions of the above-referenced Master Lease are hereby modified and amended as follows: 1) Section 14.1., "BOARD ATTENDANCE" Delete this section in its entirety. 2) Section 14.16., "LANDLORD/MORTGAGEE WAIVER" Delete this Section in its entirety. NET.GENESIS CORP. COMDISCO, INC. AS LESSEE AS LESSOR By: /s/ John Delea By: /s/ James P. Labe ----------------------------------- ------------------------------ James P. Labe Title: V.P. Finance and Administration Title: President Comdisco Ventures Division Date: 1/5/99 Date: Jan. 07, 1999 15 Duplicate Original EQUIPMENT SCHEDULE VL-1 DATED AS OF JANUARY 6,1999 TO MASTER LEASE AGREEMENT DATED AS OF JANUARY 6,1999 (THE "MASTER LEASE") LESSEE: NET.GENESIS CORP. LESSOR: COMDISCO, INC. Admin. Contact/Phone No.: Address for all Notices: Phone: (617) 577-9800 6111 North River Road Fax: (617) 577-9850 Rosemont, Illinois 60018 Attn.: Venture Group Address for Notices: 215 First Street Cambridge, MA 02142 Central Billing Location: Rent Interval: Monthly same as above Attn.: Lessee Reference No.: (24 digits maximum) Location of Equipment: Initial Term: 36 months same as above (Number of Rent Intervals) Attn.: Lease Rate Factor: Months 1-6: 1.500% Months 7-12: 2.000% Months 13-36: 3.963% EQUIPMENT (as defined below): Advance: $31,704.00 Interim Rent: Interest Only Equipment specifically approved by Lessor, which shall be delivered to and accepted by Lessee during the period January 6, 1999 through January 6, 2000 ("Equipment Delivery Period"), for 1 16 which Lessor receives vendor invoices approved for payment, up to an aggregate purchase price of $800,000.00 ("Commitment Amount"); excluding custom use equipment, leasehold improvements, installation costs and delivery costs, rolling stock, special tooling, "stand-alone" software, application software bundled into computer hardware, hand held items, molds and fungible items. 1. EQUIPMENT PURCHASE This Schedule contemplates Lessor's acquisition of Equipment for lease to Lessee, either by one of the first three categories listed below or by providing Lessee with Equipment from the fourth category, in an aggregate value up to the Commitment Amount referred to on the face of this Schedule. If the Equipment acquired is of category (i), (ii), (iii) below, the effectiveness of this Schedule as it relates to those items of Equipment is contingent upon Lessee's acknowledgment at the time Lessor acquires the Equipment that Lessee has either received or approved the relevant purchase documentation between vendor and Lessor for that Equipment. (i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is obtained from a vendor by Lessee for its use subject to Lessor's prior approval of the Equipment. (ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at Lessee's site and to which Lessee has clear title and ownership may be considered by Lessor for inclusion under this Lease (the "Sale-Leaseback Transaction"). Any request for a Sale-Leaseback Transaction must be submitted to Lessor in writing (along with accompanying evidence of Lessee's Equipment ownership satisfactory to Lessor for all Equipment submitted) no later than April 6, 1999 *. Lessor will not perform a Sale-Leaseback Transaction for any request or accompanying Equipment ownership documents which arrive after the date marked above by an asterisk (*). Further, any sale leaseback Equipment will be placed on lease subject to: (1) Lessor prior approval of the Equipment; and (2) if approved, at Lessor's actual net appraised Equipment value pursuant to the schedule below: ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S INVOICE DATE NET EQUIPMENT COST PAID BY LESSOR - ------------------ ---------------------------------- Between 10/8/98 and 1/6/99 100% (iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which is obtained from a third party by Lessee for its use subject to Lessor's prior approval of the Equipment and at Lessor's appraised value for such used Equipment. 2 17 (iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct Service, Lessor will purchase new or used Equipment from a third party or Lessor will supply new or used Equipment from its inventory for use by Lessee at rates provided by Lessor. 2. COMMENCEMENT DATE The Commencement Date for each item of new on-order or used on-order Equipment will be the install date as confirmed in writing by Lessee as set forth on the vendor invoice of which a facsimile transmission will constitute an original document. The Commencement Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase price. The Commencement Date for 800 Number Equipment shall be fifteen (15) days from the ship date, such ship date to be set forth on the vendor invoice or if unavailable on the vendor invoice the ship date will be determined by Lessor upon other supporting shipping documentation. Lessor will summarize all approved invoices, purchase documentation and evidence of delivery, as applicable, received in the same calendar month into a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the Initial Term will begin the first day of the calendar month thereafter. Each Summary Equipment Schedule will contain the Equipment location, description, serial number(s) and cost and will incorporate the terms and conditions of the Master Lease and this Schedule and will constitute a separate lease. 3. OPTION TO EXTEND So long as no Event of Default has occurred and is continuing hereunder, and upon written notice no earlier than twelve (12) months and no later than ninety (90) days prior to the expiration of the Initial Term of a Summary Equipment Schedule, Lessee will have the right to extend the Initial Term of such Summary Equipment Schedule for a period of one (1) year. In such event, the rent to be paid during said extended period shall be mutually agreed upon and if the parties cannot mutually agree, then the Summary Equipment Schedule shall continue in full force and effect pursuant to the existing terms and conditions until terminated in accordance with its terms. The Summary Equipment Schedule will continue in effect following said extended period until terminated by either party upon not less than ninety (90) days prior written notice, which notice shall be effective as of the date of receipt. 4. PURCHASE OPTION So long as no Event of Default has occurred and is continuing hereunder, and upon written notice no earlier than twelve (12) months and no later than ninety (90) days prior to the expiration of the Initial Term or the extended term of the applicable Summary Equipment Schedule, Lessee will have the option at the expiration of the Initial Term of the Summary 3 18 Equipment Schedule to purchase all, but not less than all, of the Equipment listed therein for a purchase price not to exceed fifteen (15%) of the Equipment cost and upon terms and conditions to be mutually agreed upon by the parties following Lessee's written notice, plus any taxes applicable at time of purchase. Said purchase price shall be paid to Lessor at least thirty (30) days before the expiration date of the Initial Term or extended term. Title to the Equipment shall automatically pass to Lessee upon payment in full of the purchase price but, in no event, earlier than the expiration of the fixed Initial Term or extended term, if applicable. If the parties are unable to agree on the purchase price or the terms and conditions with respect to said purchase, then the Summary Equipment Schedule with respect to this Equipment shall remain in full force and effect. Notwithstanding the exercise by Lessee of this option and payment of the purchase price, until all obligations under the applicable Summary Equipment Schedule have been fulfilled, it is agreed and understood that Lessor shall retain a purchase money security interest in the Equipment listed therein and the Summary Equipment Schedule shall constitute a Security Agreement under the Uniform Commercial Code of the state in which the Equipment is located. 5. TECHNOLOGY EXCHANGE OPTION If Lessee is not in default, and there is no material adverse change in Lessee's credit, on or after the expiration of the 12th month of any Summary Equipment Schedule, Lessee shall have the option to replace any of the Equipment subject to such summary Equipment Schedule with new technology equipment ("New Technology Equipment") utilizing the following guidelines: A. Equipment being replaced with New Technology Equipment shall have an aggregate original cost equal to or greater than $20,000 and be comprised of full configurations of equipment. B. This technology Exchange Option shall be limited to a maximum in the aggregate of fifty percent (50%) of the original equipment cost and shall not apply to software or any soft costs financed hereunder including but not limited to tenant improvements and custom equipment. C. The cost of the New Technology Equipment must be equal to or greater than the original equipment cost of the replaced equipment, but in no event shall exceed 150% of the original equipment cost. D. The remaining lease payments applicable to the equipment being replaced by the New Technology Equipment will be discounted to present value at 6%. 4 19 The wholesale market value of the equipment being replaced will be established by Comdisco based upon then current market conditions. Upon the return of the replaced equipment, the wholesale price will be deducted from the present value of the remaining rentals and the differential will be added to the cost of the New Technology Equipment in calculating the new rental. The lease for the New Technology Equipment will contain terms and conditions substantially similar to those for the replaced equipment and will have an Initial Term not less than the balance of the remaining Initial Term for the replaced equipment. 6. SPECIAL TERMS The terms and conditions of the Lease as they pertain to this Schedule are hereby modified and amended as follows: (a) Section 14.18., "DEFINITIONS" In the definition of "Interim Rent", delete "the pro-rata portion" and replace with "interest only portion of". Master Lease: This Schedule is issued pursuant to the Lease identified on page 1 of this Schedule. All of the terms and conditions of the Lease are incorporated in and made a part of this Schedule as if they were expressly set forth in this Schedule. The parties hereby reaffirm all of the terms and conditions of the Lease (including, without limitation, the representations and warranties set forth in Section 8) except as modified herein by this Schedule. This Schedule may not be amended or rescinded except by a writing signed by both parties. NET.GENESIS CORP. COMDISCO, INC. AS LESSEE AS LESSOR By: /s/ John Delea By: /s/ James P. Labe ----------------------------- -------------------------- Title: V.P. Finance & Administration Title: James P. Labe President Date: 1/5/99 Comdisco Ventures Division Date: Jan 07 1999 5 20 Duplicate Original EQUIPMENT SCHEDULE VL-2 DATED AS OF JANUARY 6,1999 TO MASTER LEASE AGREEMENT DATED AS OF JANUARY 6,1999 (THE "MASTER LEASE") LESSEE: NET.GENESIS CORP. LESSOR: COMDISCO, INC. Admin. Contact/Phone No.: Address for all Notices: 6111 North River Road Phone: (617) 577-9800 Rosemont, Illinois 60018 Fax: (617) 577-9850 Attn: Venture Group Address for Notices: 215 First Street Cambridge, MA 02142 Central Billing Location: Rent Interval: Monthly same as above Attn.: Lessee Reference No.: (24 digits maximum) Location of Equipment: Initial Term: 36 months same as above (Number of Rent Intervals) Attn.: Lease Rate Factor: Months 1-6: 1.500% Months 7-12: 2.000% Months 13-36: 3.963% EQUIPMENT (as defined below): Advance: $7,926.00 Interim Rent: Interest Only Software and tenant improvements specifically approved by Lessor, which shall be delivered to and accepted by Lessee during the period January 6, 1999 through January 6, 2000 ("Equipment 1 21 Delivery Period") for which Lessor receives vendor invoices approved for payment, up to an aggregate purchase price of $200,000.00 ("Commitment Amount"); excluding custom use equipment, installation costs and delivery costs, rolling stock, special tooling, hand held items, molds and fungible items. 2 22 1. EQUIPMENT PURCHASE This Schedule contemplates Lessor's acquisition of Equipment for lease to Lessee, either by one of the first three categories listed below or by providing Lessee with Equipment from the fourth category, in an aggregate value up to the Commitment Amount referred to on the face of this Schedule. If the Equipment acquired is of category (i), (ii), (iii) below, the effectiveness of this Schedule as it relates to those items of Equipment is contingent upon Lessee's acknowledgment at the time Lessor acquires the Equipment that Lessee has either received or approved the relevant purchase documentation between vendor and Lessor for that Equipment. (i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is obtained from a vendor by Lessee for its use subject to Lessor's prior approval of the Equipment. (ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at Lessee's site and to which Lessee has clear title and ownership may be considered by Lessor for inclusion under this Lease (the "Sale-Leaseback Transaction"). Any request for a Salle-Leaseback Transaction must be submitted to Lessor in writing (along with accompanying evidence of Lessee's Equipment ownership satisfactory to Lessor for all Equipment submitted) no later than April 6, 1999 *. Lessor will not perform a Sale-Leaseback Transaction for any request or accompanying Equipment ownership documents which arrive after the date marked above by an asterisk (*). Further, any sale/leaseback Equipment will be placed on lease subject to: (1) Lessor prior approval of the Equipment; and (2) if approved, at Lessor's actual net appraised Equipment value pursuant to the schedule below: ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S INVOICE DATE NET EQUIPMENT COST PAID BY LESSOR - -------------------------- --------------------------------- Between 10/8/98 and 1/6/99 100% (iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which is obtained from a third party by Lessee for its use subject to Lessors prior approval of the Equipment and at Lessor's appraised value for such used Equipment. (iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct Service, Lessor will purchase new or used Equipment from a third party or Lessor will supply new or used Equipment from its inventory for use by Lessee at rates provided by Lessor. 3 23 2. COMMENCEMENT DATE The Commencement Date for each item of new on-order or used on-order Equipment will be the install date as confirmed in writing by Lessee as set forth on the vendor invoice of which a facsimile transmission will constitute an original document. The Commencement Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase price. The Commencement Date for 800 Number Equipment shall be fifteen (15) days from the ship date, such ship date to be set forth on the vendor invoice or if unavailable on the vendor invoice the ship date will be determined by Lessor upon other supporting shipping documentation. Lessor will summarize all approved invoices, purchase documentation and evidence of delivery, as applicable, received in the same calendar month into a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the Initial Term will begin the first day of the calendar month thereafter. Each Summary Equipment Schedule will contain the Equipment location, description, serial number(s) and cost and will incorporate the terms and conditions of the Master Lease and this Schedule and will constitute a separate lease. 3. MISCELLANEOUS In consideration of Lessor financing software and tenant improvements hereunder, Lessee agrees in addition to its last Monthly Rent Payment to remit to Lessor an amount equal to 15% of Lessor's aggregate cost of software and tenant improvements provided hereunder. 4. SPECIAL TERMS The terms and conditions of the Lease as they pertain to this Schedule are hereby modified and amended as follows: (a) Section 8(d)., "REPRESENTATIONS AND WARRANTIES OF LESSEE" Delete subparagraph (d) in its entirety. (b) Section 9. "DELIVERY AND RETURN OF EQUIPMENT" Delete second, third and fourth sentences in their entirety. (c) Section 14.18., "DEFINITIONS" In the definition of "Interim Rent", delete "the pro-rata portion" and replace with "interest only portion of". 4 24 Master Lease: This Schedule is issued pursuant to the Lease identified on page 1 of this Schedule. All of the terms and conditions of the Lease are incorporated in and made a part of this Schedule as if they were expressly set forth in this Schedule. The parties hereby reaffirm all of the terms and conditions of the Lease (including, without limitation, the representations and warranties set forth in Section 8) except as modified herein by this Schedule. This Schedule may not be amended or rescinded except by a writing signed by both parties. NET.GENESIS CORP. COMDISCO, INC. as Lessee as Lessor By: /s/ John Delea By: /s/ James P. Labe ------------------------------ ---------------------------- Title: VP Finance & Administration Name: James P. Labe Date: 1/5/99 Title: President Comdisco Ventures Division Date: Jan 07 1999 5 EX-10.9 15 WARRANT AGREEMENT 1/6/99 1 Exhibit 10.9 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT To Purchase Shares of the Series E Preferred Stock of NET.GENESIS CORP. Dated as of January 6, 1999 (the "Effective Date") WHEREAS, net.Genesis Corp., a Delaware corporation (the "Company") has entered into a Subordinated Loan and Security Agreement dated as of January 6, 1999, and related Subordinated Promissory Note(s) (collectively, the "Loans") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Loans, the right to purchase shares of its Series E Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Loans and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, such number of fully paid and non-assessable shares of the Company's Series E Preferred Stock ("Preferred Stock") equal to $450,000 divided by the Exercise Price. The Exercise Price shall be defined as the lesser of (i) the average of $1.20 (the Series D Preferred stock price) and the price per share of the Next Round of financing or (ii) the per share price based on a fully diluted pre-money valuation of Thirty Million Dollars ($30,000,000.00) to the Next Round. Next Round shall be defined as (i) preferred stock financing of at least $2,000,000, (ii) the sale, conveyance disposal, or encumbrance of all or substantially all of the Company's property or business or Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of Company is disposed of ("Merger Event"), provided that a Merger Event shall not apply to a merger effected exclusively for the purpose of changing the domicile of the company or (iii) an initial public offering of the Company's Common Stock which such public offering has been declared effective by the SEC. The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) five (5) years or (ii) three (3) years from the effective date of the Company's initial public offering, whichever is earlier. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days - 1 - 2 thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) ------ A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. - 2 - 3 4. RESERVATION OF SHARES. (a) Authorization and Reservation of Shares. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) Registration or Listing. If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the cash or the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. - 3 - 4 (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Right to Purchase Additional Stock. If the Company has not paid any Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its entirety by the Maturity Date (as defined in the applicable Subordinated Promissory Note(s)), then for each additional month, or portion thereof, thereafter that the outstanding principal is not paid, Warrantholder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares of Preferred Stock which number shall be determined by (i) multiplying the outstanding principal amount which due but unpaid by 1% and (ii) dividing the product thereof by the Exercise Price. (f) Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit IV (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. (g) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder; (A) at least twenty (20) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (h) Timely Notice. Failure to timely provide such notice required by subsection (g) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The - 4 - 5 Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Loans and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Loans and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 17,500,000 shares of Common Stock, of which 2,005,209 shares are issued and outstanding, and (B) 11,460,481 shares of preferred stock, of which 10,530,463 shares are issued and outstanding and are convertible into 10,530,463 shares of Common Stock on a one-for-one basis, subject to weighted average anti-dilution protection. (ii) The Company has reserved 4,000,000 shares of Common Stock for issuance under its 1995 Incentive Stock Option Plan, under which 3,341,393 options are outstanding at an average price of $0.11 per share. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) The requisite number of stockholders who have preemptive rights to purchase new issuances of the Company's capital stock in accordance with the Amended and Restated Stockholder Agreement, dated November 14, 1995, by and among the Company and the stockholders named therein, as amended, (the "Stockholder Agreement") have waived such rights, with respect to the issuance of this Warrant and the Preferred Stock issuable hereunder, and thus, under the terms of the Stockholder Agreement, no party to that Agreement will have preemptive rights with respect to the issuance of this Warrant and the Preferred Stock issuable hereunder. No shareholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock, pursuant to the Company's Certificate of Incorporation. (e) Insurance. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) Other Commitments to Register Securities. Except as set forth in this Warrant Agreement, and in the Second Amended and Restated Registration Rights Agreement dated June 25, 1998, by and among the Company and certain of its stockholders identified therein, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (g) Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) - 5 - 6 the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (h) Compliance with Rule 144. At the written request of the Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements to the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time; provided, however, that the Company shall have no such obligation if it does not, at such time, file any reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of tile Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stork then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of such rights to purchase Preferred Stock or of such Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. - 6 - 7 (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. RIGHT OF FIRST OFFER. In accordance with the provisions of Section 3 of the Stockholder, if the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), subject to the exceptions set forth in the Stockholder Agreement, the Company shall promptly provide Warrantholder with an offer to sell Warrantholder a portion of such Shares equal to the proportion that the number of shares of Preferred Stock to be issued upon exercise hereunder or number of shares of common stock upon conversion thereof, bears to the total number of shares of common stock of the Company then outstanding (assuming full conversion of all shares of Preferred Stock). For purposes of this Section 11, the parties agree that the Warrantholder shall have the rights, under Section 3 of the Stockholder Agreement, of an "Investor," as such term is defined in such agreement. Accordingly, but without limiting the generality of the foregoing, with respect to each proposed issuance of securities to which the terms of this Section 11 might otherwise apply, Warrantholder's rights hereunder shall be deemed waived if not less than fifty percent (50%) of the Investors (not including Warrantholder) agree to waive their rights under Section 3 of the Stockholder Agreement 12. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 13. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) Counterparts. This Warrant 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. (e) Notices. Any notice required or permitted hereunder shalt be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: Venture Lease Administration, cc: Legal Department, attn.: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 215 First Street, Cambridge, Massachusetts 02142, Attention: John Delea, cc: Foley, Hoag & Eliot, LLP, One Post Office Square, Boston, MA 02109, Attention: John D. Patterson, Jr., (and/or if by facsimile, (617) 577-9850 and (617) 832-7000) or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where such party will not have an adequate remedy at law and where damages will not be readily ascertainable. Each party expressly agrees that it shalt not oppose an application by the other or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining such party from continuing to commit any such breach of this Agreement. - 7 - 8 (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant Agreement shall provide the Warrantholder with an officer's certificate with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. Company: NET.GENESIS CORP. By: /s/ John Delea ------------------------------------- Title: V.P. Finance & Administration ------------------------------------- Warrantholder: COMDISCO, INC. By: /s/ James P. Labe ------------------------------------- Title: President Comdisco Ventures Division ------------------------------------- - 8 - 9 EXHIBIT I NOTICE OF EXERCISE TO: _____________________________ (1) The undersigned Warrantholder hereby elects to purchase______________ shares of the Series _______ Preferred Stock of _________________________, pursuant to the terms of the Warrant Agreement dated the _____ day of ________________, 19__ (the "Warrant Agreement") between ________________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Series ___ Preferred Stock of ________________________________, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. (3) Please issue a certificate or certificates representing said shares of Series _______ Preferred Stock in the name of the undersigned or in such other name as is specified below. - ---------------------------- (Name) - ---------------------------- (Address) Warrantholder COMDISCO, INC. By: ---------------------------- Title: ---------------------------- Date: ---------------------------- - 9 - 10 EXHIBIT II ACKNOWLEDGMENT OF EXERCISE The undersigned __________________________, hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ______________ shares of the Series ____ Preferred Stock of _________________, pursuant to the terms of the Warrant Agreement and further acknowledges that ______________ shares remain subject to purchase under the terms of the Warrant Agreement COMPANY: By:__________________________ Title:________________________ Date:_________________________ - 10 - 11 EXHIBIT III TRANSFER NOTICE (To transfer or assign the foregoing Warrant Agreement execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to - ---------------------------------------------------------------------------- (Please Print) whose address is ----------------------------------------------------------- Dated: ----------------------------------------- Holder's Signature: ----------------------------- Holder's Address: ----------------------------- Signature Guaranteed: ------------------------------------------------------ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. - 11 - EX-10.10 16 WARRANT AGREEMENT 1 EXHIBIT 10.10 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT To Purchase Shares of the Series E Preferred Stock of NET.GENESIS CORP. Dated as of January 6,1999 (the "Effective Date") WHEREAS, net.Genesis Corp., a Delaware corporation (the "Company") has entered into a Master Lease Agreement dated as of January 6, 1999, Equipment Schedule No. VL-1 and VL-2 dated as of January 6, 1999, and related Summary Equipment Schedules (collectively, the "Leases") With Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Series E Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, such number of fully paid and non-assessable shares of the Company's Series E Preferred Stock ("Preferred Stock") equal to $65,000 divided by the Exercise Price. The Exercise Price shall be defined as the lesser of (i) the average of $1.20 (the Series D Preferred stock price) and the price per share of the Next Round of financing or (ii) the per share price based on a fully diluted pre-money valuation of Thirty Million Dollars ($30,000,000.00) to the Next Round. Next Round shall be defined as (i) preferred stock financing of at least $2,000,000, (ii) the sale, conveyance disposal, or encumbrance of all or substantially all of the Company's property or business or Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of Company is disposed of "Merger Event"), provided that a Merger Event shall not apply to a merger effected exclusively for the purpose of changing the domicile of the company or (iii) an initial public offering of the Company's Common Stock which such public offering has been declared effective by the SEC. The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) five (5) years or (ii) three (3) years from the effective date of the Company's initial public offering, whichever is earlier. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. -1- 2 The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) ---------- A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the dosing prices over a twenty-One (21) day period ending three days before the day the current fair market value of the securities is being determined and (Y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. (a) Authorization and Reservation of Shares. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. -2- 3 (b) Registration or Listing. If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duty registered, listed or approved for listing on such domestic securities exchange, as the case may be. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the cash or the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shalt be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Companys stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such -3- 4 adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Right to Purchase Additional Stock. If, the Warrantholder's total cost of equipment leased pursuant to the Leases exceeds $1,000,000, Warrantholder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares, which number shalt be determined by (i) multiplying the amount by which the Warrantholder's total equipment cost exceeds $1,000,000 by 6.5%, and (ii) dividing the product thereof by the Exercise Price per share referenced above. (f) Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit IV (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. (g) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder (A) at least twenty (20) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mall, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (h) Timely Notice. Failure to timely provide such notice required by subsection (g) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholder's rights has been duty and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a -4- 5 party or by which it is bound, and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 17,500,000 shares of Common Stock, of which 2,005,209 shares are issued and outstanding, and (B) 11,460,481 shares of preferred stock, of which 10,530,463 shares are issued and outstanding and are convertible into 10,530,463 shares of Common Stock on an one-for-one basis, subject to weighted average anti-dilution protection. (ii) The Company has reserved 4,000,000 shares of Common Stock for issuance under its 1995 Incentive Stock Option Plan, under which 3,341,393 options are outstanding at an average price of $0.11 per share. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) The requisite number of stockholders who have preemptive rights to purchase new issuances of the Company's capital stock in accordance with the Amended and Restated Stockholder Agreement, dated November 14, 1995, by and among the Company and the stockholders named therein, as amended, (the "Stockholder Agreement") have waived such rights, with respect to the issuance of this Warrant and the Preferred Stock issuable hereunder, and thus, under the terms of the Stockholder Agreement, no party to that Agreement will have preemptive rights with respect to the issuance of this Warrant and the Preferred Stock issuable hereunder. No shareholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock, pursuant to the Company's Certificate of incorporation. (e) Insurance. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) Other Commitments to Register Securities. Except as set forth in this Warrant Agreement, and in the Second Amended and Restated Registration Rights Agreement dated June 25, 1998, by and among the Company and certain of its stockholders identified therein, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (g) Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (h) Compliance with Rule 144. At the written request of the Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time; provided however, that the Company shall have no such obligation if it does not, at such time, file any reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: -5- 6 (a) Investment Purpose. The right to acquire Preferred Stock or the Preferred Stock issuance upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shalt have been sold without registration in compliance With Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration, The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of such rights to purchase Preferred Stock or of such Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. RIGHT OF FIRST OFFER. In accordance with the provisions of Section 3 of the Stockholder, if the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), subject to the exceptions set forth in the Stockholder Agreement, the Company shall promptly provide Warrantholder with an offer to sell Warrantholder a portion of such Shares equal to the proportion that the number of shares of Preferred Stock to be issued upon exercise hereunder or number of shares of common stock upon conversion thereof, bears to the total number of shares of common stock of the Company then outstanding (assuming full conversion of all shares of Preferred Stock). For purposes of this Section 11, the parties agree that the Warrantholder shall have the rights, under Section 3 of the Stockholder Agreement, of an "Investor," as such term is defined in such agreement. Accordingly, but without limiting the generality of the foregoing, with respect to each proposed issuance of securities to which the terms of this Section 11 might otherwise apply, Warrantholder's rights hereunder shall be deemed waived it not less than fifty percent (50%) of the Investors (not including Warrantholder) agree to waive their rights under Section 3 of the Stockholder Agreement. -6- 7 12. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 13. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) Counterparts. This Warrant 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. (e) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease Administration, cc: Legal Department, Attention: General Counsel (and/or, if by facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 215 First Street, Cambridge, Massachusetts 02142, Attention: John Delea, cc: Foley Hoag & Eliot LLP, One Post Office Square, Boston, MA 02109, Attention: John D. Patterson, Jr. (and/or if by facsimile, (617) 577-9850 and (617) 832-7000) or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where such party will not have an adequate remedy at law and where damages will not be readily ascertainable. Each party expressly agrees that it shall not oppose an application by the other or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining such party from continuing to commit any such breach of this Agreement. (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with an officer's certificate with respect to the representations, warranties and covenants set forth -7- 8 in subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duty authorized as of the Effective Date. COMPANY: NET.GENESIS CORP. By:/s/ John Delea Title: VP Finance & Administration WARRANTHOLDER: COMDISCO By: /s/ James P. Labe JAMES P. LABE Title: PRESIDENT COMDISCO VENTURES DIVISION -8- 9 EXHIBIT I NOTICE OF EXERCISE To: _____________________ (1) The undersigned Warrantholder hereby elects to purchase ________ shares of the Series __________ Preferred Stock of pursuant to the terms of the Warrant Agreement dated the _____ day of _________, 19__ (the "Warrant Agreement") between _____________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Series _________ Preferred Stock of ______________________________, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement (3) Please issue a certificate or certificates representing said shares of Series _______ Preferred Stock in the name of the undersigned or in such other name as is specified below. ___________________________________________ (Name) ___________________________________________ (Address) WARRANTHOLDER: COMDISCO, INC. By: _______________________________________ Title: ____________________________________ Date: _____________________________________ -9- 10 EXHIBIT II ACKNOWLEDGMENT OF EXERCISE The undersigned ________________, hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ________ shares of the Series ___ Preferred Stock of pursuant to the terms of the Warrant Agreement and further acknowledges that ________ shares remain subject to purchase under the terms of the Warrant Agreement. COMPANY: By: ________________________________________ Title: _____________________________________ Date: ______________________________________ -10- 11 EXHIBIT III TRANSFER NOTICE (To transfer or assign the foregoing Warrant Agreement execute this form and supply required Information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and aH rights evidenced thereby are hereby transferred and assigned to ________________________________________________________________________________ (Please Print) whose address is _______________________________________________________________ ________________________________________________________________________________ Dated: ____________________________________ Holder's Signature: _______________________ Holder's Address: _________________________ ___________________________________________ Signature Guaranteed: __________________________________________________________ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. -11- EX-10.11 17 THIRD AMENDED AND RESTATED REGISTRATION RIGHTS 1 Exhibit 10.11 THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS AGREEMENT is made as of the 10th day of June, 1999, by and among net.Genesis Corp., a Delaware corporation (the "Company"), the holders of the Company's Series B, Series C and Series D Convertible Preferred Stock listed on Schedule I attached hereto and the several purchasers (the "Series F Investors") of the Series F Convertible Preferred Stock, $.001 par value, of the Company, pursuant to the Purchase Agreement between the Company and the Series F Investors, dated as of the date hereof (the "Series F Stock Purchase Agreement"), who are also listed on Schedule 1. WHEREAS, the Company entered into a Second Amended and Restated Registration Rights Agreement dated as of June 25, 1998 (the "1998 Agreement") with the holders of the Company's Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (the "Series B Investors," the "Series C Investors" and the "Series D Investors," respectively) in connection with the sale of the Company's Series D Convertible Preferred Stock to the Series D Investors; WHEREAS, the Company proposes to sell shares of its Series F Convertible Preferred Stock, $.001 par value, to the Series F Investors in the amounts set forth opposite their respective names on Exhibit 2.01A of the Series F Stock Purchase Agreement pursuant to the terms of the Series F Stock Purchase Agreement and it is a condition to the closing of such sale that this Agreement be executed and delivered by the parties hereto; and WHEREAS, the Company and the undersigned parties, being the requisite number of Series B Investors, Series C Investors and Series D Investors, have agreed to amend and restate the 1998 Agreement and the Series F Investors who are not parties to the 1998 Agreement have agreed to enter into this Third Amended and Restated Registration Rights Agreement. NOW, THEREFORE, the parties hereto hereby agree that the 1998 Agreement is hereby amended and restated in its entirety as follows: 1. Definitions. The following terms shall be used in this Agreement with the following respective meanings: "Affiliate" means (i) any Person directly or indirectly controlling, controlled by or under common control with another Person; (ii) any Person owning or controlling ten (10%) percent or more of the outstanding voting securities of such other Person; (iii) any officer, director or partner of such Person; and (iv) if such Person is an officer, director or partner, any such company for which such Person acts in such capacity. "Commission" means the Securities and Exchange Commission. "Common Stock" means and includes (a) the Company's Common Stock, $.001 par value per share, as authorized on the date of this Agreement and (b) any other securities into which or for which the securities described in (a) above may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. 2 "Exchange Act" means the Securities Exchange Act of 1934, or any successor federal statute, and the rules and regulations of the Commission (or of any other federal agency then administering the Exchange Act) thereunder, all as the same shall be in effect at the time. "Holder" means the Investors, any partner of an Investor, and any other holder of Registrable Stock holding at least 400,000 shares of Registrable Stock (as adjusted for stock splits, stock dividends, combinations and other recapitalizations). "Investors" means the Series B Investors, the Series C Investors, the Series D Investors and the Series F Investors. "Initial Public Offering" means the effective date for the Company's first registration statement covering a public offering of securities of the Company under the Securities Act. "NASD" means the National Association of Securities Dealers, Inc. "Person" means any natural person, partnership, corporation or other legal entity. "Prior Investors" means the Persons designated as such on Schedule I attached hereto. "Registrable Stock" means (a) the Common Stock issued or issuable upon conversion of the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock or the Series F Preferred Stock, whether or not such Common Stock is owned by any Investors, (b) all Common Stock, or shares of Common Stock issuable upon conversion of any other security, now or hereafter owned by any Series B Investor which is acquired otherwise than upon conversion of the Series B Preferred Stock after September 18, 1996 so long as it is held by any Investor or an Affiliate of any Investor, (c) all Common Stock, or shares of Common Stock issuable upon conversion of any other security, now or hereafter owned by any Series C Investor which is acquired otherwise than upon conversion of the Series C Preferred Stock after September 12, 1997 so long as it is held by any Investor or an Affiliate of any Investor, (d) all Common Stock, or shares of Common Stock issuable upon conversion of any other security, now or hereafter owned by any Series D Investor which is acquired otherwise than upon conversion of the Series D Preferred Stock after June 25, 1998, so long as it is held by any Investor or an Affiliate of any Investor, (e) all Common Stock, or shares of Common Stock issuable upon conversion of any other security, now or hereafter owned by any Series F Investor which is acquired otherwise than upon conversion of the Series F Preferred Stock after the date of this Agreement so long as it is held by any Investor or an Affiliate of any Investor, and (f) any other shares of Common Stock issued in respect of such shares by way of a stock dividend, or stock split or in connection with a combination of shares, recapitalization, merger or consolidation or reorganization; provided, however, that shares of Common Stock shall only be treated as Registrable Stock if and so long as (i) they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction or (ii) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect to such Common Stock are removed upon the consummation of such sale; and further provided that shares of Common Stock issued by the Company in a public offering pursuant to a Registration Statement shall not be deemed to constitute Registrable Stock, nor shall any shares of Common Stock acquired by an Investor in the public markets (including, without limitation, any market that may develop pursuant to Rule 144(a) of the Securities Act) be deemed to be Registrable Stock. -2- 3 "Registration Statement" means a registration statement filed by the Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8, Form S-4, or successor forms, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation). "Securities Act" means the Securities Act of 1933, or any successor federal statute, and the rules and regulations of the Commission (or of any other federal agency then administering the Securities Act) thereunder, all as the same shall be in effect at the time. "Series B Preferred Stock" means the Company's Series B Convertible Preferred Stock, $.001 par value per share. "Series C Preferred Stock" means the Company's Series C Convertible Preferred Stock, $.001 par value per share. "Series D Preferred Stock" means the Company's Series D Convertible Preferred Stock, $.001 par value per share. "Series F Preferred Stock" means the Company's Series F Convertible Preferred Stock, $.001 par value per share. 2. Required Registration. (a) At any time after the earlier of (i) one hundred eighty (180) days after any Registration Statement covering a public offering of securities of the Company under the Securities Act having become effective and (ii) four (4) years from the date hereof, the Holder or Holders of at least fifty (50%) percent of all Registrable Stock then outstanding may by notice in writing to the Company request the Company to register under the Securities Act all or any portion of shares of Registrable Stock held by such requesting Holder or Holders for sale in the manner specified in such notice, provided that the reasonably anticipated aggregate price to the public of all shares of Registrable Stock requested to be included in such public offering would exceed $7,500,000. Notwithstanding anything to the contrary contained herein, the Company shall not be required to seek to cause a Registration Statement to become effective pursuant to this Section 2: (A) within a period of ninety (90) days (one hundred eighty (180) days if the Registration Statement covers an underwritten distribution) after the effective date of a Registration Statement filed by the Company (other than a Registration Statement on Forms S-4, S-8 or any successors thereto), provided that the Company shall use its best efforts to achieve effectiveness of a registration requested hereunder promptly following such period if such request is made during such period; (B) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a Registration Statement to be filed in the near future due to pending Company events, or that it would require disclosure of material non-public information relating to the Company which, in the reasonable opinion of the Board of Directors, should not be disclosed, then the Company's obligation to use all reasonable efforts to register, qualify or comply under this Section 2 shall be deferred for a period not to exceed one hundred twenty (120) days from the date of receipt of written request from such Holders; provided, however, that the Company may not utilize this deferral right more than once in any twelve-month period. -3- 4 (b) Following receipt of any notice given under this Section 2 by Holders of Registrable Stock, the Company shall immediately notify all Holders from whom notice has not been received that such registration is to be effected and shall use its best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting Holders, the number of shares of Registrable Stock, specified in such notice (and in all notices received by the Company from other Holders within twenty (20) days after the giving of such notice by the Company to such other Holders). The Holders of a majority of the shares of Registrable Stock to be sold in such offering may designate the managing underwriter of such offering, subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The Company shall be obligated to register Registrable Stock pursuant to this Section 2 on one occasion only, provided, however, that such obligation shall be deemed satisfied only when a Registration Statement covering all shares of Registrable Stock, specified in notices received as aforesaid and which have not been withdrawn by the Holder thereof, for sale in accordance with the method of disposition specified by the requesting Holders, shall have become effective. A registration which does not become effective after the Company has filed a Registration Statement with respect thereto solely by reason of the refusal of the requesting Holders to proceed shall be deemed to have been effected by the Company at the request of such requesting Holders unless such requesting Holders shall have elected to pay all the Company's reasonable expenses in connection with such registration, unless such refusal to proceed follows disclosure or discovery of material adverse information concerning the Company, which information was unknown to such requesting Holders at the time of such request. (c) If the Registration Statement is to cover an underwritten distribution and in the good faith judgment of the managing underwriter of such public offering the inclusion of all of the Registrable Stock, requested for inclusion pursuant to this Section 2 would interfere with the successful marketing of a smaller number of shares to be offered, then the number of shares of Registrable Stock, to be included in the Offering shall be reduced to the required level with the participation in such offering to be pro rata among the Holders requesting such registration, based upon the number of shares of Registrable Stock owned by such Holders. The Company shall be entitled to include in any Registration Statement referred to in this Section 2, for sale in accordance with the method of disposition specified by the requesting Holders, shares of Common Stock to be sold by the Company for its own account, except as and to the extent that, in the opinion of the managing underwriter, if any, such inclusion would adversely affect the marketing of the Registrable Stock to be sold. Except for registration statements on Forms S-4, S-8 or any successors thereto, the Company will not file with the Commission any other registration statement with respect to its Common Stock, whether for its own account or that of other stockholders, from the date of receipt of a notice from requesting Holders pursuant to this Section 2 until the completion of the period of distribution of the registration contemplated thereby. 3. Incidental Registration. Each time the Company shall determine to file a Registration Statement in connection with the proposed offer and sale for money of any of its securities by it or any of its security holders, the Company will give written notice of its determination to all Holders of Registrable Stock. Upon the written request of a Holder given within twenty (20) days after the giving of any such notice by the Company, the Company will use its best efforts to cause all such shares of Registrable Stock, the Holders of which have so requested registration thereof, to be included in such Registration Statement, all to the extent requisite to permit the sale or other disposition by the prospective seller or sellers of the Registrable Stock to be so registered. If the Registration Statement is to cover an underwritten distribution, the Company shall use its best efforts to cause the Registrable Stock requested for inclusion pursuant to this Section 3 to be included in the underwriting on the same -4- 5 terms and conditions as the securities otherwise being sold through the underwriters. If, in the good faith judgment of the managing underwriter of such public offering, the inclusion of all of the Registrable Stock requested for inclusion pursuant to this Section 3 and other securities would interfere with the successful marketing of a smaller number of shares to be offered, then the number of shares of Registrable Stock and other securities to be included in the offering (except for shares to be issued (i) by the Company in an offering initiated by the Company or (ii) by any other party in an offering initiated by such party pursuant to registration rights granted to such party) shall be reduced to the required level by reducing (down to zero, in the Company's Initial Public Offering, or to not less than thirty (30%) percent thereafter, if so required) the participation of the Holders of Registrable Stock in such offering (such reduction to be made to the amounts of shares requested for inclusion in such offering by such Holders on a pro rata basis among the Holders of Registrable Stock requesting such registration, based upon the number of shares of Registrable Stock owned by such Holders). 4. Registration on Form S-3. (a) If at any time after two (2) years from the date hereof (i) a Holder or Holders request that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Registrable Stock held by such requesting Holder or Holders, the reasonably anticipated aggregate price to the public of which would exceed $1,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Registrable Stock specified in such notice. Whenever the Company is required by this Section 4 to use its best efforts to effect the registration of Registrable Stock, each of the procedures and requirements of Section 2 (including but not limited to the requirement that the Company notify all Holders from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration, provided, however, that there shall be no limitation on the number of registrations on Form S-3 which may be requested and obtained under this Section 4, except that the Company shall not be obligated to effect more than two registrations under this Section 4 in any twelve (12) month period, and provided, further, however, that the $7,500,000 minimum dollar amount set forth in the first sentence of Section 2(a) shall not apply to any registration on Form S-3 which may be requested and obtained under this Section 4. (b) If, twelve (12) months after the effective date of the Company's Initial Public Offering, and if the Company is a registrant entitled to use Form S-3 or any successor thereto to register shares of Registrable Stock, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with any method of disposition specified by any Holder or Holders, all of the shares of Registrable Stock. The Company agrees to maintain the registration effective as a shelf-registration for a period of two (2) years, except: (i) within ninety (90) days after the effective date of a Registration Statement filed by the Company (except for Registration Statements on Forms S-4, S-8 or any successors thereto) or (ii) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company's shareholders for a Form S-3 Registration Statement to be effective due to pending Company events, or that keeping such Registration Statement effective at such time would require disclosure of material non-public information relating to the Company which, in the reasonable opinion of the Board of Directors, should not be disclosed, or if the Company intends to file a Registration Statement within sixty (60) days and agrees to register shares of the Holders' Registrable Stock therein, provided, -5- 6 however, that the Company shall not utilize these rights more than once in any 12-month period, nor for a period of more than ninety (90) days, and further provided that the shelf-registration shall be kept effective for an additional period equal to the period of time during which the shelf-registration was not kept effective pursuant hereto. 5. Registration Procedures. If and whenever the Company is required by the provisions of Sections 2, 3 or 4 hereof to effect the registration of shares of Registrable Stock under the Securities Act, the Company will, at its expense, as expeditiously as possible: (a) In accordance with the Securities Act and the rules and regulations of the Commission, prepare and file with the Commission a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective until the securities covered by such Registration Statement have been sold, and prepare and file with the Commission such amendments to such Registration Statement and supplements to the prospectus contained therein as may be necessary to keep such Registration Statement effective and such Registration Statement and prospectus accurate and complete until the securities covered by such Registration Statement have been sold; (b) If the offering is to be underwritten in whole or in part, enter into a written underwriting agreement in form and substance reasonably satisfactory to the managing underwriter, if any, of the public offering and the Holders participating in such offering; (c) Furnish to the participating Holders and to the underwriters such reasonable number of copies of the Registration Statement, preliminary prospectus, final prospectus and such other documents as such underwriters and participating Holders may reasonably request in order to facilitate the public offering of such securities; (d) Use its best efforts to register or qualify the securities covered by such Registration Statement under such state securities or blue sky laws of such jurisdictions (i) as shall be reasonably appropriate for the distribution of the securities covered by such Registration Statement or (ii) as such participating Holders and underwriters may reasonably request within twenty (20) days following the original filing of such Registration Statement, except that the Company shall not for any purpose be required to execute a general consent to service of process, to subject itself to taxation, or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified; (e) Notify the Holders participating in such registration, promptly after it shall receive notice, thereof, of the date and time when such Registration Statement and each post-effective amendment thereto has become effective or a supplement to any prospectus forming a part of such Registration Statement has been filed; (f) Notify the Holders participating in such registration promptly of any request by the Commission or any state securities commission or agency for the amending or supplementing of such Registration Statement or prospectus or for additional information; (g) Prepare and file with the Commission, promptly upon the request of any such participating Holders, any amendments or supplements to such Registration Statement or prospectus which, in the opinion of counsel representing the Company in such Registration (and which counsel is reasonably acceptable to such participating Holders), is required under the Securities Act or the rules -6- 7 and regulations thereunder in connection with the distribution of the Registrable Stock by such participating Holders; (h) Prepare and promptly file with the Commission, and promptly notify such participating Holders of the filing of, such amendments or supplements to such Registration Statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event has occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (i) In case any of such participating Holders or any underwriter for any such Holders is required to deliver a prospectus at a time when the prospectus then in circulation is not in compliance with the Securities Act or the rules and regulations of the Commission, prepare promptly upon request such amendments or supplements to such Registration Statement and such prospectus as may be necessary in order for such prospectus to comply with the requirements of the Securities Act and such rules and regulations; (j) Advise such participating Holders, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission or any state securities commission or agency suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (k) At the request of any such participating Holder (i) furnish to such Holder on the effective date of the Registration Statement or, if such registration includes an underwritten public offering, at the closing provided for in the underwriting agreement, an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the Holder or Holders making such request, covering such matters with respect to the Registration Statement, the prospectus and each amendment or supplement thereto, proceedings under state and federal securities laws, other matters relating to the Company, the securities being registered and the offer and sale of such securities as are customarily the subject of opinions of issuer's counsel provided to underwriters in underwritten public offerings and (ii) use its best effort to furnish to such Holder letters dated each such effective date and such closing date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to the Holder or Holders making such request, stating that they are independent certified public accountants within the meaning of the Securities Act and dealing with such matters as the underwriters may request, or, if the offering is not underwritten, that in the opinion of such accountants the financial statements and other financial data of the Company included in the Registration Statement or the prospectus or any amendment or supplement thereto comply in all material respects with the applicable accounting requirements of the Securities Act, and additionally covering such other financial matters, including information as to the period ending not more than five (5) business days prior to the date of such letter with respect to the Registration Statement and prospectus, as such requesting Holder or Holders may reasonably request; (l) Use its best efforts to ensure the obtaining of all necessary approvals from the NASD. 6. Expenses. -7- 8 (a) With respect to each registration effected pursuant to Sections 2, 3 or 4 hereof, all fees, costs and expenses of and incidental to such registration and the public offering in connection therewith shall he borne by the Company; provided, however, (i) that security holders participating in any such registration shall bear their pro rata share of the underwriting discounts and selling commissions, and (ii) any such fee, cost or expense which does not constitute a normal fee, cost or expense of such registration and which is attributable solely to one (1) security holder participating in any such registration shall be borne by that holder. (b) The fees, costs and expenses of registration to be borne as provided in paragraph (a) above, shall include, without limitation, all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, fees and disbursements of counsel for the underwriter or underwriters of such securities (if the Company and/or selling security holders are otherwise required to bear such fees and disbursements), all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified, reasonable fees and disbursements of one counsel for the selling security holders and the premiums and other costs of policies of insurance insuring the Company against liability arising out of such public offering. 7. Indemnification and Contribution. (a) To the fullest extent permitted by law, the Company will indemnify and hold harmless each Holder of shares of Registrable Stock, whether or not such Holder's shares of Registrable Stock are included in a Registration Statement pursuant to the provisions of this Agreement, and any underwriter (as defined in the Securities Act) for such Holder, and any Person who controls such Holder or such underwriter within the meaning of the Securities Act, and each of their successors, from and against, and will reimburse such Holder and each such underwriter and controlling Person with respect to any and all claims, actions, demands, losses, damages, liabilities, costs and expenses to which such Holder or any such underwriter or controlling Person may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs or expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon 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 arise out of any violation by the Company of any rule or regulation under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with such registration; provided, however, that the Company will not be liable in any such case to the extent that any such claim, action, demand, loss, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in strict conformity with information furnished by such Holder, such underwriter or such controlling Person in writing specifically for use in the preparation thereof; and provided, further, that this indemnity shall not be deemed to relieve any underwriter of any of its due diligence obligations. (b) Each Holder of shares of the Registrable Stock which are included in a registration pursuant to the provisions of this Agreement will, severally and not jointly, indemnify and hold harmless the Company from and against, and will reimburse the Company with respect to, any and all losses, damages, liabilities, costs or expenses to which the Company may become subject under the Securities Act or otherwise, to the extent that any such loss, damage, liability, cost or expense arises -8- 9 out of or is based upon any untrue or alleged untrue statement of any material fact contained therein or any amendment or supplement thereto, or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in the preparation thereof; provided that the liability of each Holder hereunder shall be limited to the proportion of any such claim, action, demand, loss, damage, liability, cost or expense which is equal to the proportion that the public offering price of the shares of Registrable Stock sold by such Holder under such Registration Statement bears to the total offering price of all securities sold thereunder, but not, in any event, to exceed the net proceeds received by such Holder from the sale of shares of Registrable Stock covered by Registration Statement; and provided, further, that this indemnity shall not be deemed to relieve any underwriter of any of its due diligence obligations. (c) Promptly after receipt by a party to be indemnified pursuant to the provisions of paragraph (a) or (b) of this Section 7 (an "indemnified party") of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of paragraph (a) or (b), notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 7 and shall not relieve the indemnifying party from liability under this Section 7 unless such indemnifying party is prejudiced by such omission. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of such paragraph (a) and (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall be liable to an indemnified party for any settlement of any action or claim without the consent of the indemnifying party; no indemnifying party may unreasonably withhold its consent to any such settlement. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any Holder of shares of Registrable Stock exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 7 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 7 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 7; then, in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportions -9- 10 so that such Holder is responsible for the portion represented by the percentage that the public offering price of its shares of Registrable Stock offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such Holder will be required to contribute any amount in excess of the net proceeds to it of all shares of Registrable Stock sold by it pursuant to such Registration Statement, and (B) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Securities Act, shall be entitled to contribution from any person or entity who is not guilty of such fraudulent misrepresentation. 8. Reporting Requirements Under Securities Exchange Act of 1934. When it is first legally required to do so, the Company shall register its Common Stock under Section 12 of the Exchange Act and shall keep effective such registration and shall timely file such information, documents and reports as the Commission may require or prescribe under Section 13 of the Exchange Act. From and after the effective date of the first Registration Statement filed by the Company, the Company shall (whether or not it shall then be required to do so) timely file such information, documents and reports as the Commission may require or prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange Act. Immediately upon becoming subject to the reporting requirements of either Section 13 or 15(d) of the Exchange Act, the Company shall forthwith upon request furnish any Holder of Registrable Stock (i) a written statement by the Company that it has complied with such reporting requirements, (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents filed by the Company with the Commission as such Holder may reasonably request in availing itself of an exemption for the sale of Registrable Stock without registration under the Securities Act. The Company acknowledges and agrees that the purposes of the requirements contained in this Section 8 are (a) to enable any such Holder to comply with the current public information requirement contained in Paragraph (c) of Rule 144 under the Securities Act should such Holder ever wish to dispose of any of the securities of the Company acquired by it without registration under the Securities Act in reliance upon Rule 144 (or any other similar or successor exemptive provision), and (b) to qualify the Company for the use of Registration Statements on Form S-3. In addition, the Company shall take such other measures and file such other information, documents and reports, as shall hereafter be required by the Commission as a condition to the availability of Rule 144 under the Securities Act (or any similar or successor exemptive provision hereafter in effect) and the use of Form S-3. The Company also covenants to use its best efforts, to the extent that it is reasonably within its power to do so, to qualify for the use of Form S-3. From and after the effective date of the first Registration Statement filed by the Company, the Company agrees to use its best efforts to facilitate and expedite transfers of Registrable Stock pursuant to Rule 144 under the Securities Act (or any similar or successor exemptive provision hereafter in effect), which efforts shall include timely notice to its transfer agent to expedite such transfers of Registrable Stock. 9. Stockholder Information. The Company may require each Holder of Registrable Stock as to which any registration is to be effected pursuant to this Agreement to furnish the Company in a timely manner such information with respect to such Holder and the distribution of such Registrable Stock as the Company may from time to time reasonably request in writing and as shall be required by law or by the Commission in connection therewith. 10. Lock-Up Agreements. (a) Restrictions on Public Sale by the Company. The Company agrees not to effect any public sale or other distribution of its equity securities, or any securities convertible into or -10- 11 exchangeable or exercisable for such equity securities, during the period, not to exceed one hundred eighty (180) days (as requested by the managing underwriter), following the effective date of the Initial Public Offering, except in connection with any such underwritten offering and except for equity securities issued pursuant to employee stock option plans or in conjunction with any merger or consolidation with, or acquisition of the stock or assets of, any other entity. (b) Restrictions on Public Sale by the Holders of Registrable Stock. Each Holder of Registrable Stock agrees that it will not, to the extent requested by the Company and the managing underwriter of such offering, sell or otherwise dispose of any Registrable Stock of the Company, including any sale pursuant to Rule 144, during a period specified by the Company and such underwriter (not to exceed one hundred eighty (180) days after the effective date of the Initial Public Offering) except in conjunction with such underwritten offering; provided that each officer and director of the Company shall enter into similar agreements. (c) Restrictions on Public Sale by Subsequent Holders. Except in a public offering registered under the Securities Act, the Company shall not issue or sell any equity security unless each recipient thereof agrees in writing with the Company not to offer to sell or sell such equity security during a period specified by the Company and the underwriter thereof (not to exceed one hundred eighty (180) days after the effective date of the Initial Public Offering), except in conjunction with such underwritten offering. (d) Amendments. Any provision of this Agreement to the contrary notwithstanding, no amendment to this Section 10 that would adversely affect a Holder that is an Investment Company registered under the Investment Company Act of 1940, as amended, will apply to such Holder unless it has consented in writing to such amendment. 11. Notices. Any notice required or permitted to be given hereunder shall be in writing and shall be deemed to be properly given when sent by registered or certified mail, return receipt requested, by Federal Express, DHL or other guaranteed overnight delivery service or by facsimile transmission, addressed as follows: If to the Company: net.Genesis Corp. 215 First Street Cambridge, MA 02142 Attention: Larry Bohn, President Telecopier: (617) 577-9850 with a copy to: Foley, Hoag & Eliot LLP One Post Office Square Boston, MA 02109 Attention: John D. Patterson, Jr., Esq. Telecopier: (617) 832-7000 If to any Investor: To the address of such Investor set forth on Schedule I attached hereto and if to any other Holder at such Holder's address for notice as set forth in the register maintained by the Company, or, as to any of the foregoing, to such other address as any such party may give the -11- 12 others notice of pursuant to this Section, provided that a change of address shall only be effective upon receipt. 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the substantive laws of The Commonwealth of Massachusetts (without regard to conflict of laws provisions). 13. Waivers; Amendments. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or of the same right with respect to any subsequent occasion for its exercise, or of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a continuation of the same breach. All remedies provided by this Agreement are in addition to all other remedies provided by law. This Agreement may not be amended except by a writing executed by the Company and the Holders of at least sixty (60%) percent of the Registrable Stock and the securities convertible into, exchangeable for or exercisable for Registrable Stock (calculated on an as converted, exchanged or exercised basis). 14. Other Registration Rights. The Company shall not grant to any third party any registration rights equivalent to or more favorable than any of those contained herein, or which would interfere with or delay the exercise by the holders of Registrable Stock of their registrations rights hereunder, so long as any of the registration rights under this Agreement remains in effect unless approved by Holders of sixty (60%) percent of the shares of Registrable Stock, which approval may require that such rights be granted only pursuant to an amendment or restatement of this Agreement. 15. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the respective legal representatives, successors and assigns of the parties hereto; provided, however, that no expansion of the definition of Holders set forth above shall be effected by this Section 15. 16. 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. 17. Prior Understandings. This Agreement represents the complete agreement of the parties with respect to the transactions contemplated hereby and supersedes all prior agreements and understandings. 18. Headings. Headings in this Agreement are included for reference only and shall have no effect upon the construction or interpretation of any part of this Agreement. 19. Severability. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. 20. Adjustment to Stock. Any reference in this Agreement to a particular number of shares of the Company's Common Stock or preferred stock, of any class or series, shall be automatically -12- 13 adjusted to account for a stock dividend, stock split or in connection with a combination of shares, recapitalization, merger or consolidation or reorganization of the Company. 21. Termination of Registration Rights. The rights of each Holder under Sections 2 through 4 of this Agreement and the obligations of each such Holder under Section 10 of this Agreement shall terminate with respect to such Holder if (a) such Holder holds less than 1% of the outstanding capital stock of the Company and (b) such Holder is permitted to sell all of its shares of capital stock of the Company within any 90-day period under Rule 144 of the Securities Act. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer, and the requisite number of Investors has duly executed this Agreement (or has caused it to be executed by a duly authorized officer, partner, trustee or agent, as the case may be), as of the date first above recited. ATTEST: net.Genesis Corp. By:_________________________ By:________________________________ Name: John Delea Name: Larry Bohn Title: Secretary Title: President (See counterpart signature pages.) -13- 14 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* CHARLES RIVER PARTNERSHIP VII By: ______________________________________ Name: _______________________________ Title:_______________________________ BESSEMER VENTURE PARTNERS IV L.P. By: Deer IV & Co. L.L.C., General Partner By:_______________________________ Robert H. Buescher, Manager BVP IV SPECIAL SITUATIONS L.P. By: Deer IV & Co. L.L.C., General Partner By:_______________________________ Robert H. Buescher, Manager ___________________________________________ Robert H. Buescher BESSEC VENTURES IV L.P. By: Deer IV & Co. L.L.C., General Partner By:_______________________________ Robert H. Buescher, Manager Robert H. Buescher, attorney-in-fact signing for those designated below by the "*" notation *_________________________________________ -14- 15 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* William T. Burgin BRIMSTONE ISLAND CO. L.P. *By: ____________________________________ Name:_______________________________ Title:______________________________ *________________________________________ G. Felda Hardymon *________________________________________ Robert P. Goodman *________________________________________ Bruce K. Graham *________________________________________ Robi L. Soni *________________________________________ Gerald N. Christopher *________________________________________ Gautam A. Prakash *________________________________________ Rodney A. Cohen *________________________________________ Richard R. Davis *________________________________________ Adam P. Godfrey BELISARIUS CORPORATION *By: ____________________________________ Name:_______________________________ Title:______________________________ -15- 16 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* *________________________________________ John G. MacDonald *________________________________________ Howard S. Markowitz *________________________________________ Edward Park *________________________________________ Robert J.S. Roriston *________________________________________ Steven L. Williamson QUENTIN CORPORATION *By: ____________________________________ Name:_______________________________ Title:______________________________ -16- 17 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* HAMBRECHT & QUIST By:______________________________________ Name:_______________________________ Title:______________________________ -17- 18 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* ONELIBERTY FUND IV By: OneLiberty Partners IV LLC By: ___________________________ Stephen J. Ricci, Manager ONE LIBERTY ADVISORS IV LP By: OneLiberty Partners IV LLC By: ___________________________ Stephen J. Ricci, Manager ST. PAUL VENTURE CAPITAL V, LLC By: By:___________________________________ Its ST. PAUL VENTURE CAPITAL AFFILIATES FUND I, LLC By: St. Paul Venture Capital, Inc. its Manager By:___________________________________ Its _______________________________________ Kathy Kirk -18- 19 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* PICKREL WOOLEY 1999 TRUST By:_____________________________________ Name:___________________________________ Title:__________________________________ -19- 20 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* BankAmerica Ventures By:______________________________________ Name:____________________________________ Title:___________________________________ GS CAPITAL PARTNERS By_______________________________________ NEXUS GROUP By_______________________________________ Boston Milennia Partners Limited Partnership By: Glen Partners Limited Partnership By:_____________________________________ Name:_____________________, General Partner -20- 21 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* Boston Milennia Associates Partnership By:_____________________________________ Name:_____________________, General Partner Seligman Communications and Information Fund, Inc. By:______________________________________ Harte-Hanks, Inc. By:_____________________________________ Name:___________________________________ Title:__________________________________ Hambrecht & Quist Employee Venture Fund, L.P. II By: H&Q Venture Management, L.L.C., Its General Partner By:_____________________________________ Name:___________________________________ Title:__________________________________ -21- 22 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* Comdisco, Inc. By:_____________________________________ Name:___________________________________ Title:__________________________________ -22- 23 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* The Goldman Sachs Group, Inc. By:____________________________________ Name:__________________________________ Title:_________________________________ Stone Street Fund 1999, L.P. By: Stone Street 1999 Corp., Its General Partner By:____________________________________ Name:__________________________________ Title:_________________________________ Bridge Street Fund 1999, L.P. By: Stone Street 1999 Corp., Its General Partner By:____________________________________ Name:__________________________________ Title:_________________________________ -23- 24 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* SCHEDULE I BankAmerica Ventures St. Paul Venture Capital GS Capital Partners Nexus Group Boston Millennia Partners Seligman Communications and Information Fund, Inc. Harte Hanks Robert Buescher G. Felda Harymond Christopher Gabrieli Gabrieli Family Foundation Michael Barach David Cowan Diane mcPartlin Ravi Mhatre Guatam Prakash Robi Soni Joanna Strober Rodney Cohen Richard David Adam Godfrey Barbara Henagan Belisarius Corporation Robert Roriston Thomas Ruhm Quentin Corporation BVP IV Special Situations L.P. Bessemer Venture Partners Bessex Ventures IV L.P. Robin Gruber Steve Tolchin Bill Bock John Mandile Kathy Kirk Chris Paul One Liberty Fund IV One Liberty Advisors IV LP Sean O'Sullivan -24- 25 Third Amended and Restated Registration Rights Agreement *Counterpart Signature Page* Kistler Associates Hambrecht & Quist Robetson Stephens & Co. Robert Goldman Joseph Hadzima Len Evenchick Richard Harrison Charles River Partnership VII William T. Burgin Brimestone Island Co. L.P. Niel Browenstein -25- EX-10.12 18 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.12 EMPLOYMENT AGREEMENT This Employment Agreement made as of May 28, 1998 by and between net. Genesis Corp., a Delaware corporation (the "Company") with its principal place of business at 215 First Street Cambridge, MA 02124, and Mr. Larry Bohn of Arlington, Massachusetts (the "Employee"). WHEREAS, the Company wishes to employ the Employee as the President and Chief Executive Officer; and WHEREAS, the Employee desires to serve as the President and Chief Executive Officer of the Company; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the Company and the Employee agree as follows: 1. EMPLOYMENT. The Company hereby employs the Employee, and the Employee accepts employment with the Company as of February 23, 1998. The Employee's title and duties at the start of this agreement shall be those of President and Chief Executive Officer of the Company. As such, the Employee shall report directly to the Company's Board of Directors. 2. TERM AND TERMINATION. 2.1 Term. There shall be no definite term of employment, and Employee shall be an employee at will, subject to the provisions of Section 2.2. 2.2 Termination. If the Employee's employment hereunder is terminated (i) by the Company without Good Cause, (ii) upon a Change of Control; (iii) as the result of a Forced Relocation; or (iv) as the result of a Diminution in Responsibility, the Company shall make severance payments to Employee in an amount equal to one year of his Total Annual Compensation (as defined below), payable over twelve (12) months (the "Severance Payments"); provided, that the 1999 Tax Bonus and the Change of Control Bonus (each as defined below) shall not be included in the calculation of Total Annual Compensation. For purposes of this Agreement the following terms shall have the following meanings: "Good Cause" shall mean dishonesty or misappropriation of assets of the Company by the Employee, gross failure by the Employee to perform his duties to the Company, the commission by the Employee of a crime involving moral turpitude or constituting a felony, or a breach by the Employee of any of his obligations under Section 9 of this Agreement and the Confidentiality, Non-Disclosure and Non-Competition Agreement referred to therein. "Change of Control" shall mean a change in control of the Company (and not any person or entity that hereafter becomes a successor to all or substantially all of the business or 2 assets of the Company by reason of a Change of Control) and shall be deemed to have taken place upon the first to occur of: (i) the closing of a sale or other disposition (excluding mortgage or pledge) of all or substantially all of the assets of the Company, or (ii) the closing of a merger or other business combination of the Company with or into another corporation or entity pursuant to which the Company will not survive or will survive only as a subsidiary of another corporation or entity, in either case with the stockholders of the Company prior to the merger or other business combination holding less than 50% of the voting shares of the merged or combined companies or entities after such merger or other business combination. The rights and obligations created by this Agreement with respect to a Change of Control shall apply only with respect to the first Change of Control after the date of execution of this Agreement, and not with respect to any subsequent transaction. "Diminution in Responsibility" shall mean any action taken by the Company which has the effect of significantly diminishing the level of responsibility of the Employee as President and Chief Executive Officer. "Forced Relocation" shall mean any attempt by the Corporation to involuntarily relocate the Employee by changing its principal place of business from its location on the date of this Agreement to any location at least 100 miles away. "Total Annual Compensation" shall mean the sum of salary and bonuses paid to Employee during the twelve month period preceding any termination under Section 2.2 above. 3. COMPENSATION. 3.1 Base Salary. During the term of this Agreement, the Company shall pay the Employee a base salary, payable in accordance with the Company's standard schedule for salary payments to its executives (but no less frequently than monthly) in arrears, in equal installments at an annual rate equal to $150,000 (the "Base Salary"). At the beginning of each fiscal year, the Board of Directors shall consider in its discretion increases in the Base Salary. 3.2 Signing Bonus. The Company shall pay Employee a bonus equal to $51,750 on the date of this Agreement. 3.3 Bonus Plan. In addition to his Base Salary, Employee shall be eligible to participate in an annual bonus plan to be established by the Company beginning in calendar year 1999 upon such terms and conditions as shall be determined by the Board of Directors in its sole and reasonable discretion. 3.4 1999 Tax Bonus. The Company shall pay Employee a bonus equal to $36,000 on April 1, 1999 provided that Employee is still employed by the Company, or any successor entity, as of that date. 2 3 3.5 Change of Control Bonus. The Company shall pay Employee a bonus upon a Change of Control of the Company (the "Change of Control Bonus") provided (a) that Employee is employed by the Company as President and Chief Executive Officer continuously from the date of this Agreement until the closing of any transaction constituting a Change of Control and (b) that the Change of Control occurs prior to the date of the closing of an underwritten initial public offering of shares of the Company's Common Stock. The Change of Control Bonus shall be as set forth on the attached Schedule A. 3.6 Tax Withholdings. All payments of salary and bonuses to the Employee shall be made after deduction of any taxes which are required to be withheld with respect thereto under applicable federal and state laws. 4. BENEFITS. The Executive shall be entitled to participate in all plans or programs sponsored by the Company for employees in general, including without limitation, participation in any group health, medical reimbursement, or life insurance plans. 5. STOCK PURCHASE. On the date of this Agreement Employee is purchasing 1,035,000 shares of the Company's Common Stock at a price of $.05 per share (the "Shares"). The Shares shall be subject to the terms and conditions of, and Employee agrees to become a party to and be bound by, (a) the Stock Restriction and Repurchase Agreement, attached hereto as Exhibit A, and (b) the Amended and Restated Stockholders Agreement, as amended, dated September 12, 1997, attached hereto as Exhibit B. 6. EXPENSES. The Company shall reimburse the Employee for all reasonable business expenses incurred by the Employee in connection with his employment by the Company, including, without limitation, expenses of travel and entertainment. The Company shall promptly reimburse the Employee for all such expenses upon presentation of appropriate vouchers, receipts and other supporting documents as reasonably required by the Company. 7. DUTY TO PERFORM SERVICES. The Employee shall devote his full time during normal business hours to rendering services to the Company hereunder, and shall exert all reasonable efforts in the rendering of such services. Nothing in this Agreement shall prohibit the Employee from: (a) making and managing passive investments; (b) serving on the Board of Directors of any company; and (c) engaging in religious, charitable or other community or nonprofit activities, provided none of the foregoing shall interfere with Employee's duties hereunder. 3 4 The Employee agrees that in the rendering of all services to the Company and in all aspects of his employment as a senior level executive of the Company, he will comply in all material respects with all directives, policies, standards and regulations from time to time established by the Board of Directors of the Company to the extent they are not in conflict with this Agreement. 8. VACATIONS; HOLIDAYS; SICK TIME. The Employee shall be entitled to vacation time, holiday time and sick leave in accordance with the Company's policies for senior executive officers, as in effect from time to time. 9. EMPLOYEE CONFIDENTIALITY, NON-COMPETITION AND INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT. The Employee agrees to execute an Employee Confidentiality, Noncompetition and Intellectual Property Assignment Agreement in the form of the attached Exhibit C simultaneously with the execution of this Agreement. 10. BOARD OF DIRECTORS. 10.1 Election as a Director. The Company will use its best efforts to cause the Employee to be elected to the Board of Directors of the Company. If the Employee's employment is terminated for any reason, then the Employee will be deemed to have resigned from the Board of Directors and from any and all other positions with the Company or any of its affiliates. 10.2 Chairman of the Board of Directors. If at any time during your employment by the Company as the Chief Executive Officer, the Company shall designate a Chairman of the Board of Directors, any such designation shall be subject to your approval. 11. NOTICES. All notices, requests, demands and other communications required by or permitted under this Agreement shall be in writing and shall be sufficiently delivered if delivered by hand or sent by registered or certified mail, postage prepaid, to the parties at their respective addresses listed below: (a) if to the Employee: Larry Bohn 38 Academy Street Arlington, MA 02174 (b) if to the Company: net.Genesis Corp. 215 First Street Cambridge, MA 02124 4 5 Any party may change such party's address by such notice to the other parties. 12. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts. 13. BINDING UPON SUCCESSORS. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns. 14. PRIOR AGREEMENTS. This Agreement states the entire agreement of the parties concerning the subject matter hereof, and supersedes all prior agreements, written or oral, between or among them concerning such subject matter. 15. SEVERABILITY. In the event that any provision of this Agreement shall be determined by any court of competent jurisdiction to be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Any invalid, illegal or unenforceable provision of this Agreement shall be severed, and after any such severance, all other provisions hereof shall remain in full force and effect. 16. WAIVERS AND AMENDMENTS. This Agreement may be amended, modified or supplemented, and any obligation hereunder may be waived, only by a written instrument executed by the parties hereto. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate as a waiver of any subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy by such party preclude any other or further exercise thereof or the exercise of any other right or remedy. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. [remainder of this page intentionally left blank] 5 6 IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement on the date first above written. COMPANY: NET.GENESIS CORP. By: /s/ Ted R. Dintersmith, Charles River Ventures ------------------------------------ Its: Member, Board of Directors ------------------------------------ EMPLOYEE: /s/ Larry Bohn ------------------------------- Larry Bohn 6 7 SCHEDULE A In the event of a Change of Control of the Company prior to the Company's issuance of any additional class or series of preferred stock, the amount of your Performance Bonus shall be calculated as follows: An amount equal to the difference between a) the product obtained by multiplying the total consideration available for distribution to the holders of the Company's capital stock as a result of the Change of Control transaction by a fraction with a numerator equal to 1,035,000 and a denominator equal to the total number of the Company's then outstanding shares of capital stock on a fully-diluted basis; and b) any consideration owed and payable to you as holder of the Shares. In the event of a Change of Control after the Company's issuance of any additional class or series of preferred stock with a liquidation preference superior to the Series C Liquidation Amount (as defined in the Second Amended and Restated Certificate of Incorporation, (the "New Preferred Stock"), the amount of your Performance Bonus shall be calculated as follows: An amount equal to the difference between a) the product obtained by multiplying the total consideration available for distribution to the holders of the Company's capital stock minus any liquidation preference paid to holders of the New Preferred Stock by a fraction with a numerator equal to 1,035,000 and a denominator equal to the total number of the Company's then outstanding shares of capital stock on a fully-diluted basis less the number of any shares of New Preferred Stock which received payment of their liquidation preference; and b) any consideration owed and payable to you as holder of the Shares. EX-10.13 19 PROMISSORY NOTE 1 EXHIBIT 10.13 Boston, Massachusetts May 4, 1999 SECURED PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned (the "Payor"), promises to pay to the order of net.Genesis Corp., a Delaware corporation (the "Company"), the principal amount of ninety-six thousand three hundred ninety and 00/100 Dollars ($96,390.00), together with interest on the principal balance from time to time outstanding, commencing on the date hereof, all as herein provided. 1. Payment of Principal and Interest. Subject to prepayment in accordance with Sections 3 and 4 hereof, the principal balance of this Note shall be paid on May 4, 2009. Any accrued and unpaid interest on the outstanding principal balance of this Note shall be due and payable at the time of the payment of principal. 2. Interest. Interest shall accrue on the outstanding principal amount hereof, commencing on the date hereof and continuing until the date of payment of principal in full, at the rate of interest per annum equal to six percent (6%), simple interest. In the event of any prepayment of principal, interest on the principal prepaid shall be paid on the date of prepayment. 3. Optional Prepayment. The Payor may, at any time and from time to time, prepay this Note in whole or in part without premium or penalty. All amounts prepaid pursuant to this Section 3 shall be applied to the outstanding principal balance of this Note in inverse order of the Scheduled Installments. 4. Mandatory Prepayment. This Note is being given in partial payment for 810,000 shares of common stock, par value $.001 per share, of the Company issued to the Payor on the date hereof (the "Shares"), which Shares are subject to a Stock Restriction Agreement dated as of the date hereof (the "Stock Restriction Agreement"), to which the Payor and the Company are parties. Pursuant to the Stock Restriction Agreement, the Payor has granted the Company certain repurchase rights with respect to the Shares. The Stock Restriction Agreement provides in pertinent part that the Company may, under certain circumstances, repurchase all or part of the Shares. In the event of any such repurchase, or any purchase of the Shares by any other party, all proceeds received by the Payor or his heirs or his estate shall be paid to the Company in prepayment of this Note. [IF THE PAYOR CEASES TO BE AN EMPLOYEE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE, TOGETHER WITH ACCRUED AND UNPAID INTEREST THEREON, SHALL BE DUE AND PAYABLE NINETY (90) DAYS AFTER THE PAYOR'S TERMINATION FROM EMPLOYMENT.] 2 5. Manner of Payment. All payments under this Note shall be made in lawful money of the United States of America, in immediately available funds, to the Company at the address set forth below, or to such other location as the Company may specify in writing. 6. Collateral. The term "Collateral", as used herein, shall mean (i) certificates representing the Shares together with stock powers executed in blank, and any and all dividends, distributions and other rights on or with respect to, and substitutions for and proceeds of, any of the foregoing; and (ii) such other collateral as may be approved by the Company. The term "Liabilities," as used herein, shall mean all obligations of Payor under this Note. To secure the payment of this Note and all other Liabilities, Payor hereby grants to and creates for the Company a lien upon and security interest in the Collateral. All obligations of Payor, and all rights, powers and remedies of the Company, expressed herein shall be in addition to, and not in limitation of, those provided by law or in any written agreement or instrument (other than this Note) relating to any of the Liabilities or any security therefor. If Payor shall fail to pay, when due, any amount payable with respect to any of the Liabilities (a "Default"), (1) this Note may at the option of the Company, and without demand or notice of any kind, be declared, and thereupon immediately shall become, due and payable, (2) Payor agrees to pay all expenses, including reasonable attorneys' fees and legal expenses, incurred by the Company in endeavoring to collect any of the Collateral, and (3) the Company may exercise from time to time any rights and remedies available to it as a secured party under the Uniform Commercial Code as in Effect from time to time in The Commonwealth of Massachusetts or otherwise available to it. Without limiting the foregoing, upon Default the Company may to the fullest extent permitted by applicable law, without notice, advertisement, hearing or process of law of any kind, sell any or all of the Collateral, free of all rights and claims of Payor therein and thereto. Any proceeds of such sale may be applied by the Company to the payment of expenses incurred in connection therewith, including reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Company toward the payment of such of the Liabilities as may remain. No delay on the part of the Company in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Company of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. The Company's recourse against the Payor with respect to any of the Liabilities shall not be limited to a foreclosure on the Collateral and the Payor is and shall remain personally liable for all Liabilities. The right is expressly granted to the Company at any time after a Default to transfer into the Company's name or its nominee any Collateral pledged hereunder and to exercise, at its option, all of the rights of a registered owner with respect thereto, including voting rights. Otherwise, any voting rights shall inure to the benefit of the Payor. 3 7. Miscellaneous. (a) Binding Effect. This Note shall inure to the benefit of the Company and its successors or assignees. This Note shall be binding upon the Payor and his estate and heirs. (b) Notices. Any notice, request or other communication pursuant to this Note shall be deemed duly given if hand delivered or mailed by certified or registered mail to the Company or the Payor, as the case may be, at their addresses as set forth below. (c) Waiver of Demand; Collateral. The Payor waives presentment, demand, protest and notice of every kind in connection with the enforcement and collection of this Note. (d) Governing Law. The execution, delivery and performance of this Note shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Executed under SEAL as of the date first above written. /s/ Lawrence S. Bohn ----------------------------------- Payor Name and Address: Lawrence S. Bohn 38 Academy St. ---------------------------------- Arlington, MA 02174 ---------------------------------- The Company: net.Genesis Corp. 215 First Street Cambridge, MA 02142 EX-10.14 20 WARRANT AGREEMENT 6/10/99 1 Exhibit 10.14 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT TO PURCHASE SHARES OF THE SERIES F PREFERRED STOCK OF NET.GENESIS CORP. DATED AS OF JUNE 10, 1999 (THE "EFFECTIVE DATE") 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to Hambrecht & Quist, LLC (the "Warrantholder"), and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, 114,458 fully paid and non-assessable shares of the Company's Series F Preferred Stock, $0.001 par value, ("Preferred Stock") at a purchase price of $3.32 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) five (5) years or (ii) until the effective date of the Company's initial public offering, whichever is earlier. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. 2 The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) ------ A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; 3 (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. (a) Authorization and Reservation of Shares. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) Registration or Listing. If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 4 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the cash or the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator 5 of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit IV (the "Charter"). The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. (f) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription pro rata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least twenty (20) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (g) Timely Notice. Failure to timely provide such notice required by subsection (f) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by 6 Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws and pursuant to the terms of the Second Amended and Restated Stockholder Agreement by and among the Company and certain of its stockholders dated June 10, 1999, as the same may be amended from time to time. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and this Warrant Agreement is not inconsistent with the Company's Charter or Bylaws, does not contravene any law or governmental rule, regulation or order applicable to it, does not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and this Warrant Agreement constitutes the legal, valid and binding agreement of the Company, enforceable in accordance with its terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the 7 Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of the Warrantholder's rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be 8 required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of such rights of the Warrantholder to purchase Preferred Stock or of such Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of The Commonwealth of Massachusetts, without regard to its principles of conflict of laws. (d) Counterparts. This Warrant 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. (e) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at One Bush Street, San Francisco, California 94104, Attention: Jeffrey C. Gustafson (and if by facsimile, (415) 677-7742 and (ii) to the Company at 215 First Street, Cambridge, Massachusetts 02142, Attention: John Delea, with a copy to Foley, Hoag, Eliot, LLP, One Post Office Square, Boston, MA 02109, Attention: John D. Patterson, Jr., (and if by facsimile, (617) 577-9850 and (617) 832-7000) or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where such party will not have an adequate remedy at law and where damages will not be readily ascertainable. Each party expressly agrees that it shall not oppose an application by the other or any other person entitled to the benefit of this Agreement 9 requiring specific performance of any or all provisions hereof or enjoining the such party from continuing to commit any such breach of this Agreement. (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. Company: NET.GENESIS CORP. By: /s/ John Delea ___________________________________________ Title: CFO VP Finance & Administration ________________________________________ Warrantholder: HAMBRECHT & QUIST, LLC By:___________________________________________ Title:________________________________________ 10 EXHIBIT I NOTICE OF EXERCISE TO: _____________________________________ (1) The undersigned Warrantholder hereby elects to purchase _______shares of the Series F Preferred Stock of net.Genesis Corp. pursuant to the terms of the Warrant Agreement dated the _______day of _________________, 1999 (the"Warrant Agreement") between net.Genesis Corp. and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Series F Preferred Stock of net.Genesis Corp., the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. (3) Please issue a certificate or certificates representing said shares of Series F Preferred Stock in the name of the undersigned or in such other name as is specified below. (Name)_________________________________ (Address)______________________________ Warrantholder: HAMBRECHT & QUIST, LLC By: ______________________________ Title: ______________________________ Date: ______________________________ 11 EXHIBIT II ACKNOWLEDGMENT OF EXERCISE The undersigned net.Genesis Corp., hereby acknowledge receipt of the "Notice of Exercise" from Hambrecht & Quist, LLC to purchase ____shares of the Series F Preferred Stock of net.Genesis Corp., pursuant to the terms of the Warrant Agreement, and further acknowledges that ______shares remain subject to purchase under the terms of the Warrant Agreement. Company: net.Genesis Corp. By: __________________________________ Title: __________________________________ Date: __________________________________ 12 EXHIBIT III TRANSFER NOTICE (To transfer or assign the foregoing Warrant Agreement execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to - ------------------------------------------------------------ (Please Print) whose address is ______________________________________________ - ------------------------------------------------------------ Dated: ________________________ Holder's Signature: ______________ Holder's Address: _______________ - ------------------------------ - ------------------------------ - ------------------------------ Signature Guaranteed: _____________________________________ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. EX-10.15 21 SOFTWARE LICENSE AGREEMENT 1 EXHIBIT 10.15 Confidential Treatment Requested Pursuant to Rule 406 SOFTWARE LICENSE AGREEMENT This Software License Agreement ("Agreement") is between MicroStrategy Incorporated, a Delaware corporation, with primary offices at 8000 Towers Crescent Drive, Vienna, Virginia 22182 ("MicroStrategy"), and net.Genesis Corporation, a Delaware corporation, with primary offices at 150 CambridgePark Drive, Cambridge, MA 02140 ("Netgen"). The effective date of this Agreement is October 5, 1999 ("Effective Date"). RECITAL MicroStrategy and Netgen wish to cooperate such that Netgen can integrate certain MicroStrategy products with certain Netgen products to create a value-added application for distribution to Netgen customers. These recitals are intended only to summarize the intent of this Agreement. The actual terms and conditions of the Agreement are stated below. 1. DEFINITIONS 1.1 "Integrated Product" shall mean the Netgen Products and the MicroStrategy Product, integrated as permitted under Section 2 of this Agreement, and all Product Releases, Update Releases, and Version Releases thereof, all as more fully described in Exhibit E. The term Integrated Product shall also include the Combined Solution (as defined below) until the Integrated Product has been made generally available or until June 30, 2000, whichever comes first. 1.2 "Combined Solution" shall mean the combination of the Netgen Product and the unbundled MicroStrategy Product, distributed as permitted under Section 2.2.6. 1.3 "Documentation" shall mean the standard user guides developed and released by MicroStrategy for use with the MicroStrategy Product. 1.4 "Documentation Media" shall mean the diskettes, CDs or other media containing Microsoft Word Versions of the Documentation. 1.5 "End User" shall mean any customer of Netgen that licenses or may license the Integrated Product for use in accordance with the End User License Agreement, which shall restrict the use of the MicroStrategy Products to use solely as part of the Integrated Product or the Combined Solution and not for stand-alone use. 1.6 "Embed" shall mean the integration of the MicroStrategy Products with the Netgen products so that the MicroStrategy Products are the reporting tools for the collection technology of Netgen. The integration shall be complete and seamless so that 1 2 there are pre-defined filters, templates and reports and that any End User will not be able to readily use the MicroStrategy Products without the Netgen Products. 1.7 "Evaluation" shall mean an installation of the MicroStrategy Product as part of the Integrated Product for a period of thirty (30) days or less, during which an End User may evaluate the Integrated Product for its internal use. 1.8 "Master Disk" shall mean the standard microcomputer diskettes, CDs, or other media containing the object code version of the MicroStrategy Product. 1.9 "MicroStrategy Product" shall mean the product specified in Exhibit C hereto, and includes all Product Releases, Version Releases and Update Releases provided by MicroStrategy to Netgen as specified in Exhibit C hereto, together with any bug fixes, patches or other modifications or enhancements provided pursuant to Section 11.1. 1.10 "Named User" shall mean an individual to whom the End User assigns an identification number for purposes of tracking use of the Integrated Product. If and when a Named User no longer has access to the Integrated Product, the End User may allow an alternate Named User to assume the initial Named User's identification number and use the Integrated Product in place of the initial Named User. Typically, the Named User will be an employee of the End User. 1.11 "Netgen Products" shall mean a suite of products as set forth in Exhibit D, and all Product Releases, Update Releases, and Version Releases thereof. 1.12 "OEM" shall mean a customer of Netgen that has entered into a written agreement with Netgen to license the Integrated Product, combine such Integrated Product (provided such OEM does not modify the underlying MicroStrategy Product in the Integrated Product) with hardware or software that adds value to the Integrated Product, and license and sublicense such combination under the OEM's trademark or tradename. 1.13 "OEM Product" shall mean the product developed by an OEM that combines the Integrated Product with hardware or software that adds value to the Integrated Product, and license and sublicense such combination under the OEM's trademark or tradename. 1.14 "Product Release" shall mean a release of a MicroStrategy Product or Netgen Product which is designated by MicroStrategy or Netgen respectively, in its sole discretion, as a change in the digit(s) to the left of the decimal point in the MicroStrategy or Netgen Product version number ({x}.x.x). 1.15 "Reseller" shall mean distributors and subdistributors, including value-added resellers, within Netgen's distribution channel which market and deliver Netgen Products or Integrated Products. 2 3 1.16 "Second-line Support" shall mean reproducing and isolating problems, and jointly developing workarounds for problems and testing software fixes for the Integrated Product. 1.17 "Update Release" shall mean a release of the MicroStrategy Product or the Netgen Product which is designated by MicroStrategy or Netgen respectively, in its sole discretion as a change in the hundredths digit in the MicroStrategy or Netgen Product version number, (x.x.{x}). 1.18 "Version Release" shall mean a release of the MicroStrategy Product or the Netgen Product designated by MicroStrategy or Netgen respectively, in its sole discretion, as a change in the tenths digit in the MicroStrategy or Netgen Product version number, (x.{x}.x). 2. DELIVERY AND LICENSE 2.1 Delivery by MicroStrategy. MicroStrategy will deliver the MicroStrategy Product on the Master Disk as set forth in Exhibit C hereto, along with the Documentation Media by March 31, 2000. MicroStrategy will use reasonable commercial efforts to support Netgen's development of the Integrated Product, as more fully set forth in Exhibit C. If MicroStrategy does not deliver the MicroStrategy Product by March 31, 2000, and/or the MicroStrategy Product does not meet Netgen's requirements for integration with the Netgen Products by that date, Netgen may terminate this Agreement immediately, upon written notice to MicroStrategy, notwithstanding the cure provision for material breach set forth in Section 6.3. 2.2 License to Netgen. Subject to the terms of this Agreement, MicroStrategy grants to Netgen the following licenses: 2.2.1 License to Integrate MicroStrategy Product. MicroStrategy grants to Netgen a non-exclusive, non-transferable and royalty-free license to reproduce, create derivative works of and use copies of the MicroStrategy Product to: (i) embed the MicroStrategy Product into the Netgen Product to create the Integrated Product; (ii) develop Product Releases, Update Releases, and Version Releases of the Integrated Product; and (iii) maintain and support the Integrated Product and Product Releases, Update Releases, and Version Releases thereof. 2.2.2 License to Copy and Distribute Documentation. MicroStrategy grants to Netgen a non-exclusive, non-transferable and royalty-free license to copy the Documentation from the Documentation Media solely for the purpose of distributing copies of the Documentation with the Integrated Product. 2.2.3 License to Demonstrate. MicroStrategy grants to Netgen a non-exclusive, non-transferable and royalty-free license to demonstrate the MicroStrategy Product solely as part of the Integrated Product. Netgen may copy the MicroStrategy Product for demonstration purposes, but only as provided in 3 4 Exhibit F. Netgen shall take all reasonable precautions against unauthorized disclosure or copying of the MicroStrategy Product while the Integrated Product is being demonstrated. Netgen shall take all reasonable steps to ensure that the MicroStrategy Product is inaccessible during inactive demonstration times, delete any demonstration copies of the MicroStrategy Product upon completion of any demonstration at a customer site and further exercise commercially reasonable efforts to ensure the security of the MicroStrategy Product. 2.2.4 License to Grant Evaluation Licenses. MicroStrategy grants to Netgen a non-exclusive, non-transferable and royalty-free license to allow Evaluations of the MicroStrategy Product solely as part of the Integrated Product, but only pursuant to an end-user license agreement substantially equivalent in terms to the "net.Genesis Software License Agreement" attached hereto as Exhibit B. Netgen may copy the MicroStrategy Product for Evaluation, but only as provided in Exhibit F. 2.2.5 License to Distribute as Part of Integrated Product. MicroStrategy grants to Netgen the nonexclusive, non-transferable worldwide right to reproduce, market, sublicense and distribute copies of the MicroStrategy Product on disk, CD-ROM, or via electronic download, solely as part of the Integrated Product. Except as otherwise set forth in Section 2.2.6, this is not a license to market, sublicense or distribute the MicroStrategy Products or user documentation separately nor permit the use of the MicroStrategy Products outside of the Integrated Application, and such action shall be a material breach of this Agreement. 2.2.6 License to Distribute Existing MicroStrategy Product. MicroStrategy grants to Netgen the nonexclusive, non-transferable worldwide right to distribute copies of the MicroStrategy Product, unbundled, until release of the Integrated Product, but only pursuant to a written sublicense agreement that, in addition to including restrictions substantially similar to those contained in the "net.Genesis Software License Agreement" attached hereto as Exhibit B, explicitly states that the unbundled MicroStrategy Product may be used only with the Netgen Products (the "Combined Solution"). This right shall automatically expire by June 30, 2000. Netgen must replace the Combined Solution with the Integrated Product for all End Users who receive a license to the Combined Solution within six (6) months of the release of the Integrated Product. Except as otherwise set forth in Section 2.2.6, this is not a license to market, sublicense or distribute the MicroStrategy Products or user documentation separately nor permit the use of the MicroStrategy Products outside of the Integrated Application, and such action shall be a material breach of this Agreement. 2.3 Terms of Distribution. Except as otherwise set forth in Section 2.2.6, Netgen agrees that it will distribute the MicroStrategy Product as permitted in section 2.2 only pursuant to an end-user license agreement substantially equivalent in terms to the "net.Genesis End User License Agreement" attached hereto as Exhibit B. 4 5 This "net.Genesis End User License Agreement" shall at a minimum: (a) restrict use of the MicroStrategy Products to use as part of the Integrated Solution; and (b) restrict use of the MicroStrategy Product to use for analysis of the Web traffic data combined with other enterprise data sources captured and correlated by the Integrated Product. 2.4 License Restrictions. Netgen agrees that it shall not, and shall not permit others to, decompile, disassemble, reverse engineer or otherwise decode or derive source code of the MicroStrategy Product. In addition, Netgen shall not rent the Integrated Products, provide third parties with access to the Integrated Products through a service bureau or commercial time-sharing arrangement or use the Integrated Products for outsourcing without the prior written approval of MicroStrategy, which approval shall not be unreasonably withheld. 2.5 Sublicensing Rights. The licenses granted in Section 2.2 may be sublicensed to Resellers and OEMs who have executed written agreements with Netgen containing terms at least as restrictive as those contained herein for the purpose of facilitating distribution of the Integrated Product and/or creating and distributing OEM Products. Netgen shall report to MicroStrategy on a monthly basis the names of all Resellers and OEMs it has sublicensed hereunder. 3. ROYALTIES, PAYMENT TERMS, AND RECORDS 3.1 Royalty Rate. Beginning on October 1, 1999, Netgen shall pay MicroStrategy [*] Where Netgen sells more than [*] Named User Licenses for the Integrated Product or the Combined Solution to a given End User, Netgen shall pay MicroStrategy the fees set forth in Exhibit A for each Named User over [*]. 3.2 Reports. Netgen shall prepare and maintain complete and accurate books and records documenting the licensing of the Integrated Product or Combined Solution and any compensation received therefrom. In addition, Netgen shall compile quarterly financial results detailing total product revenue and total maintenance revenue. Within forty-five (45) days of the close of each quarter, Netgen shall report to MicroStrategy, in writing, the sale of Integrated Products or Combined Solutions from the previous quarter including the name, address and contact person for each customer, a copy of its quarterly financial statement and the total royalty due MicroStrategy (the "Royalty Report"). 3.3 Payments. All payments to MicroStrategy shall be denominated and made in U.S. dollars, and are due within thirty (30) days of transmitting the Royalty Report. Payments will be conducted via check drawn from a U.S. bank, or via cable transfer of funds to a bank account to be specified by MicroStrategy. Prices listed are exclusive of any shipping costs, import duties, transfer fees, sales, use, value-added, privilege, excise or * Confidential treatment requested pursuant to Rule 406 5 6 similar taxes or duties levied upon MicroStrategy, or any other charges or assessments established by any government agency that are based upon licensing of the MicroStrategy Product or Integrated Product pursuant to this Agreement, all of which shall be paid by Netgen with the exception of taxes, duties or fees based on MicroStrategy's net income. 3.4 Audit Rights. During the term of this Agreement and for a period of two (2) years thereafter, MicroStrategy shall have the right, at its expense and upon reasonable notice, to have examined by an independent, certified public accountant subject to mutually acceptable nondisclosure agreement, Netgen's books and records once each calendar year, in order to determine and verify performance under this Agreement. Any discrepancy between royalties paid and royalties actually due discovered pursuant to such examination shall be payable within thirty (30) days of completion of the examination. In the event that an audit discloses underpayment by Netgen of at least (5%) Netgen shall reimburse MicroStrategy for the costs incurred in conducting the audit. 3.5 Renegotiation. Any time after the first year of this agreement, if more than [*] is derived from products other than its Web analysis products, which shall embed the MicroStrategy Products, then Netgen may request a re-negotiation of the Royalties. Netgen may request such a re-negotiation by sending MicroStrategy written notification that the threshold has been crossed and Netgen desires to re-negotiate the royalties. Once Microstrategy receives the notice of re-negotiation, the parties will meet and confer within ten (10) business days to choose an independent auditor to determine the percentage of [*] that is not attributable to Web analysis products and report back to both companies. The percentage of revenue not attributable to Web analysis products that embed the MicroStrategy Products shall then be carved out of the [*] definition for future quarters. Any time after the renegotiated rates take effect, if less than [*] is derived from products other than Web analysis products then MicroStrategy may request a re-negotiation of the Royalties. MicroStrategy shall be required to give Netgen notice of the re-negotiation. If MicroStrategy notifies Netgen of the re-negotiation, then the definition of [*] shall be reset to the current definition. 4. MICROSTRATEGY DEVELOPMENT AND MARKETING ASSISTANCE TO NETGEN 4.1 Public Statements. The parties will agree in advance to the text of all press releases and public disclosures associated with activities under this Agreement, including without limitation any termination or expiration of this Agreement. The parties will issue a joint release announcing the joint business relationship. 4.2 Beta Programs and First Mover Advantage. Netgen and MicroStrategy will have the option to participate in each other's beta programs. MicroStrategy will ensure that Netgen be a high-priority alpha and beta site for the MicroStrategy Product. For the first release of the MicroStrategy Product, Netgen will have high-priority developer level support and first mover advantage over all other Web analysis companies. * Confidential treatment requested pursuant to Rule 406 6 7 4.3 Cooperative Marketing Plan. Netgen and MicroStrategy will exercise their reasonable endeavors within sixty (60) days of the signing of this Agreement to draw up a cooperative marketing plan. 4.4 Development Partner Designation. MicroStrategy will work with Netgen and use commercially reasonable efforts to create a unique, distinct classification for the partnership and MicroStrategy will not remove this designation during the term of this Agreement without giving Netgen at least twelve (12) months prior notice of the change in designation. This classification will enable Netgen to develop and market a product or interface (to be defined) that will be uniquely promoted by MicroStrategy to its customer base royalty-free. The purpose of this is to "seed" the MicroStrategy market with an opportunity to collect Web data. 4.5 Co-Development Efforts. MicroStrategy agrees to co-locate a Netgen engineer with the development team for the MicroStrategy Product, at mutually agreed upon times, to use best efforts to incorporate Netgen's feature requirements necessary to build the Integrated Product, and to otherwise provide the development support more fully set forth in Exhibit C. 4.6 Right of First Refusal. MicroStrategy agrees to grant Netgen a right of first refusal to license any new MicroStrategy Product on terms and conditions substantially identical hereto. However, notwithstanding the foregoing, MicroStrategy reserves the right to charge additional fees for certain products if MicroStrategy determines, in its reasonable judgement, that the nature of the product warrants such additional fees. 4.7 Non-Compete Notification. During the term of this Agreement, MicroStrategy agrees that it will promote Netgen as a value-added partner. If MicroStrategy enters the Web analysis business, either through acquisition or development of an integrated Web analysis software product that combines collection and analysis of Web site visitor behavior information and correlation of this behavioral data with other business information on a stand-alone basis in direct competition with Netgen, MicroStrategy shall give Netgen ninety (90) days prior written notice before delivering such Web analysis software product to market. If MicroStrategy provides such notice to Netgen, then Netgen may cancel this Agreement within ninety (90) days of its receipt of such notice. 6. TERM AND TERMINATION OF AGREEMENT 6.1 Initial Term. The initial term of this Agreement shall be five (5) years from the Effective Date, and shall be renewed automatically for successive five (5) year terms unless terminated as set forth below. 6.2 Termination for Convenience. This Agreement may be terminated for convenience by either party at end of the initial term or any subsequent term, provided that either party shall give notice of non-renewal to the other party at least ninety (90) days prior to the end of the then-current term. 7 8 6.3 Termination for Breach. Either party may terminate this Agreement upon the other party's failure to cure a material default under this Agreement within thirty (30) days of receipt of written notice of such material default. 6.4 Rights and Duties Upon Termination. Upon termination or expiration of this Agreement, the duties and rights of the parties shall be as follows: 6.4.1 Netgen's rights granted under this Agreement will terminate and, except as provided herein, Netgen shall immediately cease reproduction, distribution and use of the MicroStrategy Product and Documentation, or any related technical or marketing material. Netgen shall immediately return to MicroStrategy all Master Disks, Documentation Media and other copies of the MicroStrategy Product and Documentation, as well as all MicroStrategy supplied copies of technical and marketing materials relating to the MicroStrategy Product or of the products of MicroStrategy. Netgen shall promptly return to MicroStrategy any Confidential Information belonging to MicroStrategy and MicroStrategy shall promptly return to Netgen any Confidential Information belonging to Netgen 6.4.2 Within thirty (30) days of termination of this Agreement, a duly authorized officer of Netgen shall certify in writing that all of the items set forth in paragraph 6.4.1 above belonging to MicroStrategy have been returned to MicroStrategy and a duly authorized officer of MicroStrategy shall certify in writing that all of the items set forth in paragraph 6.4.1 above belonging to Netgen have been returned to Netgen. 6.4.3 Within thirty (30) days of termination of this Agreement, each party shall pay the other party all sums due and owing under this Agreement. It is understood and agreed that the rights of termination and non-renewal set forth in this Agreement shall be absolute, that the parties have considered that expenses may be incurred in preparing for performance hereunder, and that financial loss or damage may result from such termination or non-renewal. It is the express intent of the parties that neither shall be liable to the other, for direct damages or incidental or consequential damages or of any kind otherwise, by reason of termination or non-renewal as herein provided. 6.4.4 Notwithstanding the foregoing, upon termination, Netgen shall be entitled to retain thirty (30) copies of the MicroStrategy Product in order to support its existing customers. In the event that termination results from MicroStrategy's failure to maintain and upgrade the MicroStrategy Product as required by this Agreement, Netgen shall be entitled to use the source code of the MicroStrategy Product as provided in Section 12. 6.5 Survival. The provisions of Sections 2.4, 3.1 - 3.5, 6.4, 7, 8, 9, 10, 12 and 13 shall survive termination or expiration of this Agreement. 8 9 7. WARRANTIES 7.1 Warranty to Netgen. MicroStrategy warrants that for six (6) months after the date of delivery of the MicroStrategy Product the MicroStrategy Product will conform in all material respects to the published technical specifications for the MicroStrategy Product, and that any Product, Version or Update Releases thereof will conform in all material respects to the published technical specifications for such Release. MicroStrategy further warrants that MicroStrategy has not included in the MicroStrategy Product, as delivered to Netgen, any so-called virus, Trojan Horse, worm or other software routine not provided for in the specifications that is designed to permit unauthorized access to erase or otherwise damage, the MicroStrategy Product or any data or other software of Netgen. For any breach of this warranty, Netgen's exclusive remedy and MicroStrategy's entire liability shall be, at MicroStrategy's sole discretion, the correction of the MicroStrategy Product errors that cause breach of the warranty, replacement of the MicroStrategy Product, or return of the fees paid to MicroStrategy for the MicroStrategy Product upon Netgen's return of the MicroStrategy Product to MicroStrategy. 7.2 Disclaimer. OTHER THAN AS SET FORTH ABOVE, NEITHER PARTY HERETO MAKES ANY WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES OF TITLE, NONINFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 7.3 Limitation of Liability. EXCEPT FOR AMOUNTS PAYABLE PURSUANT TO BREACHES OF SECTIONS 2 (LICENSE GRANTS), SECTION 9 (COMPLIANCE WITH LAWS) AND SECTION 10 (CONFIDENTIAL INFORMATION), OR AMOUNTS PAYABLE PURSUANT TO THIRD PARTY CLAIMS MADE PURSUANT TO SECTIONS 8 OR 9.1 (INDEMNIFICATION CLAIMS) IN NO EVENT SHALL A PARTY HERETO BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, ARISING OUT OF THIS AGREEMENT. THE FOREGOING LIMITATION OF LIABILITY SHALL APPLY REGARDLESS OF THE CAUSE OF ACTION UNDER WHICH SUCH DAMAGES ARE SOUGHT, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT, NEGLIGENCE OR OTHER TORT. THE FOREGOING LIMITATION DOES NOT APPLY TO DAMAGES ARISING FROM PERSONAL INJURY CAUSED BY THE NEGLIGENCE OF EITHER PARTY. Except for amounts payable pursuant to third party claims made pursuant to Sections 8 or 9.1 (Indemnification Claims) or breaches of Section 10 (Confidentiality) in no event shall either party's liability to the other party under this Agreement exceed the amount of royalties paid by Netgen for the twelve (12) months preceding such liability. 7.4 Year 2000 Warranty. MicroStrategy warrants to Netgen through June 30, 2000 that the unmodified MicroStrategy Products will not fail or produce incorrect results when processing with four (4)-digit dates for the year 2000 or beyond; provided, however, that MicroStrategy makes no warranty with respect to any such failure or incorrect result that may arise due to: (i) the quality of the data sought to be processed 9 10 with the Integrated Product; (ii) the effect of other software not licensed by MicroStrategy to Netgen or developed by MicroStrategy for Netgen; or (iii) the use of the software in an operating environment or on a platform not specified by MicroStrategy. Warranty claims must be brought within the warranty period. For any breach of this warranty, Netgen's exclusive remedy and MicroStrategy's entire liability shall be, at MicroStrategy's sole discretion, the correction of the MicroStrategy Product errors that cause breach of the warranty, replacement of the MicroStrategy Product, or return of the fees paid to MicroStrategy for the MicroStrategy Product upon Netgen's return of the Product to MicroStrategy. 8. INDEMNITY 8.1 Defense or Settlement of Claims. MicroStrategy agrees to defend, or at its option to settle, any claim, suit or proceeding brought against Netgen based on a third party claim that the MicroStrategy Product, as delivered to Netgen pursuant to this Agreement, infringes upon any patent or upon any copyright or violates the trade secret or other intellectual property rights of any third party in the Territory (hereinafter "Infringement Claims"); provided MicroStrategy is notified promptly in writing of an Infringement Claim and has sole control over its defense or settlement, and Netgen provides reasonable assistance in the defense of same. 8.2 Infringement Cures. Following notice of an Infringement Claim, or if MicroStrategy believes such a claim is likely, MicroStrategy may at its sole expense and option (i) procure for Netgen the right to continue to market, use and have others use, the alleged infringing MicroStrategy Product; (ii) replace or modify the MicroStrategy Product to make it non-infringing; or (iii) accept return of the MicroStrategy Product and refund payments made therefor by Netgen. 8.3 Limitation. Notwithstanding any other provision of this Agreement, MicroStrategy assumes no liability for any Infringement Claims based on: (i) modification of the MicroStrategy Product, or any part thereof, by Netgen, at the request of Netgen or to meet any specifications provided by Netgen; (ii) combination of a MicroStrategy Product with non-MicroStrategy programs, data, hardware, or other materials, if such infringement claim would have been avoided by the exclusive use of the unmodified MicroStrategy Product alone. For all infringement claims to which this Subsection 8.3 is applicable, Netgen agrees to indemnify and defend MicroStrategy, provided Netgen is notified promptly in writing of an infringement claim and has sole control over its defense or settlement, and MicroStrategy provides reasonable assistance in the defense of same. 8.4 Entire liability. THE FOREGOING PROVISIONS OF THIS SECTION 8 STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF MICROSTRATEGY AND NETGEN AND THE EXCLUSIVE REMEDY OF MICROSTRATEGY AND NETGEN, WITH RESPECT TO ANY ALLEGED INTELLECTUAL PROPERTY INFRINGEMENT BY THE MICROSTRATEGY PRODUCT, OR ANY PART THEREOF. 10 11 9. COMPLIANCE WITH LAWS 9.1 Compliance with Laws. In performing this Agreement both parties agree they will comply with all applicable laws, rules, regulations and policies and will render each other harmless and indemnify each other for the failure of the other party to do so. 9.2 Foreign Corrupt Practices Act. In conformity with the United States foreign Corrupt Practices Act, Netgen and its employees and agents shall not directly or indirectly make an offer, payment, promise to pay, or authorize payment, or offer a gift, promise to give, or authorize the giving of anything of value for the purpose of influencing an act or decision of an official of any government (including a decision not to act) or inducing such a person to use his influence to affect any such governmental act or decision in order to assist Netgen in obtaining, retaining or directing any such business. 9.3 Export Administration Act. Netgen shall not export or re-export any MicroStrategy Product, Documentation, or technical data of MicroStrategy to any country, person entity or end user to which such export would be a violation of any applicable export restriction. Restricted countries for the purposes of U.S. law and regulations currently include, but are not necessarily limited to, Cuba, Iran, Iraq, Libya, North Korea, the Sudan and Syria. Netgen shall do all things necessary to comply with all applicable laws, rules and regulations concerning exports of products and technical data of MicroStrategy. 10. PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION 10.1 Property Rights in MicroStrategy Product. Netgen agrees that MicroStrategy owns all right, title, and interest in the MicroStrategy Product and the Documentation, including, without limitation, the Master Disk and Documentation Media, now or hereafter subject to this Agreement, and in all of MicroStrategy's patents, trademarks, trade names, inventions, copyrights, know-how, and trade secrets relating to the design, manufacture, operation or service of the MicroStrategy Product. MicroStrategy agrees that Netgen owns all right, title, and interest in the Netgen Products, and in all of Netgen's patents, trademarks, trade names, inventions, copyrights, know-how, and trade secrets relating thereto. 10.2 Confidential Information. "Confidential Information" may be disclosed in any manner, whether orally, visually, or in tangible form (including, without limitation, documents, devices, and computer readable media). Tangible materials that disclose or embody confidential Information shall be marked by the discloser thereof as "Confidential," "Proprietary," or the substantial equivalent thereof. Confidential Information that is disclosed orally or visually shall be identified by the discloser thereof at the time of disclosure or within thirty (30) days of disclosure and reduced to a written summary by the discloser who shall mark such summary as "Confidential," Proprietary," or the substantial equivalent thereof and deliver it to the receiving party by the end of the 11 12 month following the month in which disclosure occurs. The recipient of such information shall treat it as Confidential Information pending receipt of such summary. Notwithstanding and in addition to the foregoing, the MicroStrategy Product, information relating to MicroStrategy's specifications, designs, development plans, business plans, business records, prices and customer lists, shall be deemed to be Confidential Information of MicroStrategy. Notwithstanding and in addition to the foregoing, the Netgen Product, information relating to Netgen's specifications, designs, development plans, business plans, business records, prices and customer lists, shall be deemed to be "Confidential Information of Netgen." 10.3 Restrictions. Each party acknowledges that during the term of this Agreement, it will be entrusted with certain Confidential Information and agrees that it will protect the confidentiality thereof with the same measures it would use to protect its own similar information, but in no event shall such measures be less than reasonable in light of general industry practices. Except as otherwise required by law, each party agrees that for the term of this Agreement and for a period of five (5) years from termination or expiration, it will not (i) use such Confidential Information for any purpose except in accordance with this Agreement, or (ii) disclose any such Confidential Information to any person (except employees or agents on a need to know basis where such persons have agreed to be bound by the confidentiality provisions herein), unless such disclosure is authorized by the other party in writing. The obligations of each party under this Section 10.3 shall not apply to information which (i) within thirty (30) days of disclosure hereunder, is shown to have been in a party's possession without confidentiality restriction prior to such disclosure, (ii) was generally known in the trade or business in which it is practiced by the disclosing party at the time of disclosure, or becomes so generally known after such disclosure, through no act of the receiving party, or (iii) has come into the possession of the receiving party without confidentiality restriction from a third party, and such third party is under no obligation to maintain the confidentiality of such information. 10.4 Judicial Order, Etc. To the extent that a party is ordered to disclose the other party's Confidential Information pursuant to a judicial or governmental request, requirement, or order, the disclosing party shall promptly notify the other party and take reasonable steps to assist the other party in contesting such request, requirement or order or to otherwise protect the other party's rights prior to disclosure. 11. MAINTENANCE, SUPPORT AND TRAINING 11.1 Maintenance. MicroStrategy agrees to provide maintenance of the MicroStrategy Product pursuant to the terms of MicroStrategy's standard maintenance and support policies and procedures, which are attached hereto as Exhibit G. 12 13 11.2 Support. Netgen shall be solely responsible for all customer support to Netgen End-User customers of the Integrated Product. MicroStrategy will make available Second-line Support via telephone to Netgen in accordance with MicroStrategy's then current Technical Support Policies and Procedures; provided, however, that, notwithstanding anything in such Technical Support Policies and Procedures to the contrary, Netgen shall be entitled to receive technical support twenty-four (24) hours a day, seven (7) days per week; Netgen shall be assigned a dedicated point-of-contact Engineer who will be responsible for managing all of Netgen's technical support issues and who will be available for on-site support as necessary; and Netgen shall be entitled to weekly status reports on open issues, monthly status reviews, and quarterly on-site support meetings. 11.3 Training. MicroStrategy will provide an initial eight (8)-day MicroStrategy Gold Certification training class for up to fifteen (15) Netgen employees at Netgen's facility at no charge. This training should provide the appropriate level of exposure to the MicroStrategy technology for Netgen to develop the Bundled and Integrated Products. MicroStrategy will also provide a reasonable number of sales training workshops at Netgen's facility at no charge. Additionally, MicroStrategy will provide a three (3)-day training class for up to fifteen (15) Netgen employees at Netgen's facility at no charge for each major release of the MicroStrategy product. Additional training for Netgen personnel will be available to Netgen at a thirty percent (30%) discount from MicroStrategy list prices, plus reasonable expenses. 12. ESCROW 12.1 Escrow Account. Within sixty (60) days of the Effective Date, MicroStrategy agrees to deposit in an escrow account pursuant to an escrow agreement among MicroStrategy and a third party escrow agent used by MicroStrategy (currently Fort Knoxx) (the "Escrow Agent"), a copy of the source code of the MicroStrategy Product (the "Escrow Material"). The escrow agreement shall contain, at a minimum, the terms and conditions set forth in this Section 12. MicroStrategy shall keep Escrow Material current and allow periodic audit by Escrow Agent of compliance to this provision. Netgen shall bear all fees, expenses and other costs to open and maintain such escrow account. If a Release Condition (as defined in Section 12.2 below) occurs, and the Escrow Agent provides the Escrow Material to Netgen in accordance with the escrow agreement, Netgen agrees to hold all materials and information in the escrow account in strictest confidence pursuant to the provisions contained in Section 10, and not to use them for any purpose other than those purposes contemplated under Section 12.3 below. 12.2 Release. The Escrow Material shall remain under seal and unopened unless and until a Release Condition occurs. Netgen shall notify MicroStrategy in writing if it intends to seek release of the Escrow Material from the Escrow Agent because (a) MicroStrategy has filed for bankruptcy under Chapter 7 or 11 of the Bankruptcy Act or a petition has been filed against MicroStrategy and such petition has not been withdrawn or dismissed with prejudice within sixty (60) days of such filing, (b) MicroStrategy ceases to do business in the ordinary course for a period of at least sixty (60) days, or (c) 13 14 MicroStrategy materially breaches its support obligations under this Agreement, and such breach remains uncured for a period of at least sixty (60) days after MicroStrategy receives written notice of the breach from Netgen (the "Release Conditions"). If MicroStrategy notifies Netgen in writing that it disputes whether the Release Condition has occurred, officers of each of the parties shall negotiate for a period of ten (10) business days to attempt to resolve the dispute. At the end of such ten (10) business day period, if the parties have not resolved the dispute, the matter shall be referred to arbitration in the manner provided in Section 12.4 below. 12.3 License. Upon the release of the Escrow Material pursuant to section 12.2 above, Netgen shall have a non-exclusive, non-transferable license to use and modify the Escrow Material as necessary to fully exercise the rights granted in Section 2 hereof, including the right to use, modify and create derivative works of the Escrow Material solely in order to maintain and support the Integrated Product, and the right to modify and create derivative works of the Escrow Material in order to create Product Releases, Version Releases and Update Releases of the Integrated Product. Netgen shall not distribute, sell or sublicense the Escrow Material. Subject to the licenses expressly granted in this Agreement, MicroStrategy shall retain all right, title and interest in and to the Escrow Material, including any modifications made thereto by Netgen. For purposes of this section, Netgen may contract with and make the Escrow Material available to a third party solely for the purpose of exercising its rights under this section. 12.4 Arbitration. The parties agree that, if MicroStrategy reasonably disputes the occurrence of the Release Condition as set forth above, it shall submit such dispute for binding arbitration in accordance with the then-current commercial arbitration rules of the American Arbitration Association ("Rules"). The arbitration shall be conducted by one (1) arbitrator appointed in accordance with the Rules. The sole question before the arbitrator shall be whether the Release Condition existed at the time of Netgen's notice to MicroStrategy. If the arbitrator finds that the Release Condition did exist at the time of Netgen's notice to MicroStrategy, the Escrow Agent is hereby authorized to release the Escrow Material to Netgen. The non-prevailing party in the arbitration shall pay all fees and charges of the American Arbitration Association; each party, however, shall be responsible for the payment of all fees and expenses connected with the presentation of its respective case. 14 15 13. MISCELLANEOUS 13.1 Governing Law. This Agreement, and all matters arising out of or relating to this Agreement, shall be governed by, subject to and construed according to the laws of the Commonwealth of Virginia, without regard to its principles regarding conflicts of laws. Any legal action or proceeding relating to this Agreement shall be instituted in a state court in Fairfax County, Virginia or in federal court in Alexandria, Virginia. The parties hereto agree to submit to the jurisdiction of, and agree that venue is proper in, these courts. The parties hereto exclude the United Nations Convention on Contracts for the sale of Goods from this Agreement and any transaction between them that may be implemented in connection with this Agreement. 13.2 Independent Contractors. The Agreement does not create and shall not be construed as creating any relationship of agency, partnership or employment between the parties. MicroStrategy and Netgen enter this Agreement as and shall remain independent contractors. 13.3 Assignment. Netgen shall be entitled to assign this Agreement to the acquiring party in the event of a merger or consolidation of Netgen with such acquiring party or in the event of the sale of substantially all of Netgen's assets. This Agreement shall inure to the benefit of MicroStrategy, its successors, administrators, heirs and assigns. 13.4 Entire Agreement. This Agreement and the Exhibits hereto represent and constitute the entire agreement between the parties, may only be amended in writing signed by both parties, and supersede all prior agreements and understandings with respect to the matters covered by this Agreement. The parties acknowledge that they have not relied upon any representations other than the representations set forth herein. 13.5 Waiver. The waiver of one breach or default hereunder shall not constitute the waiver of any subsequent breach or default. 13.6 Notices. All notices or reports permitted or required under this Agreement shall be in writing and shall be delivered in person, mailed by first class mail, postage prepaid, (registered or certified to the extent available and airmail if overseas), or sent by telecopy, to the party to receive the notice at the address set forth at the beginning of this Agreement or such other address as either party may specify in writing. All such notices shall be effective upon receipt. 13.7 Force Majeure. Each party shall be excused to the extent its performance is prevented or delayed by fire, flood, earthquake, supplier delay, or other cause beyond its reasonable control. 15 16 13.8 Severability. If any provision of this Agreement is held to be unenforceable for any reason, such provision shall be reformed only to the extent necessary to make it enforceable, and such provision shall not affect the enforceability: (i) of such provision under other circumstances; or (ii) the remaining provisions hereof under all circumstances. 13.9 Headings. Headings shall not be considered in interpreting this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement by their authorized representatives. MicroStrategy Corporation: net.Genesis Corporation: Sanin Bansal Larry Bohn Name:______________________________ Name:______________________________ COO CEO Title:_____________________________ Title:_____________________________ /s/Sanin Bansal /s/Larry Bohn Signature:_________________________ Signature:_________________________ 6 Oct 99 5 Oct 99 Date:______________________________ Date:______________________________ 16 17 EXHIBIT A ROYALTY SCHEDULE (MORE THAN [*] NAMED USERS) INTEGRATED PRODUCT
TOTAL USERS "PAID" USERS TOTAL COST COST PER "PAID" SEAT - -------------------------------------------------------------------------------- [ * ]
Note: "Paid" users refers to the number of users over the [*] users that are included in the [*] royalty. * Confidential treatment requested pursuant to Rule 406. 17 18 EXHIBIT B DRAFT - NOT FOR SIGNATURE NET.GENESIS SOFTWARE LICENSE AGREEMENT THIS IS A LEGAL AGREEMENT ("AGREEMENT") BETWEEN YOU AND NET.GENESIS CORPORATION ("NET.GENESIS"). 1. DEFINITIONS A. "Confidential Information" shall mean the Products, Product information, trade secrets and technical information disclosed in relation to this Agreement, the terms and pricing under this Agreement and all information clearly identified as confidential. B. "Product" shall mean a computer software program belonging to net.Genesis's net.Analysis(TM) software family that is identified on your invoice, for which you are granted a license pursuant to this Agreement ("Software"); the user guides and manuals associated with the Software ("Documentation"); and any and all Updates to, or patches and fixes for, the Software and Documentation. The term "Product" shall not include any code that has been modified or developed by you. C. "Technical Support Services" shall mean the maintenance and support provided by net.Genesis in accordance with net.Genesis's then-current technical support policies and procedures for the applicable Product(s). D. "Update" shall mean any subsequent release of Software and/or Documentation that is made generally available to licensees subscribing to Technical Support Services at no additional charge other than media and handling charges. Updates shall not include any release, option or future product that net.Genesis licenses separately. E. "Territory" shall mean all countries of the world, subject however to all applicable U.S. export restrictions. 2. LICENSE A. net.Genesis grants to you a non-exclusive and non-transferable license to use the Software in object code form only for your own internal data processing and analysis operations, and to use the Documentation in support of such use of the Software in the Territory, subject to the terms and conditions of this Agreement. Your use of the Software is limited to the number of single or multiple CPU systems ("Managed Server Boxes") and number of users that are specified on your invoice. In addition to the Software specified on your invoice, and at no additional cost, net.Genesis grants to you a runtime license to use the net.Analysis Software Development Kit ("net.Analysis SDK") solely for the purpose of using the Product(s) or installing and using bug fixes and product enhancements from net.Genesis or its certified partners. B. net.Genesis grants to you a non-exclusive, non-transferable license to make object code copies of the Software for archival, disaster recovery and routine backup as is reasonably necessary. You may make a reasonable number of copies of the Documentation, or parts thereof, for internal use at your place of business. All titles, trademarks, copyright and restricted rights notices shall be reproduced in all Product copies. All copies of the Products are subject to the terms of this Agreement. C. net.Genesis shall retain all title, copyright and other proprietary rights in the Software and Documentation. You shall not acquire any rights, express or implied, in the Products, other than those specified in this Agreement. 3. AUDIT net.Genesis shall have the right, at its expense, to conduct an audit to verify that you are using the Products to process and analyze data generated by the number of servers specified on your invoice, and that the Products are being used by the number of users specified on your invoice. Any such audit shall be conducted during regular business hours and shall not unreasonably interfere with your business activities. If an audit reveals that you have distributed or allowed use of the Products in excess 18 19 of the use permitted by this Agreement, you shall pay net.Genesis for such unauthorized use based on the net.Genesis price list in effect at the time the audit is completed. If the underpaid fees exceed five percent (5%) of the license fees paid, then you shall pay net.Genesis's reasonable costs of conducting the audit. net.Genesis shall conduct audits not more than once per year; provided however that if the underpaid fees exceed five percent (5%) of the license fees paid then net.Genesis shall be entitled to conduct a second audit within the same year. 4. UNAUTHORIZED USE You may not: (i) market, license, distribute, transfer, sublicense or otherwise commercially exploit the Software or Documentation; (ii) permit the use of the Software or Documentation by others or otherwise operate the Software for third parties (e.g., as a service bureau or data processing service); (iii) modify the Software or translate or port the Software or Documentation into any other computer or human language without the prior written consent of net.Genesis; (iv) disassemble, reverse engineer or decompile the Software or cause or permit reverse engineering, disassembly or decompilation of the Software, except to the extent that applicable law expressly allows such actions; (v) publish or provide the results of any benchmark or comparison tests run on the Software to any third party, without the prior written consent of net.Genesis; or (vi) sell, lend, rent, give, assign or otherwise transfer or dispose of the Software or the Documentation. 5. LIMITED WARRANTIES AND DISCLAIMERS A. Software Warranty. net.Genesis warrants, for a period of ninety (90) days from the date the Software is delivered or, if the Software is installed by net.Genesis, from the date the Software is installed (the "Warranty Period") that the Software, if operated as directed, will substantially achieve the functionality described in the Documentation. net.Genesis also warrants that the unmodified Software will not produce errors processing date data in connection with the year change from December 31, 1999 to January 1, 2000 when used in accordance with the instructions, recommendations, and exceptions set forth in the Documentation, provided all other products (e.g., other software, firmware, and hardware) used with the Software properly exchange date data with the Software. Notwithstanding the foregoing, net.Genesis makes no warranty with respect to failures that are caused directly by the underlying hardware and operating system software on which the Software is used if such underlying hardware and operating system has not been approved by net.Genesis for use with the Software. B. Media Warranty. net.Genesis warrants that the media containing the Software, if provided by net.Genesis, is free from defects in material and workmanship under normal use for thirty (30) days from the date of your invoice. C. Conditions to Limited Warranties. The limited warranties in this Section 5 are conditioned upon your use of the Software in accordance with the instructions provided in the Documentation. The limited warranties set forth in this Section 5 shall not apply to the extent that an error occurs because of and would not have occurred but for: (i) modifications made to the Software by a party other than net.Genesis; (ii) your failure to implement enhancements provided to you by net.Genesis; or (iii) your use of the Software in connection with any computer equipment or devices not meeting the minimum requirements set forth in the Documentation. D. Disclaimers. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NET.GENESIS AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH REGARD TO THE SOFTWARE AND DOCUMENTATION. net.Genesis does not warrant that the Software will meet your requirements or operate with all equipment and software configurations. Furthermore, you acknowledge that due to the complex nature of computer software, however, it is impossible to ensure that the Software is completely error free, will operate without interruption or that all Software errors will be corrected. To the extent you obtain any pre-production releases of the Software, such Software is distributed "as is" with no warranty of any kind. E. Exclusive Remedies. For breach of any of the warranties contained in this Section 5, your exclusive remedy, and net.Genesis's entire liability, shall be: (i) to replace defective media returned within thirty (30) days of the date of your invoice; or (ii) at net.Genesis's sole discretion, to correct Software errors that cause breach of the warranty, to replace the Software, or to advise you how to achieve substantially the same functionality described in the Documentation. 19 20 6. LIMITATION OF LIABILITY TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT WILL NET.GENESIS OR ITS SUPPLIERS BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR ANY OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OR INABILITY TO USE THIS SOFTWARE, EVEN IF NET.GENESIS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NET.GENESIS'S LIABILITY FOR DAMAGES HEREUNDER SHALL IN NO EVENT EXCEED THE AMOUNT OF LICENSE FEES PAID BY YOU UNDER THIS AGREEMENT. 7. INTELLECTUAL PROPERTY RIGHTS AND CONFIDENTIALITY A. You acknowledge that the Software, including methods, processes or techniques utilized therein, are proprietary to and valuable trade secrets of net.Genesis and are protected by United States copyright law and international treaties. You shall take no actions that impair or infringe net.Genesis's intellectual property rights. You agree not to use, copy, modify, transfer, download, merge, make any translation or derivative work or otherwise deal with the Software except as expressly provided in this Agreement. In no event shall you cause or permit the disassembly, reverse compilation or other decoding of any Software. You agree not to remove or destroy any copyright notices, other proprietary markings or confidentiality legends placed upon or contained within the Software. B. During the term of this Agreement, each party may have access to the other party's Confidential Information. "Confidential Information" includes, without limitation, information pertaining to the parties' respective businesses and includes, without limitation, methods, plans, customers and/or projects and financial information. A party's Confidential Information shall not include information that: (i) is or becomes a part of the public domain through no act or omission of the other party; (ii) was in the other party's lawful possession prior to the disclosure and had not been obtained by the other party either directly or indirectly from the disclosing party; (iii) is lawfully disclosed to the other party by a third party without restriction on disclosure; or (iv) is independently developed by the other party. C. The parties agree to hold each other's Confidential Information in confidence during the term of this Agreement and for a period of two (2) years after termination of this Agreement. The parties agree that, unless required by law, they shall not make each other's Confidential Information available in any form to any third party or to use each other's Confidential Information for any purpose other than the implementation of this Agreement. Each party agrees to take all reasonable steps to ensure that Confidential Information is not disclosed or distributed by its employees or agents in violation of the terms of this Agreement. Furthermore, you agree not to use any Confidential Information of net.Genesis to create any computer software program or user documentation that is substantially similar to any net.Genesis product. 8. TECHNICAL SUPPORT SERVICES net.Genesis provides Technical Support Services (including product maintenance and upgrades) only through separate Support Agreements. Please contact net.Genesis if you want to obtain support through the execution of such agreement. 9. TERM AND TERMINATION A. Term. This Agreement shall remain in effect until terminated in accordance with this Section 9. If not terminated as provided herein, the license granted under this Agreement shall remain in effect perpetually. B. Termination by net.Genesis. net.Genesis may terminate this Agreement or any license upon written notice if you have materially breached the terms and conditions of this Agreement and fail to correct the breach within thirty (30) days following written notice informing you of the breach. C. Termination by You. You may terminate any license or this Agreement at any time; termination shall not, however, relieve you of the obligations specified in Sections 9.D and 9.E below. 20 21 D. Effect of Termination. Termination of this Agreement or any license shall not prevent either party from pursuing other remedies available to it, including injunctive relief, nor shall such termination relieve your obligation to pay all fees that have accrued or are otherwise owed by you under this Agreement. E. Handling of Products upon Termination. If the license granted under this Agreement expires or otherwise terminates, you shall: (a) cease using the applicable Products, and (b) certify to net.Genesis within thirty (30) days after expiration or termination that you have destroyed or have returned to net.Genesis the Products and all copies thereof and any Confidential Information in your possession or control; provided, however, that in the event that only certain licenses granted under this Agreement expire or are terminated, you may retain any Confidential Information that relates to the licenses you continues to hold. This requirement applies to copies in all forms, partial and complete, in all types of media and computer memory, and whether or not modified or merged into other materials. 10. INVOICING AND PAYMENT All fees shall be calculated based upon net.Genesis's prices in effect at the time of any quote or order, as applicable. All fees shall be payable thirty (30) days from the date of invoice, and shall be deemed overdue if they remain unpaid thereafter. Any amounts payable by you hereunder which remain unpaid after the due date shall be subject to a late charge equal to one and one-half percent (1.5%) per month or the highest rate allowable by law, whichever is lower, from the due date until such amount is paid. You agree to pay applicable shipping and handling charges. If your procedures require you to issue a purchase order, all purchase orders or ordering documents shall be governed by the terms of this Agreement. In no event shall the terms of any purchase order you issue to net.Genesis be given any force or effect. 11. GENERAL A. Governing Law. This Agreement is governed by the laws of the Commonwealth of Massachusetts, excluding the application of its conflict of laws provisions. The federal and state courts of Massachusetts shall have exclusive jurisdiction over any dispute between the parties arising under this Agreement. B. Notice. All notices, including notices of address change, required to be sent under this Agreement shall be in writing and shall be deemed to have been given when mailed by first class mail. Notices to you will be sent to the address listed in your invoice or the address stated in any applicable notice of change of address. Notices to net.Genesis will be sent to net.Genesis Corporation, 150 CambridgePark Drive, Cambridge, MA 02140 or the address stated in any applicable notice of change of address. C. Waiver. To be enforceable, any waiver of this Agreement or any provision thereof must be in writing and signed by the waiving party. Should either party waive or excuse a breach by the other party, such waiver shall not constitute a consent to, waiver of, or excuse of any different or subsequent breach, whether or not of the same kind as the original breach. D. Severability. If for any reason a court if competent jurisdiction finds any provision or portion of this Agreement to be unenforceable, that provision will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. E. Export Restrictions. The Software may be subject to the export controls of the United States Departments of State and Commerce and you agree to comply fully with all applicable U.S. regulations governing the export, destination, ultimate end user and other restrictions relating to the Software. F. U.S. Government Restricted Rights. Software acquired with United States Federal Government funds or intended for use within or for any United States federal agency are provided with "LIMITED RIGHTS" and "RESTRICTED RIGHTS" as defined in DFARS 252.227-7013 and/or FAR 52.227-19. Contractor/Manufacturer is net.Genesis Corporation, 150 CambridgePark Drive, Cambridge, MA 02140. G. Relationship between the Parties. net.Genesis is an independent contractor. Nothing in this Agreement shall be construed to create a partnership, joint venture or agency relationship between the parties. 21 22 H. Force Majeure. Neither party will be responsible for failure of performance, other than for an obligation to pay money, due to causes beyond its control, including, without limitation, acts of God or nature; labor disputes; sovereign acts of any federal, state or foreign governments; or shortage of materials. I. Entire Agreement. This Agreement constitutes the entire understanding between you and net.Genesis and supersedes any prior written or oral Agreement concerning the Software. It shall not be modified except by written agreement dated subsequent to the date of this Agreement and signed by authorized representatives of each party hereto. Neither party is bound by any provision of any purchase order, receipt, acceptance, confirmation, correspondence, or otherwise, unless the parties specifically agree to the provision in writing. THE UNDERSIGNED AGREES TO THE FOREGOING TERMS AND CONDITIONS: Signed:______________________________________ Printed Name:________________________________ Title:_______________________________________ Company:_____________________________________ Address:_____________________________________ _____________________________________ _____________________________________ 22 23 EXHIBIT C MICROSTRATEGY PRODUCT AND DEVELOPMENT SUPPORT TO NETGEN [*] MICROSTRATEGY DEVELOPMENT SUPPORT TO NETGEN: For the first release of the MicroStrategy Product, Netgen will have high-priority developer level support. Development support shall include, without limitation, access to MicroStrategy's knowledge base and resources such as test suites and performance criteria; as well as a designated contact person to assist the Netgen development team during the course of Netgen's integration work * Confidential treatment requested pursuant to Rule 406 23 24 EXHIBIT D NETGEN PRODUCTS The Netgen Products include, but are not limited to, the following components of net.Analysis(TM): - - net.Instrument - - net.Stream - - net.Reporter - - net.Dashboard - - ReportSite - - HTML Reporter - - Administrator Console - - CartSmarts 24 25 EXHIBIT E INTEGRATED PRODUCT DESCRIPTION The Integrated Product is composed of any of the following MicroStrategy components in whole or in part (the "MicroStrategy Products"), including, but not limited to: - - [*] The Integrated Product is composed of any of the following Netgen components in whole or in part (the "Netgen Products"), including, but not limited to: - - net.Analysis(TM) - net.Instrument - net.Stream - net.Reporter - net.Dashboard - ReportSite - Administrator Console - HTML Reporter - CartSmarts The MicroStrategy Products, as embedded within the Netgen products, are reporting tools for Netgen's data collection technology. The integration shall be complete and seamless so that there are pre-defined filters, templates and reports. End users will not be able to readily use the MicroStrategy Products without the Netgen Products. * Confidential treatment requested pursuant to Rule 406 25 26 EXHIBIT F DEMONSTRATION AND EVALUATION LICENSES MicroStrategy shall provide Netgen with one (1) copy of each MicroStrategy Product for use under its demonstration license, and Netgen shall be entitled to make copies of the MicroStrategy Products as reasonable necessary to exercise its rights under its demonstration license. MicroStrategy shall waive the license fees for Netgen's demonstration license. MicroStrategy shall provide Netgen with one (1) copy of each MicroStrategy Product for use under its evaluation license, and Netgen shall be entitled to make copies of the MicroStrategy Products as reasonable necessary to exercise its rights under its evaluation license. MicroStrategy shall waive the license fees for Netgen's evaluation license. 26 27 EXHIBIT G MICROSTRATEGY MAINTENANCE AND SUPPORT MicroStrategy provides maintenance and support, and product updates. The primary purpose of the MicroStrategy Standard Technical Support is to answer questions with regard to the operation of the MicroStrategy software and troubleshoot issues that may arise. Support services includes providing telephone help desk support to a key contact between the hours of 9:00 am and 7:00 PM Monday through Friday, excluding major US holidays. In addition to telephone support, Technical Support includes e-mail support and access to MicroStrategy's proprietary Knowledgebase. Support services do not include services which, in the usual course of MicroStrategy's business, are provided to partners as consulting services. Such consulting services include, but are not limited to, custom application development, data warehouse design, requirements analysis, and database design. MicroStrategy licensees are also entitled to product updates, service packs and generally available upgrades for any software covered by Technical Support. 27 EX-23.1 22 CONSENT OF PRICEWATERHOUSECOOPER LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated July 16, 1999, except as to the information in Note 13, for which the date is December 20, 1999, relating to the financial statements of net.Genesis Corp., which appear in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts December 21, 1999 EX-27.1 23 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 253,333 962,291 215,234 101,600 0 1,363,759 531,612 253,275 1,642,096 498,232 0 5,855,780 1,716,857 739 (6,429,512) 1,642,096 844,983 1,008,704 90,924 639,791 3,419,447 3,992 17,962 (3,110,313) 0 (3,110,313) 0 0 0 (3,110,313) (6.08) (6.08)
EX-27.2 24 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 2,260,820 0 850,117 143,800 0 3,069,007 1,307,167 510,014 3,866,160 1,381,200 0 13,566,336 1,716,857 2,006 (12,800,239) 3,866,160 936,796 1,568,092 231,843 992,711 6,458,940 42,215 10,754 (5,772,836) 0 (5,772,836) 0 0 0 (5,772,836) (8.11) (8.11)
EX-27.3 25 FINANCIAL DATA SCHEDULE
5 1 US DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 15,936,471 542,069 2,035,785 180,000 0 18,804,825 3,275,417 932,507 21,150,145 4,018,179 2,173,351 35,963,834 1,716,857 4,265 (22,726,341) 21,150,145 2,271,709 3,873,962 99,037 1,939,896 11,412,853 78,405 357,768 (9,585,495) 0 (9,585,495) 0 0 0 (9,585,495) (7.11) (7.11)
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